Sony Music Entertainment announced on Monday “a direct digital distribution relationship” with NetEase Cloud Music, a unit of Chinese video games giant NetEase, to effectively end an exclusive licensing deal in mainland China with Tencent Music Entertainment (TME).
Under the agreement, NetEase will make Sony Music tunes available to mainland Chinese users and explore other areas of collaboration, including music vlogs – or what it calls Mlogs – and online karaoke with smartphones.
Sony Music also said it has agreed to a “multi-year extension” of its digital distribution deal with TME.
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New York-based Sony Music is the last of three major international labels, including Universal Music Group and Warner Music Group, to end exclusive licensing deals with TME.
In August last year, NetEase and Universal Music announced a multi-year licensing agreement. Three months earlier, the Hangzhou-based tech firm expanded its portfolio to provide music from Warner Chappell, the global music publishing arm of Warner Music Group.
For years, TME had paid hefty fees to maintain exclusive deals with the three global labels, which gave it a huge advantage over rivals and led to complaints from smaller firms, some of which failed to survive the industry’s expensive fight for copyrights.
Xiami, one of China’s earliest players in the music-streaming industry, shut down in early February. The app, owned by the South China Morning Post’s parent company Alibaba Group Holding, admitted that it had missed opportunities to land major copyright deals.
“The whole industry has been overpaying the content cost twice, three times or even more to the label companies in this unfair set-up,” said NetEase chief executive William Ding Lei during his company’s earnings call in the fourth quarter of 2019.
Regulators have taken notice of the situation.
“In recent months, we have received increased regulatory scrutiny from relevant authorities and have been actively cooperating and communicating with the relevant regulators … We‘re committed to complying to relevant laws and regulations, including those related to antitrust,” said TME’s chief strategy officer Tony Yip at an earnings call on Monday.
Beijing was preparing to slap penalties on TME’s parent Tencent Holdings, whose dominance in online music streaming has been the focus of a government inquiry, according to a Reuters report last month.
In January 2019, the State Administration for Market Regulation launched an antitrust investigation into TME that focused on its dealings with the world’s biggest music labels. The inquiry was suspended a year later without explanation from authorities, but it happened around the same time that TME started licensing songs to ByteDance, operator of the popular short video-sharing apps TikTok and Douyin.
Last year, TME saw its growth sputter, with profit up just 4.3 per cent, or 4.16 billion yuan (US$637 million), compared with more than 117 per cent growth in 2019. Revenue growth slowed to 14.6 per cent from 34 per cent, while the number of monthly active users on smartphones dropped 3.4 per cent.
In the first quarter of 2021, TME’s profit grew 4 per cent while revenue was up 24 per cent.
As TME’s hold on music copyrights weakens and its growth slows, the company is restructuring its organisation to streamline internal operations. It is also integrating multiple products, including its flagship apps Kugou Music, QQ Music and Kuwo Music – online music platforms with the most users in China, according to Chinese media outlet Jiemian.
TME chairman Cussion Kar Shun Pang and CEO Ross Zhu Liang, who were appointed to their respective roles last month, hold a track record of successfully integrating Tencent products. Between 2014 and 2014, they worked together to connect QQ Music with messaging app QQ and social platform QQ Zone to create a combined ecosystem.
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