Spotify and Tencent Music are considering owning a stake in each other’s businesses. Both companies would benefit from this agreement. It would create opportunities for an alliance when negotiating licensing deals with music labels and publishers.
As part of the deal, Tencent will pay Spotify a lump sum in order to balance the books. Spotify currently has a higher valuation, but the main Tencent parent company is worth much more; it has a valuation over $500 billion. Tencent Music Group has a valuation estimated to be around $10 billion. Spotify has a valuation estimated to be around $16 billion.
Tencent Holdings Ltd. is considering spinning off Tencent Music Group into a public company in 2018. The company will be sold on either the New York Stock Exchange or the Hong Kong Stock Exchange. Spotify has also considered going public in Spring 2018.
Despite the obvious global synergies between the two companies, Spotify has no plans to enter the Chinese market at this time.
Tencent recently acquired a majority stake in China Music Corp. This gave Tencent control of two key music platforms in the Chinese market: Kuwo and KuGou. Additionally, Tencent also owns QQ Music. As a result, the company currently has over 700 million monthly active users between the three platforms.
Earlier this year, Tencent Music Group Vice President Andy Ne made the following statement:
We don’t have the expertise needed to run a music label business. We don’t have knowledge about A&R, management and physical CDs. I feel pretty strongly about avoiding owning a majority stake in a music label.
However, we wouldn’t mind exploring an investment, like owning a small portion of a music label’s shares – 10/20/30%.
We’d consider investing in a really important music label that could create different strategic partnerships with, not only for our music service, but also using the IP of artists in the games or filming business.
Tencent Music Group
Headquartered in Shenzhen, China, Tencent was founded in Nov. 1988. The original founders are Ma Huateng, Zhang Zhidong, Xu Chenye, Chen Yidan and Zeng Liqing. Tencent provides various Internet-related services and products, telecommunication services and technology. The platform serves both the Chinese and global markets. At present, Tencent has a market cap of $534 billion, making it the most valuable company in Asia.
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Music-streaming company Spotify is headquartered in Stockholm, Sweden. Daniel Ek founded Spotify in April 2006. It provides digital rights management, protecting content from record labels and media companies. Basic features are free but contain advertisements and limitations. Customers can purchase premium features. A paid-subscription provides improved streaming quality and music downloads, among other services.
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