Tencent acquires CMC as China strives to grow music market

Chinese digital giant Tencent has acquired a controlling stake in China Music Corp (CMC) in a move that could help carve out a legitimate online music market in China.

According to The Wall Street Journal, Tencent is increasing its stake in CMC from 16% to 60% in a deal that values the company at around $2.7bn.

CMC owns the number one and number three online music platforms in China, Kugou and Kuwo, while Tencent owns the number two platform QQ Music. The Shenzhen-based giant aims to combine the three platforms to create a music behemoth with a 50% user base and control of around 60% of music rights in China.

Before this deal, CMC had been planning an IPO in the US to raise funds of between $300m-$600m, but those plans appear to have been placed on hold.

Although it stymies competition, such consolidation could enable Tencent to build a legitimate business out of a market that has struggled to grow due to the availability of free online services and high levels of piracy.

Despite its huge smartphone connected population, China only has the world’s 14th biggest music market, worth just $169.7m in 2015, according to music industry body IFPI. However, that figure represents 64% year-on-year growth, with 89% of those revenues coming from online sales.

According to IFPI, overseas record labels didn’t really gain a foothold in the country until 2011 when One-Stop China (OSC), a joint venture between Universal Music, Warner Music and Sony Music, licensed their catalogues to Baidu.

Since then the market has seen a huge amount of consolidation with CMC buying Kugou and Kuwo and Alibaba operating the Xiami and Ttpod portals. In 2014, Sony, Warner and several Taiwanese labels signed licensing deals with Tencent.

Tencent has been trying to convert users of its QQ Music service to a premium membership that offers an extended music library, higher-quality sound and members-only concerts for a small monthly fee.

IFPI also reports, based on informal industry estimates, that Chinese-language music accounts for around 80% of the China market, with K-pop and J-pop taking 10% and the remaining 10% going to international repertoire.