Tencent Music, Spotify to Swap Minority Stakes

Social networking giant Tencent Holdings Ltd. will buy a minority stake in Spotify, one of the world's top music streaming platforms, extending its string of major overseas investments in companies with strategic technologies.

Tencent will make the investment both directly and through its music arm, Tencent Music Entertainment Group, the two companies announced on Friday. Sweden-based Spotify will also buy new shares representing an unspecified minority interest in Tencent Music.

The size of the stakes and value of the investments were not disclosed. Last week the Wall Street Journal reported Tencent Music and Spotify were in talks to each buy up to 10% in the other, ahead of potential IPOs for both next year. The swap could give Spotify a market value of about $10 billion, according to the Journal report.

“We are excited to embark on this partnership with the largest music streaming platform in the world,” said Tencent Music CEO Cussion Pang. “Tencent Music and Spotify will work together to explore collaboration opportunities, with a common objective to foster a vibrant music ecosystem that benefits users, artists and content owners.”

The tie-up is the latest in a recent string of major overseas investments for Tencent, China’s leading social networking and online game company. The Chinese company – now one of the world’s 10 largest publicly listed firms –purchased stakes in U.S. new energy car giant Tesla Inc. and U.K.-based video-game developer Frontier Developments PLC this year. Last year it also led a group buying a majority stake in Finnish mobile game giant Supercell.

As two of the world’s largest online music services platforms, Tencent Music and Spotify have invested large sums to buy authorized digital music from major labels including Universal Music Group, Warner Music Group and Sony Music Entertainment. But many in the industry are watching closely to see if they can make profits.

Some reports have indicated that Spotify’s value could reach $20 billion by the time of its expected IPO next year. The company has around 70 million subscribers and 100 million non-paying users, according to a report from British advisory firm GP Bullhound Technology Predictions. Tencent Music has about 600 million monthly active users, including more than 15 million subscribers.

Contact reporter Lin Jinbing (jinbinglin@caixin.com)