Tencent to Acquire Majority Stake in China Music Corp.
July 14 2016 - 1:50AM
Dow Jones News
HONG KONG—Chinese internet giant Tencent Holdings Ltd. has
agreed to acquire a controlling stake in China's leading
music-streaming company in a deal that values the firm, China Music
Corp., at roughly $2.7 billion and creates a dominant player in
China's online-music market, people familiar with the matter
said.
Tencent, China's biggest social-networking and online-games
company, which also runs its own music-streaming service, will
boost its stake in China Music to about 60% from 16%, one of the
people said.
The deal turns Tencent into a clear market leader in China's
online-music market, as it brings together the country's top-three
mobile music applications owned by the two companies. CMC owns
Kugou and Kuwo, while Tencent operates QQ Music. Kugou is the
largest mobile music service in China with a 28% market share,
followed by QQ Music's 15% and Kuwo's 13%, according to data from
research firm iiMedia Research.
In the first quarter, China's mobile-music services had 449
million users, more than the entire population of the U.S., making
it the world's largest market by the number of users, according to
iiMedia.
Tencent plans to combine the team operating QQ Music with CMC,
the people said. The combined music businesses will be valued at
around $6 billion after the deal is completed and will operate as a
subsidiary of Tencent, the people said.
CMC had been planning an initial public offering in the U.S.
before agreeing to be bought by Tencent. That plan has now been put
on hold, the people said.
The Wall Street Journal reported in May that CMC was working
with Goldman Sachs Group Inc. and Morgan Stanley for an IPO that
was expected to happen later this year. Although the amount of
funds CMC was expected to raise had not been decided at the time,
some people familiar with the matter expected it to be between $300
million and $600 million.
Tencent could pursue an IPO of the combined company in the
future, one of the people said.
Online entertainment, such as music and movies, has become a
major battleground for China's biggest internet companies such as
Tencent, Alibaba Group Holding Ltd. and Baidu Inc.
Those companies have been signing licensing deals to distribute
more songs and movies through their platforms. Tencent, for
example, has secured deals with Sony Music Entertainment and Warner
Music to become their exclusive online distributor in China.
Although China's digital music market is huge in terms of users,
the sector's revenue is still small compared with the U.S. and
Europe. Paying for online music hasn't been a successful model in
China in the past due to piracy, industry experts say.
Tencent has been trying to persuade users of its QQ Music, which
streams most songs for free, to pay for a premium membership that
offers perks such as an extended music library, higher-quality
sound and members-only concerts at a small monthly fee.
The acquisition not only gives Tencent an overwhelming market
share in terms of user base, but, in combining CMC and Tencent's
exclusive content licenses, the new entity also represents over 60%
of all available music rights in China, said Ed Peto, managing
director of Beijing-based music industry services company
Outdustry.
"The obvious downside of this is the whitewashing of a once
tentatively competitive marketplace, the upside being that it gives
Tencent the necessary clout to drive the market into a paid model,
a process which has been faltering as of late," Mr. Peto said.
Write to Alec Macfarlane at Alec.Macfarlane@wsj.com and Juro
Osawa at juro.osawa@wsj.com
(END) Dow Jones Newswires
July 14, 2016 01:35 ET (05:35 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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