China antitrust: Beijing orders Tencent to end exclusive music licensing deals in a first for the country
- The music arm of the Shenzhen-based company must relinquish its exclusive music rights within the next 30 days
- Tencent will be able to retain its exclusive deals with independent artists
The music arm of the Shenzhen-based company must relinquish its exclusive music rights within the next 30 days, as well as its high prepayments and other copyright fees for music content, according to a statement by the State Administration of Market Regulation (SAMR), the country’s antitrust watchdog agency, on Saturday.
“[This case] shows that when a merger deal has been completed and cannot be separated, the Chinese authorities can still intervene to restore the market to a status of relatively fair competition,” said You Yunting, senior partner at Shanghai Debund Law Firm Offices.
This is the first ruling from China’s antitrust regulator that addresses anticompetitive effects from a merger deal, setting a possible precedent for Beijing to mandate changes to business models and operations of merged business.
Tencent will still be able to retain its exclusive deals with independent artists, which should expire in three years, as well as partnerships on new releases.
In addition, without prior approval, Tencent must not require copyright owners to give it better treatment than competitors nor apply any other measures that could help Tencent Music Entertainment Group (TME) restore its market-leading position, according to the regulator.
Tencent issued a statement saying that it will faithfully implement the regulator’s order.
In January of this year, the SAMR officially looked into Tencent’s acquisition of China Music Corporation in 2016 that formed TME and gave encent exclusive rights to 80 per cent of all music tracks in the market, according to the regulator.
Tencent’s shares, the second-largest on Hong Kong’s Hang Seng Index, were down by as much as 2.39 per cent to HK$531.00 when the market closed on Friday before the fine was announced. The stock has fallen by 30 per cent since its January 25 record high of HK$766.50.
TME was spun off for a 2018 listing in New York and is China’s biggest music streaming player with more than 622 million monthly active users (MAUs) from three streaming apps QQ Music, Kugou and Kuwo. Combined, the platforms had a library of 66 million licensed tracks by the end of 2020, according to the company.
TME’s closest rival is NetEase Cloud Music, which had 181 million MAUs and 60 million tracks as of December 2020, according to the prospectus of Cloud Village, operator of the app.
TME has kept its edge in an expensive music library through partnerships with the world’s biggest music companies. Universal Music, Sony Music Entertainment and Warner Music Group have all sold exclusive rights to their catalogues to Tencent Music, which can then be sub-licensed to other music streaming rivals through Tencent.
NetEase said in a statement on Saturday that it resolutely supports SAMR’s penalty on Tencent.
China’s antitrust crackdown, which has ensnared Alibaba, on-demand services provider Meituan and now Tencent, is expanding to other internet market segments to protect consumer interests and avert wider economic risks in the country’s fast-digitalising economy.
For the dozens of merger deals brought under regulatory scrutiny since last December, SAMR has limited punishments to the maximum fine of 500,000 yuan.
The regulator said at the time that the fines were for not flagging “concentration operation” risks to the authority for review and made clear that the deals did not exclude or limit market competition, meaning that they did not need to be unwound.
Ma said during a conference call in March that Tencent was cooperating with regulators on compliance issues, including “reviewing some conditions in our past investments”, but he did not mention any further specifics after it was reported he had met with SAMR voluntarily.