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Tencent Music boss says regulator ruling will “impact” on the business, but remains optimistic

By | Published on Wednesday 18 August 2021

Tencent Music

The Executive Chairman of Tencent Music Entertainment yesterday told his investors that the company “sincerely accepts” the recent ruling by the Chinese competition regulator that is forcing the firm to give up its exclusive licensing deals. Cussion Pang added that the ruling will have “some impact” on Tencent Music’s operations, but insisted he remained optimistic about the company’s future.

The Tencent music business is, of course, the biggest player in the Chinese digital music market. That dominance was partly achieved by the series of exclusive licensing deals it negotiated with a number of domestic and international record companies, including all three majors.

Those deals meant that Tencent could not only use its licensing partners’ music on all three of its streaming services – QQ Music, Kugou Music, Kuwo Music – but it was also the exclusive distribution partner of that music within the Chinese market. Which meant that competing streaming services either had to go without that catalogue or they had to negotiate licensing deals with their main rival.

It was an unusual situation that even the Chinese regulator eventually decided was anti-competitive. And last month the country’s State Administration Of Market Regulation – which has been cracking down on anti-competitive conduct across China’s tech sector – announced a ruling forcing Tencent Music to bring to an end most of its exclusive licensing deals within a month.

Although still controlled by the main Tencent company, Tencent Music Entertainment operates as a standalone business listed on the New York Stock Exchange. Its share price has been slipping ever since reports of the regulator crackdown began to circulate and is now at its lowest since the firm’s 2018 stock market listing. Having spiked to a high of $30.42 in March, the current share price is $7.82.

That said, the long-term impact of the SAMR ruling is debatable, given the number of exclusive licensing deals enjoyed by Tencent was in decline anyway, and the company’s karaoke, livestreaming and social entertainment services have always been more lucrative than its subscription-based audio streaming services.

Presumably with all that in mind, further evolving the social entertainment side of the business – as well as efforts to create more unique content and boost live activities – are now priorities for the business, it confirmed yesterday.

Pang – previously CEO and now Executive Chair of Tencent Music – said in an investor report: “We would like to reiterate that TME sincerely accepts the decision issued in July by the regulator pertaining to exclusive music licensing arrangements. We are committed to fully complying with all requirements in a timely manner”.

“While we expect some impact to our business operations as a result of this decision”, he added, “we remain steadfast in our ongoing goals of fostering innovation, fulfilling our social responsibilities, providing users with better services and promoting the long-term, healthy development of the digital music industry”.

He then continued: “With respect to content, we will continue to broaden partnerships with music labels, and work with artists and content partners to develop more differentiated content while further strengthening our self-production capability. We also made strategic upgrades to the business model of TME Live, integrating online concerts with offline events to offer differentiated services and solutions for artists ranging from notable superstars to up-and-coming and indie musicians”.

The company’s current CEO, Ross Liang, added: “With respect to [our] platform, in keeping up with our primary focus to explore new ways to better serve users in an increasingly more visual, social and interactive environment, we introduced several initiatives to strengthen our platform’s competitiveness. For social entertainment services in particular, we are in the process of improving our product features, boosting social and community-centric use cases which are crucial for user engagement and retention”.

That platform development will also involve more integration with products within the wider Tencent group, particularly the Chinese version of We Chat, aka Weixin. “We also deepened our cooperation with the broader Tencent ecosystem”, Liang went on, “including leveraging Weixin Video Account, to enrich video content offering, enhance content promotion and cultivate a dynamic platform for artists and users to unleash their creativity”.

While investors have been mainly interested in the regulator pressure being felt by Tencent in recent months, they also like some nifty stats of course, and yesterday’s update included plenty of those. Monthly active users are down this year on both Tencent’s music and social entertainment services, although the number of paying users on the former is up 40.6%, and the average revenue per user on the latter is up 23%.