Business News Digital Labels & Publishers Legal

Tencent Music’s exclusivity deals to be banned, but no forced sale of Kugou and Kuwo, say sources

By | Published on Tuesday 13 July 2021

Tencent Music

Chinese web giant Tencent is likely to be forced to give up most of its exclusive music rights by the country’s competition regulator, according to Reuters. Although a forced sale of two of its music services is not now likely.

Tencent is the dominant player in digital music in China, of course, mainly via its standalone Tencent Music Entertainment business. That dominance was partly achieved by Tencent acquiring some key competitors to its QQ Music service in 2016 – those being Kugou and Kuwo – and partly by securing exclusivity deals with both domestic and global music rights companies.

The exclusivity arrangements – which included its deals with all three majors – meant that Tencent was not only the operator of three streaming services but also a music distributor controlling a significant catalogue within China. Which in turn meant that competing streaming services either had to go without that catalogue or negotiate licensing deals with their biggest rival.

It’s a scenario that would have raised major competition law issues from the start in most other countries. Though, even in China, the competition regulator eventually started to express concern about those arrangements.

Then, earlier this year, there were reports that the country’s State Administration Of Market Regulation was considering sanctions against Tencent Music Entertainment as part of a wider competition law crack down across the Chinese tech sector, which has also affected other parts of the Tencent business as well as many of its rivals like Alibaba.

Possible sanctions against Tencent floated back in April included fines, a ban on catalogue exclusivity deals and the forced sale Kugou and Kuwo. According to a new Reuters report, sources now say that the first two of those sanctions will go head, but the latter will not.

The specific fine for Tencent Music relates to allegations that the company did not properly report to the regulator regarding the 2016 acquisition of Kugou and Kuwo. That’s the kind of oversight that an assortment of Chinese tech companies have recently been accused of in relation to various past deals, with the wider Tencent group facing multiple fines stemming from old acquisitions. The fine per oversight is 500,000 yuan, or about $77,150.

As for the other sanctions, Tencent will be much happier with a ban on exclusivity deals than a forced sale of Kugou and Kuwo. Although that will cut short some remaining exclusivity arrangements, the company already has fewer such deals in place anyway, with the likes of Universal Music and Sony Music now directly licensing Tencent’s biggest rival in the music domain, NetEase.

And, the Reuters sources say, Tencent Music Entertainment will still be able to enter into smaller exclusivity arrangements with independent artists in China itself.

So much so, one lawyer told Reuters that Tencent had got off pretty lightly. You Yunting, a lawyer with Shanghai-based DeBund Law Offices, told the newswire: “Personally, I think this punishment falls short and is even a boon for Tencent. The acquisitions [of Kugou and Kuwo] obviously would restrict competition in the market, and should have been vetoed. [These sanctions are] too little a hit to Tencent Music’s dominant position in the market”.