Vivendi talks Universal with Tencent to tap music revival

[PARIS] Vivendi is in talks to sell up to 20 per cent of Universal Music Group (UMG) to Tencent, valuing its prized asset at around 30 billion euros (S$46.2 billion), as both firms look outside their core regions to expand in a recovering global music market.

While at a preliminary stage, the discussions highlight Tencent's role as gatekeeper to China's growing but tightly-controlled music market and the desire of Universal, whose revenues are surging as a result of online streaming, to expand beyond its traditional markets.

Global music-streaming retail sales are expected to more than double to US$45.3 billion by 2026 from US$19.6 billion in 2018, UK-based media analysis firm Midea predicts.

French media group Vivendi, controlled by billionaire Vincent Bollore, said on Tuesday that Tencent would first buy 10 per cent of Universal, the world's biggest music label ahead of Sony Music Entertainment and Warner Music and home to artists such as Lady Gaga, Taylor Swift, Drake and Kendrick Lamar.

Tencent, which already holds stakes in the world's most popular music streaming service, Sweden's Spotify, and India's Gaana, as well as owning Joox, the biggest music streaming app in many major Asian markets, would also have an option to buy a further 10 per cent of Universal.

Both groups are also "considering areas of strategic commercial cooperation", Vivendi said, raising questions among analysts over the scope of the talks and whether the French media group's main goal was to appease investors by telling them its planned sale of part of Universal was progressing. Universal's rivals Sony Music and Warner Music also have investments in Tencent's music division Tencent Music Entertainment Group (TME), which China's biggest gaming and social media firm listed in 2018.

"It is unclear if the stake sale depends on the parallel commercial deal with TME and what economic transfers this deal involves," said Jerry Dellis, an analyst at Jefferies.

Mr Dellis also said in a note to clients that US political opposition to Chinese investment in what could be considered a strategic asset could obstruct a deal.

A deal with Tencent could boost Universal's presence and fit well with TME, which tends to outbid its local competitors in acquiring music copy rights in mainland China.

It would build on the initial partnership struck two years ago between the two companies, under which Tencent can license Universal's music for distribution over its streaming platforms.

Tencent's music unit also owns exclusive rights to sub-license Universal's content to other content providers in China. They worked together to build Abbey Road Studios, China, a recording studio named after the Beatles' studio in London.

Universal still generates the bulk of its revenues out of the North America and Europe, which together represented more than three quarters of the division's recorded music sales in the first half, while Asia produced only 14 per cent.

REUTERS