The global music industry is possibly the next stop for the Chinese tech company Tencent.

It has been reported that the Chinese firm is in the process of negotiations with Universal Music Group (UMG) for a 10 per cent stake in the company. The UMG is the label that included stars like Taylor Swift, the Beatles and Lady Gaga. The world’s biggest music label has currently has a valuation of €30bn.

The two companies have initiated preliminary talks to arrive at a deal which would also include a right to Tencent to a call option to purchase a further 10 per cent of the music label in a year when valued at €30bn, said UMG’s parent company, Vivendi, which is controlled by the French billionaire Vincent Bolloré.

“Together with Tencent, Vivendi hopes to improve the promotion of UMG’s artists, with whom UMG has created the greatest catalogue of recordings and songs ever, as well as identify and promote new talents in new markets,” Vivendi said in a statement. “Vivendi hopes that this new strategic partnership could create value for both Tencent and UMG.”

The two companies are also holding talks to see whether they can work together in areas of “strategic commercial cooperation to capture growth opportunities offered by the digitalisation and the opening of new markets”.

The sale of UMG is being attempted by Vivendi since a year now. However widely divergent potential valuations of the business have nee placed by various investment banks which ranged from between €17bn and €44bn.

The company was still looking to sale further minority stakes in the company and take on board another partner, Vivendi said. John Malone’s Liberty Media and the private equity firm KKR are among the potential suitors for the minority stake.

On the other hand, the music arm of Tencent – Tencent Music, which is China’s biggest music streaming business, is also being sought to be spinned off by Tencent. The Chinese firm is aiming to list it in the United States as a separate business.

Since the last decade or so, the global music industry has been troubled by the fall of in demand of the music CDs and digital piracy and it is only in recent years that the industry has been reaping rich benefits from the rise of the video streaming industry which has upended the traditional music supply chain.

The growth in revenues for the music industry globally last year was the fastest that the industry has witnessed in more than the last two decades. There was 9.7 per cent surge in revenues from recorded music globally at $19.1bn in 2018 which marked the fastest rate of revenue growth for the industry since 1997. This is also the highest income level for the global music industry since 2006 when the sale of music through CDs was critical and accounted for about 80 per cent of the global music industry revenues. In 2006, the total revenues for the global music industry was $19.6bn which was at a time when there was no existence of streaming services.

(Adapted from TheGuardian.com)

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