Tencent may very well be hit with $1.5bn tremendous and compelled to promote two music apps in China (report)

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Tencent and its majority-owned subsidiary Tencent Music Entertainment (TME) face a possible crackdown on China following an antitrust crackdown by the country’s regulators.

Tencent was investigated by anti-competitive watchdogs in China a few years ago for having entered into exclusive licensing agreements with the area’s three major record companies.

Tencent Music’s previous contracts with Universal Music, Sony Music and Warner Music allowed TME – the owner of China’s largest music streaming services – to license the majors’ music for its own platforms, but also to sublicense these catalogs exclusively to local competitors.

However, Tencent’s anti-competitive investigation was halted after the company agreed to enter into variously structured music deals.

In TME’s most recent licensing agreements with Universal and Warner, announced in the last eight months, Tencent no longer has exclusive sub-licensing rights, so these companies can also enter into separate direct deals with TME rival NetEase Cloud Music.

However, according to a new report from Reuters, Tencent Music’s concession didn’t go far enough to please regulators.

It is reported that China’s State Administration of Market Regulation (SAMR) will be “an example” for Tencent and that the company should expect to be fined at least 10 billion yuan ($ 1.54 billion).

Tencent is being raked over the coals over “anti-competitive practices in some of its companies,” a Reuters source says, “with a particular focus on streaming music.”

This is partly because Tencent Music has continued to enter into exclusive rights agreements with a few individual artists, including Chinese pop superstar Jay Chou, despite the waiver of exclusive sublicensing rights with the big labels.

According to Reuters sources, Tencent will now be forced by SAMR to give up those rights and, in an unprecedented move, may also be forced to sell two of its music apps, Kugou and Kuwo, to competitors.

Tencent Music’s main competitor in China is NetEase Cloud Music, which has loudly complained about TME’s previous exclusive sublicense agreement with the majors.

TME’s other major competitor, Alibaba’s Xiami Music, closed in February. (Alibaba became an investor in NetEase Cloud Music in 2019.)

In addition to Kugou and Kuwo, Tencent Music operates music apps in China, including the flagship music platform QQ Music and the online karaoke service WeSing.

Tencent Music was listed on the New York Stock Exchange under the symbol TME in late 2018. Tencent Music currently has a market capitalization of $ 31.8 billion.

A Tencent-led consortium – including Tencent Music – acquired 20% of Universal Music Group last year.

Tencent and / or Tencent Music also has minority interests of various sizes in music companies such as Warner Music Group, Spotify, A&R App Instrumental and Gaana in India.

As part of its recent agreements with major record companies, TME is launching new JV record labels with both Universal Music Group and Warner Music Group in China.

It already operates a JV label, Liquid State, with Sony Music, which is headquartered in Hong Kong.

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