Before Tencent could envision investing across the entire music supply chain, its ambitions were much smaller in scope. QQ Music started back in 2005
and would, over the next decade, morph into a traditional music streaming platform with allegedly over 800 million users
. 2014 proved to be a major year for Tencent, as it signed a number of major deals with international record labels. First up was a distribution deal with Warner Music Group
; South Korea’s YG Entertainment followed
next, and Sony also signed on
before 2014’s close. These deals signaled that China, a country often written off by the rest of the industry due to piracy, might be open for business to international record labels.
That same year in September, Tencent launched WeSing, a karaoke app that would hint at how the company would see profits return within a business where others struggled to achieve such a feat. WeSing made money through virtual gifts
rather than relying on advertising or subscriptions. Tencent looked to expand that model when it merged with the Chinese Music Company
, who operated, not owned, Kugou, the world’s largest music streaming platform, and Kuwo, another major music platform. I’ll note here what Cherie Hu wrote in March: Tencent Music isn’t based in China
and is incorporated in the Cayman Islands, and thus doesn’t directly own any of these firms. CMC worked in a similar arrangement with its companies, which carried over post-merger.
This new venture created Tencent Music Entertainment Group, which by the sheer number of users, is by far the world’s largest digital music firm. It was tipping and livestreaming on apps like Kugou, Kuwo, and WeSing that carried the company, though it’s still aimed to increase paying subscriptions through platforms like QQ Music or the highly popular Hong Kong-based Joox, which launched in 2015. It’s from this position of relative strength that the next few years see Tencent embark on a series of expansions.
In the summer of 2017, TechCrunch reported
that Tencent was interested in purchasing Spotify. Neither company commented on the story but clearly it was asking the right questions, because a few months later in December Tencent Music, not Tencent, and Spotify announced a 10% stock swap. The music business and tech press
treated this news with a fairly warm reception, suggesting that it was a good deal for both companies. While the press was still chomping at the bit for Spotify’s eventual launch in India, Tencent, not Tencent Music, invested $115 million in Gaana
, a music streaming platform backed by India’s largest media company, Times Internet.
Around the same time, a slightly less high profile deal was announced
between Tencent Music and Sony Music Entertainment that created Liquid Audio, an EDM-centered record label. The depth of Tencent’s entrenchment within the international record industry was seen when Music Business Worldwide reported
in June 2018 that Sony/ATV owned a small part of Tencent Music. This was because Sony previously invested in the Chinese Music Company prior to Tencent’s 2016 merger, but again Sony/ATV’s investment isn’t directly in any of the platforms that Tencent Music operates. A bit confusing, I’ll say.
In July 2018, after that MBW report, Tencent Music filed for an IPO in the United States
. Quartz noted unlike Spotify that Tencent Music
, proved to be profitable as it looked to IPO but this is a rather poor comparison of firms. Tencent Music, a fusion of various decade-plus old music platforms, was able to offer freemium content and subscriptions. With WeSing, Kugou, and Kuwo, livestreaming and virtual tips brought alternative forms of revenue that are still slow to emerge in western markets. Even if Tencent Music and Spotify are both considered music streaming platforms, a direct comparison between the two ignores the fairly different approach each company is taking towards the business. Before moving into Tencent’s most recent deals let’s look at Tencent Music’s F-1 filing
There may arise business opportunities in the future that both we and Tencent are interested in and which may complement each of our respective businesses. Tencent holds a large number of business interests, some of which may directly or indirectly compete with us. For example, Tencent currently owns equity stakes in certain music streaming businesses operating outside of the PRC. See also “Our Relationship with Tencent.” Tencent may decide to take up such opportunities itself, which would prevent us from taking advantage of those opportunities.
The two companies that fit this description are Gaana and Smule, a San Francisco-based music startup. Tencent led a $54 million round of investments
in Smule in 2017, and in 2018 the startup received another $20 million
led by…Times Internet to help with its Indian expansion. So far, it seems Tencent has at least kept Tencent Music out of its Indian music investments and remains closely aligned with the Times Internet. This presents a different strategy than what the company’s done with western music labels.
In late 2019, Tencent led a group of investors including Tencent Music to buy 10% of Universal Music Group
, with an option to purchase an additional 10% in 2021. This inspired Cherie Hu’s graphic on the various stakeholders
between record labels and music platforms, just displaying the interconnected web of these businesses. Last month, that meshing only continued after Warner Music Group’s IPO led to Tencent and Tencent Music getting a $200 million stake
in the company. Thus in 2020, it’s almost impossible for a major record industry transaction not to involve Tencent in some capacity. With this web of investments as the backdrop, where does this leave the record industry going forward?