Media & Gaming

Full stream ahead

A stake in Universal Music means more muscle for Tencent’s music apps


Ariana Grande: part of the deal

New Year’s Eve is typically a time for fireworks and musical celebration. But for Tencent executives, the end of 2019 was the moment to close a deal that saw it grab a piece of one of the world’s largest music labels.

Despite rumblings about an antitrust investigation (see WiC468), a consortium led by Tencent Music Entertainment (TME) confirmed on December 31 that it was buying 10% of Universal Music Group, a subsidiary of Vivendi, a French company, for $3.4 billion.

In addition to Tencent, the consortium buying the stake is said to include Singaporean sovereign wealth fund GIC and Hillhouse Capital Group, one of China’s largest private equity firms. Tencent also has the option to double its stake – at the same price – in Universal to 20% before next January. Vivendi has hinted that it might sell even more of the music label to the Chinese internet giant in future.

TME, which operates a number of different music apps in China, will be getting access to the catalogues of global stars like Ariana Grande, Drake and Billie Eilish for its streaming services.“Once the acquisition is complete, TME will have a strong foothold in one of the world’s largest record companies. It will definitely strengthen its negotiating power in the purchase of European and American music singles and albums,” reckoned East Money.

TME went public in 2018 with the largest content library in China and it is already profitable. In the third quarter of last year, the platform recorded sales of Rmb6.5 billion ($935.3 million), up 31% year-on-year, with an operating profit of Rmb1.2 billion.

“Compared with other music streaming services like NetEase Music and Xiami Music [owned by Alibaba], Tencent’s financial ability to acquire copyrights is far beyond the reach of its rivals,” reckoned Sina Finance, a portal. “Currently, TME has China’s most comprehensive audio and video music library, including more than 20 million songs from over 200 domestic and international artists. Although Tencent paid a high cost for these resources, the strategy has borne fruit.”

Changes in taste among consumers is forcing the music-streaming brands to reassess their offerings. TME rival NetEase Music also notes that listeners are becoming more sophisticated, demanding more than the standard fare from their streaming service. “The music industry has become increasingly segmented. In the past, people only listened to Cantopop but young people today want K-pop, Japanese music and of course, European and American artists. So this is the reason why we need to grow very fast,” Zhu Yiwen, its chief executive, told 21CN Business Herald.

To target Gen Z and millennial audiences, TME announced a separate partnership this week with the video-sharing platform Bilibili, which is partially owned by the internet giant. Under the new arrangements, Bilibili and Tencent’s QQ Music will cross-promote musicians and their songs. The two companies will also work together to create new content like live online events, remixes of popular songs and co-productions of new albums.

Tencent now owns four music streaming services in China (NetEase is TME’s closest competitor with 800 million users; see WiC468). But it will soon have to compete against its archrival Bytedance, best-known for TikTok, a trendy social-media app (see this week’s “Internet and Tech” section). Bytedance has also been testing a new music app in India and Indonesia called Resso.

All of this sounds like good news for the leading music labels. “That rush of new entrants will bring new customers, helping the market grow. It will also boost the firms, like Universal, that control the music that streaming firms must licence. Universal’s revenue grew by 24% last year. Tencent’s purchase therefore looks like an attempt to profit from both sides of the game,” The Economist predicted.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.