Chinese gaming giant NetEase is planning to spin off its music streaming service NetEase Cloud Music in an initial public offering (IPO) in Hong Kong, which could see the company raise $1bn. The announcement follows the company’s recent deal with Sony Music Entertainment which challenges Tencent’s dominant position in China’s music streaming market.

Wednesday saw the Hangzhou-based company submit a listing application for Cloud Village, the NetEase spinoff that operates the NetEase Cloud Music streaming app, to the Hong Kong stock exchange (HKEX).

The filing states that the size and details about the share sale of the IPO have not yet been finalised, but Bloomberg reports that the IPO could raise approximately $1bn. China International Capital, Credit Suisse and Bank of America are listed as the deal’s sponsors.

Last week, the company struck a deal with Sony Music Entertainment, allowing the streaming platform to license music directly from the international music conglomerate. This came as a blow to Tencent Holdings, the music streaming market dominator who previously held exclusive deals with the three major international music producers – Universal Music, Sony Music and Warner Music.

NetEase has long been a distant runner-up to Tencent in both the gaming and music streaming industries. Founded in 1997, the company quickly gained popularity in China’s gaming industry. The music wing was set up in 2013 and has since expanded its products to offer everything from online karaoke to live-streaming and lyrics sharing.

According to GlobalData’s company database, NetEase’s revenue grew by $24.49 year-over-year to $10,676m in 2020. The company is publicly traded on the Nasdaq.

Tencent meanwhile has been grappling with a pushback coming from Beijing. In March, Chinese officials slapped the company with a $77,000 antitrust fine for its investment in edtech company Yuanfudao.

Tencent may also expect a much heftier fine later this year as part of the ongoing antitrust crackdown. A Reuters report shows that an investigation focussing on the company’s music wing could force it to give up certain exclusive music rights.

The spinoff is not yet finalised as it still needs approval from, among others, the Listing Committee of the HKEX and the board of directors of Cloud Village.

The latest statement says that the proposed spinoff would be beneficial for both NetEase and Cloud Village, as it would give the latter a better position to act independently.