Tencent Buys 10% Stake in Record Label of Billie Eilish, Drake -- Update
December 31 2019 - 11:02AM
Dow Jones News
By Shan Li and Mauro OrrĂ¹
Tencent Holdings Ltd. is buying a 10% stake in the music giant
behind Ariana Grande, Drake and Billie Eilish for EUR3 billion
($3.36 billion) in a deal that bolsters the Chinese internet
giant's growing presence in the record industry.
The company said Tuesday it was leading a consortium that has
agreed to acquire a stake in Universal Music Group from Vivendi SA,
valuing the world's largest music company at EUR30 billion. The
investment also gives Tencent the option to double its stake in the
Los Angeles-based company.
The deal hands Tencent exposure to some of the biggest names in
music -- Universal's stable also includes classic acts like Queen
and the Beatles -- and will strengthen the tech company's dominance
of the growing Chinese market.
The agreement, after months of talks, comes as the music
industry turns a page on an era of technology disruption that once
bedeviled it. The valuation of Universal -- the largest of the
three major music companies, with more than 38% market share in the
U.S. -- highlights the degree to which the industry's fortunes have
rebounded in recent years. Universal paid around $1.9 billion for
rival EMI's recorded-music assets in 2012, a price that exceeded
some expectations, after online piracy had devastated
recorded-music sales globally.
The rise of streaming services such as Spotify Technology SA and
Apple Inc.'s Apple Music has since helped reverse the fortunes of
the major record companies, which also include Warner Music Group
Corp. and Sony Corp.'s Sony Music Entertainment, whose combined
revenues have grown annually since 2014. However, sales remain
below the peak they hit in 2000, when CD sales crested.
China has been a particular bright spot, with consumers quickly
adopting to streaming and showing a willingness to pay for such
services. Tencent Music Entertainment Group, the tech giant's
streaming business, went public in the U.S. in December 2018 in one
that year's highest profile listings. It is China's largest
music-streaming company and operates several popular apps,
including QQ Music and an online karaoke platform.
Tencent said a separate deal would follow soon allowing its
streaming business to buy a minority stake in Universal's Chinese
operations.
Beyond China, Tencent is trying to defend its music-streaming
business from the rising threat of blockbuster short-video app
TikTok, which has increasing influence over the music industry by
turning little-known musicians into viral sensations, said Shawn
Yang, managing director of research firm Blue Lotus Capital
Advisors. "Old Town Road," by rapper Lil Nas X, became a global hit
after it caught on among TikTok users.
Bytedance Inc.-owned TikTok and its Chinese version, Douyin,
allow users to add snippets of music to their videos -- a process
that depends on licenses from Universal and other major music
companies.
"Tencent Music is more and more challenged by TikTok," he said,
adding that such video services were growing in importance as a
distribution platform for music.
For Vivendi, the stake sale allows the French company to cash in
on a resurgent music industry and enables Universal to further
develop in Asia.
Universal has become a bright spot for Vivendi, which also said
Tuesday it was in talks with other investors about selling an
additional minority stake in its music arm at a price that "would
at least be identical."
Details of the negotiations with Tencent emerged in August, a
year after Vivendi said it would embark on a search for strategic
buyers to sell up to 50% of its music subsidiary.
The purchase by the Tencent-led consortium, which includes
Tencent Music and other undisclosed investors, is expected to close
by the end of the first half of 2020, subject to regulatory
approvals. Given trade tensions between the U.S. and China, the
transaction could face added scrutiny, although analysts expect the
deal to ultimately prevail because the deal only involves a
minority stake and doesn't involve innovative technology or
sensitive user data.
Write to Shan Li at shan.li@wsj.com
(END) Dow Jones Newswires
December 31, 2019 10:47 ET (15:47 GMT)
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