Tencent Music Entertainment was fined by Chinese regulators and ordered to terminate exclusive content supply contracts with major global music providers.
The company is the largest online music group in China and a wholly-owned subsidiary of China’s Tencent Group. Its shares are listed separately on the New York Stock Exchange in the US
The ruling was announced on Saturday by the State Administration for Market Regulation. It gave Tencent Music 30 days to cancel exclusive contracts with major international music suppliers and fined the company 500,000 yuan ($77,100).
The regulator also says that Tencent Music cannot seek huge upfront payments from rivals to which it licenses content. Nor can it seek better terms than others from vendors. However, it may continue to do exclusive deals with smaller, independent labels.
Although some commentaries have pointed to the ruling as a turning point in that SAMR is taking retroactive action on an undoable merger, its impact may in fact be smaller.
One of Tencent Music’s more serious music streaming rivals, Alibaba-backed Xiami Music, closed in February.
The amount of the fine is small for Tencent, one of the world’s largest technology corporations. Compare with the data of $1.5 billion or more discussed in the financial world and the local media.
Moreover, new judgment seems to only confirm the direction that regulators have pushed.
For years, Tencent Music has fended off competitors with exclusive digital distribution deals with the three major labels Universal, Warner, and Sony. It then sublicenses those categories to competitors like NetEase – often for double or triple the original price.
Tencent Music was previously investigated in 2018, which resulted in the company pledging to give up some exclusivity contracts at the end of their three-year term. The poll was suspended in 2019.
Since then, Tencent Music has moved towards non-exclusive deals. In May, Sony Music Entertainment signed a whole new China direct digital distribution contractl with rival streamer NetEase Cloud Music and extended an existing deal with Tencent Music for several years. NetEase was also able to sign a strategic partnership with Warner Chappell Music for access to the lyrics and signed a direct licensing agreement with Universal Music Group. Tencent Music and Tencent are both part of a consortium that owns a 20% stake in UMG.
Tencent Music is said to have released a statement saying it will comply with the SAMR ruling.
https://variety.com/2021/global/asia/tencent-music-ordered-to-unwind-exclusive-content-deals-1235026760/ | Tencent Music Ordered to Unwind Exclusive Content Deals