EXCLUSIVE China orders Tencent Music to waive exclusivity of music labels – sources

HONG KONG, July 12 (Reuters) – China’s competition regulator to order the music streaming arm of Tencent Holdings Ltd (0700.HK) to cede exclusive rights to music labels it has used to compete smaller rivals, two people with knowledge of the matter said Monday.

The State Administration of Market Regulation (SAMR) will also fine him 500,000 yuan ($ 77,150) for failing to report acquisitions of the Kuwo and Kugou apps, the sources told Reuters – a penalty lighter than the forced sale reported earlier this year.

SAMR, Tencent Holdings and Tencent Music Entertainment Group (TME.N) did not respond to Reuters requests for comment.

The move is the latest in a crackdown aimed at reducing the economic and social power of China’s once poorly regulated internet giants. The campaign, which began late last year, included a record 18 billion yuan fine against e-commerce company Alibaba Group Holding Ltd. for abusing its market position.

In April, Reuters reported that SAMR was aiming to fine Tencent Holdings at least 10 billion yuan and that the social media leader was pushing for leniency. Reuters also reported that SAMR had told Tencent Music that it may have to sell Kuwo and Kugou.

Instead, SAMR will no longer require a sale but will impose a fine of up to 500,000 yuan for failing to properly report app purchases in 2016 for antitrust review, the people said on Monday.

“Personally, I think this sanction is insufficient and even a boon to Tencent. The acquisitions would obviously restrict competition in the market and should have been vetoed,” said You Yunting, an attorney for the firm of Shanghai-based DeBund lawyers.

“This is too little an attack on Tencent Music’s dominant position in the market,” said You, an antitrust commentator.

Reuters could not determine whether Tencent Holdings faces further antitrust sanctions beyond the expected ruling on Tencent Music, China’s leading music broadcaster.

SAMR on Saturday announced it would block Tencent Holdings’ plans to merge China’s two largest video game streamers – Huya Inc (HUYA.N) and DouYu International Holdings Ltd – on antitrust grounds, confirming an earlier report by Reuters. Read more

EXCLUSIVE

Tencent Music, the Chinese equivalent of Spotify Technology SA (SPOT.N), was pursuing exclusive streaming rights with labels such as Universal Music Group, Sony Music Group and Warner Music Group Corp (WMG.O) to push back the competition.

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

It nevertheless retains the exclusive rights to the music of certain groups, including Jay Chou, one of the most influential Chinese artists in the world.

After SAMR’s latest ruling, Tencent Music will at least be able to retain the rights to the music of some national independent groups, a person familiar with the matter told Reuters on Monday.

The loss of exclusive rights means that Tencent Music will likely have to redouble its efforts to create a more interactive and vibrant community to engage with its users. The company has also diversified its content with long-form shows and live talk shows to attract more paying users as well as advertisers.

Tencent Music faces a growing challenge from ByteDance, which uses its Douyin app – its Chinese version of TikTok – to promote music backed by sophisticated algorithms.

($ 1 = 0.1543 Chinese renminbi yuan)

Reporting by Pei Li; Editing by Tony Munroe and Christopher Cushing

Our Standards: Thomson Reuters Trust Principles.