Tencent, Universal and Spotify | An Unfolding Story
Updated: Sep 21, 2019
We know that ‘constant change, is no change’ for the music business, but the recent Vivendi talks with Tencent are particularly interesting. Tencent looks set to take a 10% share in Universal. Why does that matter?
Western investors argue whether to back rights holders or distribution platforms. By taking 10% ownership of Universal and adding it to their 5% ownership of Spotify (they did this in 2017) Tencent have backed both. They (or at least their music subsidiary) have done incredible things in China; unbelievable things! I believe they have about an 76% market share! But that’s slowing and they are looking west.
In China the music industry is being built from scratch – and as a result they aren’t tied down by an antiquated, complex, messy system. As a consultant, and through my work with the music industry on a broader business level across Europe, one of the music marketing issues we work on, is how we turn those streaming listeners (most of whom don’t pay and are delivered tracks via a playlist ) into real world, dedicated, badge wearing fans. Listeners and fans are very different beasts. Fans go to shows, buy product and invest in the artist’s brand proposition. I advise artists and companies of all sizes about the importance of moving listeners to social media, from where we can showcase the artist as a person and not a product – building a genuine connection; my mantra being that artist must ‘humanise to monetise’. In China, they don’t have this digital transportation problem. Chinese social networks were built seamlessly with their streaming services – there’s little or no separation. The west continue to obsess with monetising consumption, all while China have leapfrogged that novelty and are busy monetising fandom. Think WeSing, TikTok… ‘social music’. With Facebook's recent licensing deals, they are surely about to make their own signifiant move into social music. Spotify trialling a 'Stories' feature is not enough to take control of this narrative yet!
The industry speculators are considering the implications for Spotify of Tencent owning 10% of Universal. When the new Spotify contracts need to be renegotiated, Universal will find themselves in an incredibly strong position. Where once they were held back from brutal deal-term tactics due to Spotify’s western consumer market dominance, now with the free cash flow Tencent have, Universal could remove their artists from Spotify, temporarily remunerate the artists’ and sit it out until a deal is done. Who blinks first? It depends who has the most money!
Spotify would have a colossal music hole if the world’s biggest label were missing from their catalogue. And who can play hardball longer? Whoever has the deepest pockets. If the Vivendi/Tencent deal goes through… Universal can hold tight, whilst streamers, stream to rival platforms. A Spotify deal would be reached I’m sure, but on Universal’s terms. And Tencent, disregarding their 5% Spotify ownership, will still see this as a victory against a rival, especially as they eye markets and audience shares beyond the borders of China.
All change? That's a given in our business. But predicting the change remains the biggest challenge.