News June 1, 2020

After Universal & Spotify, why is China’s Tencent now eying Warner?

After Universal & Spotify, why is China’s Tencent now eying Warner?

Last September, Rolling Stone wondered whether Tencent’s hunger to win the music business would stop at just Universal Music and Spotify. The answer now comes via the Wall Street Journal.

The masthead revealed on Friday that the Chinese company is in talks to buy a piece of Warner Music Group before its upcoming IPO set for early this week.

Shenzhen-based Tencent is talking a US$200m investment.

According to the WSJ, Tencent is one of the “anchor” investors Warner hopes will help it raise over $1 billion in guaranteed share sales to the targeted $1.8 billion.

The offering is expected to value Warner Music at between $11.7 billion to $13.3 billion and would further reinforce Tencent’s growing presence in the music industry.

“It swapped stakes with Spotify in 2017 ahead of the music-streaming giant’s listing, while Vivendi SA sold a 10% stake in Universal Music Group to Tencent for $3.36 billion late last year, valuing the world’s largest music company at more than $33 billion,” wrote Corrie Driebusch and Anne Steele.

Tencent made its mark by not only becoming the largest streaming and social networks in China, but combining them as a paramount experience with celebrity access and reality-TV content.

In 2014, when it struck a licensing deal with Warner to legitimate audio services in China, it had the power to head Warner Music content to its microblogging platform QQ.

QQ offered a music-sharing strategy similar to Twitter’s, and the additional clout of consumers engaging in conversation and sharing of Warner Music’s latest releases.

But Tencent has moved on from merely sub-licensing western music into the fast-growing Chinese music market. It now wants to tap into the vast potential of the territory.

It has a massive online user base – but one which still represents only 57% of the country’s population – and which is increasingly moving away from pirated content.

In January, Beijing unveiled plans to become an international music capital in five years.

Now Tencent’s strategy is to own a share of every major western major label operating in China, and further take the battle to the west.

The major labels are keen to work with Tencent because it gives their artists preferential treatment across its four streaming services, with 800 million monthly active users.

Taylor Swift’s Lover, for instance, sold 1 million equivalent sales in that market in its first week.

The Warner investment is, as with Universal Music and Spotify, small enough not to arouse the interest of anti-interest regulators would could take issue with a larger shareholding.

Tencent, as a conglomerate, has deep pockets. Last month it announced it beat earnings forecasts in the first quarter of 2020. Total net revenues were $15.2 billion, up 26% from Q1 2019.

The music division, which finished 2019 with revenues of $1 billion and 39.3 million users, also operated with a tailwind.

Online music subscription revenues accelerated in growth, “increasing 70% year over year, compared with 60% and 48% in the fourth and third quarter of 2019,” said CEO Cussion Pang.

Paid users reached 42.7 million, up 50% year over year, with a spike in premium subscriptions.

Sony Music Entertainment could be the next point of interest for Tencent. They already have the Hong Kong-based joint venture Liquid State for Asian dance and electronic artists.

BMG and Kobalt, headquartered respectively in Berlin and London, could also be in their sights.

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