Northwest Arkansas Democrat-Gazette
Chinese tech firm bets on music
Company to spin off streaming service on U.S. exchange
Tencent, China’s most valuable tech company and the operator of the popular WeChat social media platform, says it plans to spin off its streaming music service on a U.S. stock exchange.
The company said Monday in a statement issued through the Hong Kong stock exchange that the share price and other details of the stock offering in Tencent Music Entertainment Group have yet to be decided.
The move will let American investors bet on the Chinese market for musicstreaming services, which have brought new life to a business that’s been plagued by piracy. Tencent’s growth in China also mirrors inroads by partner Spotify Technology SA in the U. S., where streaming has helped music sales grow at their fastest rate since the 1990s.
For record labels, the resurgence has helped them rebuild after years of decline. The demise of physical media and the rise of free-downloading sites ravaged the industry. And the arrival of iTunes and legal downloading options in the early 2000s did little to stem the slide, as many customers opted to purchase individual songs and not entire albums. But now streaming appears to have given music sellers a formula they can live with.
The announcement follows a similar move by Tencent last year in Hong Kong with its online reading business, China Literature Ltd. Its music platforms — QQ Music, KuGou and Kuwo — are becoming important vehicles for pop stars such as Katy Perry and Rihanna to reach a Chinese audience, alongside homegrown artists like Jason Zhang and Joker Xue.
“The payment ratio will increase for digital music consumption in China in the long run,” He Saiyi, an analyst with Huatai Securities, wrote in a research report Monday.
“Tencent Music dominates the China market: it owns the most digital music copyrights in China and, in our view, has the most vibrant online music communities.”
Tencent Music Entertainment Group had picked banks to advise on a planned initial public offering in the U.S. that could raise at least $1 billion, people with knowledge of the matter told Bloomberg in May.
Tencent has the advantage of a fully developed entertainment and content empire that encompasses the ubiquitous WeChat messaging app,
games, video streaming, a karaoke app and content-licensing deals with more than 200 international and domestic record companies. But like perennial rivals Alibaba Group Holding Ltd., Baidu Inc. and Netease Inc., Tencent has to contend with the rampant piracy that’s eroding the industry’s profits.
It also counts Stockholmbased Spotify as an investor, but the two companies may increasingly become rivals. While they don’t compete directly in China, Spotify challenges Tencent in regions such as Southeast Asia.
Spotify went public earlier this year and currently has a market value of $31 billion. In May, the Financial Times
said Tencent Music Entertainment’s listing could value the company in excess of $30 billion. Valuation could partly depend on where Spotify was trading at the time, the paper said.
In the U.S., recorded music sales rose 17 percent to $8.5 billion last year, with streaming accounting for almost two-thirds of the total, according to the Recording Industry Association of America. It put the industry on its fastest pace since 23 years ago, when acts like Hootie & the Blowfish and TLC dominated the airwaves.