1. News
September 1, 2021

Tencent faces the music: Ends exclusive deals with labels

By Elles Houweling

The music arm of Chinese tech giant Tencent has terminated all exclusive licensing deals with major music labels to comply with a recent government mandate. Industry rivals such as Kuaishou and NetEase welcomed the news.

On Tuesday, Tencent Music Entertainment (TME) posted an announcement on its official WeChat account, saying it has notified all upstream copyright holders that their contracts were no longer valid. Following the termination of their exclusive contracts, these record labels are now free to license music to other streaming platforms.

Tencent Music will still be able to work with partners on non-exclusive deals.

Last month, the State Administration for Market Regulation (SAMR) ordered the Shenzhen-based company to terminate all exclusive agreements for copyrighted music within 30 days.

Subsequently, the SAMR imposed a fine of 500,000 yuan ($77,360), the maximum amount for this type of anticompetitive behaviour. The market watchdog pointed out that Tencent’s music arm owns over 80% of music library resources in China, giving the company the power to block new entrants, which creates an unfair business environment.

The SAMR’s decision is part of an ongoing crackdown from Chinese regulators on monopolistic behaviour. Earlier this year, the market regulator blocked Tencent’s attempt to merge China’s top two video game streaming sites, Huya and DouYu, which would have given the tech giant a market share of 70% in the video game live streaming industry.

Kuaishou, China’s second-largest short-video platform and TikTok’s main rival had recently struck a licensing deal with Warner Music Group, which will give the platform access to the label’s artists on Kuaishou’s overseas products such as Kwai and SnackVideo.

The short-video platform has been rapidly expanding overseas with a variety of products. Chinese media outlet LatePost reported that the company had earmarked $1bn for user acquisition beyond China.

Following the SAMR’s announcement, the CEO of NetEase, a significant competitor of TME, said his company is “very thankful to the regulators” and looking forward to more antitrust regulations that will curb abnormalities in the market.

“This is a very positive signal for the industry,” NetEase CEO William Ding said, adding that the regulations were long-awaited by users and enterprises.

Some investors believe that the antitrust case against Tencent could revive the IPO process of NetEase’s music arm, Cloud Village, in Hong Kong. Earlier this month, Cloud Village’s IPO application was suspended for undisclosed reasons.

Tencent Music is the product of a digital music business merger between China Music Group and QQ Music under Tencent in 2016. Although the anti-monopoly punishment can be considered a setback for Tencent Music, it has not affected the enthusiasm of investment institutions. According to the financial analysis website Marketbeat.com, more than 40 international investment institutions have put more money into shares of Tencent Music since August.

On August 17, Tencent Music announced its financial report for the second quarter of 2021. According to GlobalData’s analysis, its total revenue was 8.01bn yuan ($1.24bn), a year-over-year (YoY) increase of 15.5%. Online music services revenue grew by 32.8% YoY). Revenues from

The net profit attributable to shareholders of the company was 827m yuan ($128m), down 12% YoY. In the second quarter, online music paying users reached 66.2 million, a YoY increase of 40.6%. However, the number of monthly active users was 623 million, down 4.3% from last year.