Tencent outshines Spotify in IPO sing-off

[HONG KONG] Tencent outshines Spotify in a sing-off. The US$473 billion Chinese Web giant wants to list its music-streaming arm at a US$25 billion-plus valuation, IFR reported earlier this week, citing sources. That would be in line with what its Swedish peer trades at. But while Spotify grapples with rising licensing fees, Tencent's biggest challenge is getting its users to pay.

Tencent Music Entertainment Group operates several apps, including one that lets people sing karaoke and watch live performances on their phones. But it's the company's popular music-streaming services that have investors comparing it to the US$28 billion Spotify, which recently went public in New York.

The similarities end there though. The Stockholm-based outfit, which swapped minority stakes with Tencent Music last year, boasts 157 million monthly active users, of which over 70 million pay for premium services. That's impressive, but the loss-making group remains at the mercy of a handful of dominant record labels and publishers which are demanding more and more royalties and licensing fees.

In contrast, Tencent is able to drive harder bargains with labels. Its music unit already touts a whopping 700 million monthly active users, and it owns China's dominant chat app that has more than a billion users. The social media giant can deploy its financial and legal firepower to help labels like Warner Music Group crack down on rampant piracy. Industry insiders say the quid pro quo is exclusive rights for Tencent Music, which then sub-licenses to competitors.

Tencent boss Pony Ma's biggest task is weaning local users off free music. The company doesn't disclose details, but a senior executive from Tencent Music last year said paying subscribers were around 15 million - less than 3 per cent of the total at the time. That number is sure to rise, part of a wider trend of Chinese consumers paying more for online movies, books and content. Compared to Spotify's troubles, that plays a far more upbeat tune for investors.

Tencent Music Entertainment Group has invited investment banks to pitch for a role in a US initial public offering worth up to US$4 billion, IFR, a Thomson Reuters publication, reported on April 30, citing people familiar with the plans.

The company, a subsidiary of social media and gaming group Tencent, is seeking a valuation of about US$25 billion, according to IFR. Tencent Music operates several services, including karaoke, live-broadcasting, and music-streaming apps with a total of 700 million monthly active users in China. The company's three streaming services have a combined market share of over 70 per cent, according to a 2017 report from the International Federation of the Phonographic Industry.

In December, Tencent Music announced a share swap with Swedish peer Spotify. According to filings, Tencent and its units collectively hold a 9 per cent stake, while Spotify has a 9 per cent stake in Tencent Music only.

REUTERS