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


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By Chris Cooke | Posted on Tuesday, July 13, 2021

Chinese web giant Tencent is expected 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 likely now.

Tencent is the dominant player in digital music in China, of course, mainly through its stand-alone business Tencent Music Entertainment. This dominance was achieved in part by Tencent’s acquisition of some key competitors of its QQ Music service in 2016 – namely Kugou and Kuwo – and in part by entering into exclusivity agreements with national and global music rights companies. .

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

This is a scenario that would have raised major competition law issues from the outset in most other countries. However, even in China, the competition regulator has finally started to voice concerns about these arrangements.

Then, earlier this year, it was reported that the country’s State Administration of Market Regulation was considering sanctions against Tencent Music Entertainment as part of a broader crackdown on competition law in the industry. technology, which has also affected other parts of Tencent’s business as well as many of its competitors such as Alibaba.

Possible sanctions against Tencent floating in April included fines, a ban on catalog exclusivity deals and the forced sale of Kugou and Kuwo. Sources now say the first two of these sanctions will be enforced, but not the last, according to a new Reuters report.

The specific fine imposed on Tencent Music concerns allegations that the company failed to properly report to the regulator the 2016 acquisition of Kugou and Kuwo. It’s the kind of negligence that an assortment of Chinese tech companies have recently been accused of in various past deals, with the wider Tencent Group facing multiple fines from past acquisitions. The fine for forgetting is 500,000 yuan, or about $ 77,150.

As for other sanctions, Tencent will be much more satisfied with a ban on exclusivity agreements than with a forced sale of Kugou and Kuwo. While this cuts down on some remaining exclusive deals, the company already has fewer such deals in place anyway, with the likes of Universal Music and Sony Music now directly licensed to Tencent’s biggest rival in the field of music, NetEase.

And, according to Reuters sources, Tencent Music Entertainment will still be able to strike more modest exclusivity deals with independent artists in China itself.

So much so that a lawyer told Reuters that Tencent had done pretty well. You Yunting, an attorney for Shanghai-based law firm DeBund, told the newswire, “Personally, I think this punishment is insufficient and is even a boon to Tencent. Acquisitions [of Kugou and Kuwo] would clearly restrict competition in the market and should have been vetoed. [These sanctions are] too little undermined Tencent Music’s dominant position in the market ”.



MORE ABOUT: Kugou | Kuwo | Tencent


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