China to Order Tencent Music to Give Up Music Label Exclusivity

Tencent Music looks set to be the latest Chinese tech giant hit for another breach of the anti-monopoly regulations introduced by the country’s market regulators

China’s antitrust regulator is set to order the music streaming arm of Tencent Holdings to give up exclusive rights to music labels which it has used to compete with smaller rivals, two people with knowledge of the matter said on Monday.

The State Administration of Market Regulation (SAMR) will also fine it 500,000 yuan ($77,150) for lapses in reporting the acquisitions of apps Kuwo and Kugou, the people told Reuters – a milder penalty than the forced sale indicated earlier this year.

SAMR, Tencent Holdings and Tencent Music Entertainment Group did not respond to Reuters’ requests for comment.

The move is the latest in a clampdown to curb the economic and social power of China’s once-loosely regulated internet giants. The campaign, which began late last year, has included a record 18 billion yuan fine on e-commerce firm Alibaba Group Holding for abusing its market position.

In April, there were reports that the regulator was preparing to fine Tencent Holdings as part of a sweeping antitrust clamp-down on the country’s internet giants, with two people saying the company could expect a penalty of at least 10 billion yuan.

The social media leader was lobbying for leniency. Reuters also reported that SAMR had told Tencent Music it may have to sell Kuwo and Kugou.

Instead, SAMR will no longer require a sale but will impose the maximum 500,000 yuan fine for not properly flagging the 2016 app purchases for antitrust review, the people said on Monday.

“Personally, I think this punishment falls short and is even a boon for Tencent. The acquisitions obviously would restrict competition in the market, and should have been vetoed,” You Yunting, a lawyer with Shanghai-based DeBund Law Offices, said.

“It is too little a hit to Tencent Music’s dominant position in the market,” said You, a commentator on antitrust law.

Reuters could not determine whether Tencent Holdings faces any further antitrust penalty beyond the expected ruling on Tencent Music, China’s dominant music streamer.

Games merger blocked

On Saturday, SAMR said it would block Tencent Holdings’ plan to merge China’s two biggest videogame streamers – Huya Inc and DouYu International Holdings Ltd – on antitrust grounds, confirming an earlier report.

The multinational tech giant first unveiled its plan to merge Huya and DouYu last year, in a tie-up designed to streamline its stakes in the firms, estimated to have an 80% slice of a market worth more than $3 billion.

Tencent said in a statement it “will abide by the decision, comply with all regulatory requirements, operate in accordance with applicable laws and regulations, and fulfil our social responsibilities.”

Tencent Music, China’s equivalent to Spotify Technology SA, had been pursuing exclusive streaming rights with labels including Universal Music Group, Sony Music Group and Warner Music Group Corp to fend off competition.

It became the subject of a SAMR investigation in 2018 which stopped the following year after the company agreed not to renew some of its exclusive rights, which normally expire after three years.

It nevertheless kept exclusive rights to music from some acts, including Jay Chou, one of the Chinese-speaking world’s most influential artists.

After SAMR’s latest ruling, Tencent Music will at least be able to retain rights to music from some domestic indie acts, a person with knowledge of the matter said on Monday.

Losing exclusive rights means Tencent Music will likely have to redouble efforts to build a more interactive and lively community to engage with its users. The firm has also been diversifying its content through long-form shows and live talk shows to attract more paying users as well as advertisers.

Tencent Music is facing a mounting challenge from ByteDance, which is using its Douyin app – its Chinese version of TikTok – to promote music backed by sophisticated algorithms.

These developments come amid an ongoing crackdown on Chinese tech companies from the government.

With reporting by Reuters.

This report was updated when further content became available.