Tencent to merge QQ Music service with China Music Corp to create streaming giant

New company to run services including Kugou and Kuwo, all of which will continue to operate as independent units and brands

PUBLISHED : Friday, 15 July, 2016, 7:16pm
UPDATED : Friday, 15 July, 2016, 7:16pm

Tencent Holdings Ltd is merging its music-streaming business with market leader China Music Corporation in a bid to create a dominant player in China’s digital music industry.

The internet giant said on Friday its QQ Music service and China Music Corporation will form a new company, in which Tencent would have a controlling stake.

The deal is valued at US$2.7 billion, according to the Wall Street Journal, which cited people familiar with the matter.

China Music Corporation runs two of the country’s most popular music services, KuGou and Kuwo. The merging of the top three music-streaming services in China will transform Tencent into the leader of China’s online music industry.

According to data from market research company iiMedia Research, China Music Corporation’s KuGou and Kuwo hold 28 per cent and 13 per cent market share, respectively, while QQ Music holds 15 per cent.

Tencent said the merger was “paving the way” for an initial public offering (IPO) for the newly-formed company. Prior to the merger, China Music Corporation reportedly targeted an IPO in the US.

Although QQ Music, KuGou and Kuwo will operate under one company, all three will continue providing services independently via a “freemium” model.

Certain services would be provided for free, although users can choose to pay to access more premium features.

China’s music-streaming market is widely viewed to be an industry with untapped potential.

The iiMedia data showed China’s mobile-music services had 449 million users in the first quarter of the year.

QQ Music and KuGou both claim to have over 800 million users, and internet companies such as Baidu and Alibaba are also fighting for a slice of the pie with music services such as Baidu Music and Alibaba’s Xiami. Alibaba owns the South China Morning Post.

Previously, music revenues in China were only a fraction of larger markets such as the US due to rampant piracy and a general unwillingness among consumers to pay for digital music.

However, after the Chinese government buckled down on copyright infringement, more companies have signed licensing deals to become legitimate music service platforms.

In 2014, Tencent signed deals with Sony Music and Warner Music to exclusively distribute their content in China. Last March, Alibaba signed a music distribution deal with German music rights company BMG.