Caixin
Apr 01, 2020 07:46 PM
BUSINESS & TECH

Tencent, NetEase Tie Up With Universal Music, Rock Records

Tencent held the rights for songs representing 70% of China’s global music sales in 2018. Photo: IC Photo
Tencent held the rights for songs representing 70% of China’s global music sales in 2018. Photo: IC Photo

The music arms of internet giants Tencent Holding Ltd. and NetEase Inc. have separately announced major new tie-ups with recording labels, underscoring the intense competition for content in China’s online music market.

In the larger of the deals, Tencent announced its signing of an agreement to buy 10% of Universal Music Group from France’s Vivendi SE. The deal values Universal Music at 3 billion euros ($3.3 billion), meaning the stake purchased by the Tencent-led group, which includes its New York-listed Tencent Music Entertainment Group, should be worth about $330 million.

The consortium also has the right to purchase up to an additional 10% of Universal Music at the same price through Jan. 15 of next year. The deal, first announced at the end of last year, also gave Tencent Music the right to buy a minority stake in Universal Music’s Greater China business within two years. It must still receive regulatory approval, and the deal is expected to close by the end of June.

Tencent Music said the deal would help consolidate its place as China’s top music services provider by tapping Universal Music’s huge library, which comes from its presence in more than 60 countries and regions worldwide.

“Competition at the content level is in the relatively early stages,” a source close to Tencent Music told Caixin. “Subsequent competition will no longer be based on content competition at the copyright level, but will focus on how to deepen cooperation with content providers to release more value from the content itself.”

The other deal saw NetEase Cloud Music announce a strategic partnership with Taiwan’s Rock Records Co. Ltd., which will see the pair work together on musical rights, talent cultivation and development of musical projects. The tie-up extends a relationship dating back to 2018 and is non-exclusive. Founded in 1980, the Taiwan label represents famous acts such as the group May Day, and already has licensing agreements with Tencent Music and e-commerce giant Alibaba’s Xiami Music unit.

Tencent Music is China’s clear online music leader, and its practices have raised the hackles of NetEase and others, which accuse it of monopolistic behavior. Tencent’s QQ Music had 325 million active users in February, ahead of No. 2 player KuGou at 272 million and No. 3 Kuwo at 118 million, according to third-party information provider iiMedia. NetEase was fourth with 79.8 million, while Xiami had a modest 27.5 million.

As the original licenser for the China market with many major music labels, Tencent held the rights for songs representing 70% of global music sales in 2018, and re-licensed them to other services inside China. That position of power was a major factor behind the anti-trust complaints that reportedly led the Chinese market regulator to open a probe into the company.

But the State Administration of Market Regulation reportedly told Tencent in late January that it was suspending the probe, though it didn’t say why, Bloomberg reported in February, citing people familiar with the matter. The suspension came around the same time Tencent Music signed a licensing deal with ByteDance, the up-and-coming online media company whose services include the wildly popular Douyin online video app, known outside China as TikTok.

Tencent Music’s original licensing agreements with three of the world’s top labels will expire this year. As that happens, its CEO previously said the company is considering gradually reducing its business of acting as an original licensor for China, which requires the company to pay large fees up front.

Contact reporter Yang Ge (geyang@caixin.com; twitter: @youngchinabiz)

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