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Tencent likely to be fined in Chinese competition law crackdown, could be force to sell music apps

By | Published on Friday 30 April 2021


Chinese web giant Tencent looks likely to be the next target of government regulators in China who are now cracking down on anti-competitive behaviour in the country’s tech sector.

Rival Alibaba was recently fined $2.75 billion for abusing its market dominance in the country, and sources have now told Reuters that Tencent can expect a slightly lower but nevertheless significant fine.

According to Reuters, the State Administration Of Market Regulation agency in China could fine Tencent about $1.54 billion for “not properly reporting past acquisitions and investments for antitrust reviews” as well as “anticompetitive practices in some of its businesses”.

SMAR’s investigation into the dealings and operations of Tencent has seemingly put particular scrutiny on the company’s music operations, most of which are now run through the standalone Tencent Music Entertainment company.

Regulators in the country had already expressed concern about the exclusivity deals that Tencent struck with various music rights owners – including the majors – when music streaming first started to gain momentum in the country.

Those deals meant that not only did Tencent secure the rights to include each label’s music on its own streaming services, it also became the distributor of those catalogues within the Chinese market. Meaning other streaming services had to then try and get licensing deals from their main competitor in order to include all that music on their platforms.

Exclusivity deals of that kind are starting to end, partly because of regulator pressure, with more labels having direct licensing deals with other streaming services in China, in particular Tencent’s main rival in that domain, NetEase Cloud Music.

However, the regulator still reportedly has concerns, in particular over the fact that, as a result of past acquisitions, Tencent owns three streaming services in China – Kugou, Kuwo and QQ Music – as well as the super popular karaoke app WeSing.

Reuters’ sources say that, as well as a fine, Tencent could be forced to give up any exclusive music distribution rights it still holds, and maybe even to sell off Kugou and Kuwo.

Commenting on the incoming sanctions against Tencent, one of those sources said: “The attitude from the regulator is that, unlike Alibaba, you are not the biggest target here, but it would be impossible not to penalise Tencent now that the campaign is in action”.

The sources also confirmed that Tencent is busy lobbying for more lenient sanctions from the regulator. Although, apparently, the company’s top priority is ensuring that government officials don’t seek to interfere in the operations of its core businesses – that being gaming and the WeChat app – and that it would accept a higher fine if that could be achieved.

As well as the increased government scrutiny of China’s biggest web firms regarding alleged abuse of market dominance, officials are also getting stricter in regulating online financial services in the country. Thirteen companies operating in that domain – including Tencent and TikTok owner Bytedance – have been ordered to adhere to stricter rules around any financial products they offer.