HONG KONG (Reuters Breakingviews) - Tencent is stuck in a losing battle with Beijing. A year after a video-games crackdown hit the web giant, its $21 billion music-streaming arm may be under scrutiny from regulators. Pony Ma’s ambitions of building an entertainment empire are looking a little more fragile. It’s a reminder that China’s tolerance of its tech champions is waning.
Details of the investigation are still sketchy. Reports from legal publication MLex and Bloomberg, though, suggest the antitrust watchdog is examining exclusive licensing deals between Tencent Music Entertainment Group and major record labels. It’s a frowned-upon practice, but not uncommon in China’s cutthroat music-streaming sector: industry officials in 2017 had already warned against it. Rivals are now accusing Tencent Music, the market leader, of re-licensing those rights at unfair rates.
Shares of the U.S.-listed subsidiary promptly slumped on Tuesday by some 7% to $12.57, more than a third below a peak hit earlier this year. The immediate financial impact looks painful, but potentially manageable. Analyst Ming Lu, who publishes on SmartKarma, reckons sublicensing accounts for 30% of Tencent Music’s total revenue, which hit roughly $3 billion in 2018.
The bigger threat is to Ma’s vision of a digital media juggernaut. Besides music, $397 billion parent Tencent has invested heavily in video games, shows and movies, comics, and other content. The company also owns China’s top social network and chat apps, boasting over a billion monthly active users, as well one of the most popular video-streaming sites. That heft, though, has brought them to the attention of the powerful State Administration for Market Regulation.
President Xi Jinping has stepped up pressure on the country’s technology and internet darlings in recent years. Besides video games, censors have muzzled movies, short videos, online news and other media.
It goes beyond entertainment too: the central bank has clamped down on online lenders and fund managers, and reined in Jack Ma’s $150 billion Ant Financial with new rules on financial holding companies. Just last month, peer-to-peer lending unicorn Lufax exited the sector altogether after a crippling regulatory crackdown.
Whatever the outcome of the investigation, SAMR has taken on its biggest and most high-profile target at home. That suggests the regulatory woes for Pony Ma and fellow tech bosses are far from over.
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