When China’s State Administration for Market Regulation (SAMR) barred Tencent and its music entertainment arm, Tencent Music Entertainment (TME), from exclusive copyright agreements on Saturday, it struck at the core of the company’s competitive advantage in China’s music streaming industry.

TME cemented its position in China’s nascent music streaming market by consolidating content via exclusive agreements with some of the world’s largest music labels, like Warner Music Group, Sony Music, and Universal Music Group. In December 2020, TME upped its stake in Universal Music Group to 20% and established even deeper business ties with the record label.

These deals gave TME a leg up on competitors like NetEase for years, with the company holding 80% of exclusive music library resources in China, according to the SAMR. The regulator’s decision to undo TME’s exclusivity comes as no surprise since the initial antitrust probe dates back to 2019, and has altered the competitive landscape in music streaming.

TME’s number of mobile monthly active users in Q1 2021 dropped 6.4% year-on-year for its music streaming services, and 14.2% YoY for its social entertainment services, which make up the bulk of the firm’s revenue. While NetEase’s music streaming service, NetEase Cloud Music, only has 181 million MAUs as of December 2020, lagging far behind TME’s 622 million MAUs, the former generally attracts more affluent users in big cities and facilitates a community that encourages engagement in social entertainment.

NetEase Cloud Music users’ have a similar average revenue per paying user (ARPPU) to TME’s in terms of music streaming, but NetEase pulls ahead for social and livestreaming services with an ARPPU of RMB 573.80 (USD 88.50) compared to TME’s RMB 172.10 (USD 26.50). Meanwhile TME users’ ARPPU for music streaming actually fell by 1.1% YoY in Q1 2020. The plateauing user growth and monetization come at a dynamic period in the industry. Smaller players are full of hope after TME’s exclusivity agreements were smashed, but ByteDance is also ramping up its operations in music content.

Earlier this month, ByteDance channeled resources to its music streaming app Resso, under the attention of former TikTok vice president Alex Zhu. TikTok’s parent company is also one of the few players able to match TME’s expenditure on deals for music rights, striking agreements with the same major record labels. Other rivals like NetEase have accused TME of paying exorbitant licensing fees for content, widely thought to be unmatchable at the time. But ByteDance’s revenue hit USD 34.2 billion in 2020 and the company is one of few that can match Tencent’s resources and complementary social app infrastructure. While TME can rely on close integration with Tencent’s WeChat, ByteDance’s short-video platforms like Douyin and TikTok can also effectively distribute music content for Resso.

Although TME’s fundraising plans show no sign of complacency, as the firm considered a USD 5 billion secondary listing in Hong Kong in February 2021, Tencent will be all too wary of ByteDance’s challenge from the two companies’ sparring in video games. China’s ongoing antitrust campaign continues to cause headaches for Tencent, just weeks after the SAMR blocked the merger between game livestreaming platforms Huya and Douyu that would have cemented Tencent’s dominance in gaming entertainment.

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