Tencent forced to give up exclusive music rights: Did it really lose out?

Chinese authorities are continuing their antitrust crackdown, and their latest target seems to be Tencent. The State Administration of Market Regulation (SAMR) has ordered Tencent Music (TME) –⁠ which had monopolized the rights to 80% of all music tracks in the market–⁠ to give up all of its exclusive music licensing deals (with global labels) within the next 30 days. 

TME is by far the largest player in China’s music streaming market. Combined, its three biggest streaming apps– QQ Music, Kugou Music, and Kuwo Music– draw an estimated 615 million monthly active users (MAUs). In contrast, its closest competitor, Netease Cloud Music, currently averages at around 181 million users per month (still big, I know).

TME’s monopolization of licensing rights, especially with the world’s biggest labels, contributed heavily to this superiority in user numbers. Having bought over the music libraries of companies such as Universal Music and Sony Music Entertainment, it controlled access to almost all of the popular songs in China. Simply put, most people in China had to use TME’s three apps to stream the songs that they wished to listen to.

Besides hoarding traffic, TME’s tight grip on licensing rights also enabled it to handicap its closest rivals. These companies could gain access to these music libraries through sublicensing agreements with TME– but only after paying inflated prices.

Now that Beijing has forced TME to give up these exclusive licensing rights, its competitors can certainly play on a more level playing field.

No wonder Netease Cloud Music voiced such vocal support for the government’s actions:

Tencent Music’s dominance is likely to remain

Yet, it’s unlikely for this regulatory clampdown to shake up the existing power dynamics in China’s music industry. The other players in China’s music industry may have the chance to sign the same licensing deals as TME (that is if these global labels want to partner with them), but they will probably struggle to draw users away from TME.

Most of TME’s existing users have used its three apps for a while, and they are unlikely to switch to Netease or Baidu simply because the latter now offer the same songs. After all, these platforms barely differ in their streaming quality or listening experience. 

Furthermore, TME is already well-integrated into Tencent’s ecosystem. While QQ users can directly access QQ music from their QQ mobile app, WeChat users can comment on the recorded performances of their friends on WeSing. As the consumption of music is a social experience (we connect over songs that we like), Tencent’s users will naturally bounce between their social media and music streaming services, making it easier for them to stick to TME’s platform.

The bigger question for Tencent Music

The bigger question that could concern TME, but remains anyone’s guess, is how this regulatory move will affect licensing fees.

Would global licensing brands such as Universal Music gain bargaining power because it can now partner with multiple platforms? Would these platforms then have to pay higher fees to attract these major labels? Or would the fairer competitive environment allow them to better calculate the market price of music content?

Before SAMR’s intervention, TME was already trying to manage its costs of revenues, which had risen by 23.6% in the first quarter of 2021 because of increasing licensing fees. How such fees may change even further will allow us to better judge if this regulatory clampdown was a boon or bane for TME.

One thing though is for sure– TME showed foresight in diversifying into podcasts, audio dramas, talk shows, and other forms of longform audio.