Tencent Music Ordered to Unwind Exclusive Content Deals

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Tencent Music Entertainment has been fined by Chinese regulators and ordered to terminate its exclusive content supply deals with major global music suppliers.

The company is the largest online music group in China and is a majority owned subsidiary of China’s Tencent Group. Its shares are separately listed on the New York Stock Exchange in the U.S.

The ruling was announced on Saturday by the State Administration for Market Regulation. It gave Tencent Music 30 days to unwind its exclusive deals with major international music suppliers and fined the company RMB500,000 ($77,100).

The regulator also said that Tencent Music cannot seek hefty pre-payments from rivals to which it sub-licenses content. Nor can it seek better terms than others from suppliers. However, it may continue to strike exclusive deals with smaller, independent labels.

While some commentary has pointed to the ruling as a landmark in which the SAMR is taking retrospective action against a merger deal that cannot be undone, its impact may in fact be smaller.

One of Tencent Music’s more serious music streaming rivals, the Alibaba-backed Xiami Music, shuttered in February.

The size of the fine is a trifle for Tencent, which is one of the world’s largest tech conglomerates. That compares with figures of $1.5 billion or more that have been discussed in financial circles and local media.

Moreover, the new ruling appears to only confirm the direction that regulators have already been pushing.

For years, Tencent Music elbowed out competitors with exclusive digital distribution contracts with the three major labels, Universal, Warner and Sony. It would then sub-license those catalogues out to competitors like NetEase — often for double or triple the original price.

Tencent Music was previously investigated in 2018, which resulted in a commitment from the firm to drop some of its exclusive contracts at the end of their three-year duration. The probe was suspended in 2019.

Since then, Tencent Music has moved towards non-exclusive deals. In May, Sony Music Entertainment signed both a new direct China digital distribution deal with rival streamer NetEase Cloud Music and a multi-year extension of its existing agreement with Tencent Music. NetEase has also been able to sign a strategic partnership with Warner Chappell Music for access to lyrics and sign a direct licensing agreement with Universal Music Group. Tencent Music and Tencent are both part of a consortium that owns 20% of UMG.

Tencent Music is understood to have issued a statement saying that it will comply with the SAMR ruling.