Tencent ordered to end exclusive deals with recorded music suppliers

By Emmanuel Legrand

China's State Administration for Market Regulation (SAMR) has confirmed earlier reports from Reuters that it has ordered leading music streamer Tencent Holdings to give up exclusive music streaming rights within 30 days and pay a fine of half a million yuan ($77,145).

  Tencent has been given ten days to provide a comprehensive plan about the way it intends to comply with SAMR's requirements. The company was also asked to outline how it will ensure that the changes will be enforced for the next three years. Tencent said it intends to “faithfully” comply with the requirements.

  SAMR had been investigating Tencent’s acquisition of China Music Corp. in 2016, a move which would lead to the creation of Tencent Music Entertainment Group, and combine Tencent's streaming service QQ Music with China Music Corp.

A significant lead

   Tencent Music has been securing exclusive licensing rights from recorded music sources, including from the three majors – Universal Music Group, Sony Music Entertainment and Warner Music Group–, and would then sub-license the content to other platforms, including those operated by NetEase, and Alibaba's Xiaomi, which has since ceased to operate. Since then, the majors have ended the exclusive deals and have contracted directly with platforms like NetEase.

  South China Morning Post surmised in a news report that "while the end of exclusive licenses is considered a boon for the entire music-streaming market in China, analysts do not expect a shake-up in the sector because Tencent’s apps have already built a significant lead through the years." 

  In addition to QQ Music, Tencent also operates streaming services Kugou Music and Kuwo Music. Overall, Tencent streaming platforms attract a combined 662 million monthly active users.

The strength of Tencent's social networks

  “Aside from high switching costs in music streaming, TME is also backed by the breadth and strength of Tencent’s social networking reach to power its experiences business, which is difficult to replicate, and represents a substantial part of TME’s revenue,” said Matthew Kanterman, an analyst at Bloomberg Intelligence, quoted by the South China Morning Post.

  The action against Tencent is part of a coordinated plan by Chinese authorities to put the country's tech giants under scrutiny. This has translated in a record fine of $2.8 billion last April against vending site Alibaba Group Holding for antitrust violations. 

  "Beijing has sought to curtail the growing influence of China’s powerful internet corporations over every aspect of Chinese life from online shopping to chatting and ride-hailing," wrote The Japan Times.