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Investigation Into Tencent Music's Deals With Major Record Labels Comes to Light

CapitalWatch Staff 2019-08-28 23:40 PM

The stock of Tencent Music Entertainment Group (NYSE: TME) rebounded partially on Wednesday morning from the five-month low it hit on news of an antitrust investigation into the company’s exclusive licensing deals with record labels.

The music arm of Chinese tech giant Tencent Holdings Ltd. (HKEX: 0700) saw its shares drop nearly 7 percent on Tuesday after Bloomberg reported that China’s authorities are scrutinizing its deals with Sony Music Entertainment, Warner Music Group Corp. and Universal Music Group. Sony and Warner are also investors in Tencent Music.

TME has acquired exclusive rights for a number of the record labels’ catalogs, then sold some content to other music and video platforms, including those operated by Alibaba Group Holding Ltd. (NYSE: BABA), Baidu Inc. (Nasdaq: BIDU), NetEase Inc. (Nasdaq: NTES) and ByteDance Inc., according to Bloomberg. The rivaling platforms thus pay twice as much for content than they would if purchasing directly from record labels, the report said.

The probe by China's State Administration of Market Regulation into TME, which launched in January, Bloomberg said, may threaten Tencent’s dominance in the domestic music market. 

The giant operates music and karaoke apps QQ Music, WeSing, KuGou and Kuwo. It became publicly traded in New York in December, raising $1.1 billion for its American depositary shares priced at $13 each.

Shares in TME recovered Wednesday morning to $12.99 per share, up more than 3 percent from yesterday's close.

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(Image: Thomson Reuters Eikon)