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China’s Biggest Music-Streaming Service Goes Public in the U.S.

Tencent Music Entertainment is China’s Spotify — but it actually turns a profit

PARIS, FRANCE - JUNE 12: (EDITORS NOTE: Image has been digitally manipulated) In this photo illustration, the logo of the music streaming service QQ Music is displayed on the screen of an iPhone on June 12, 2018 in Paris, France. QQ Music is one of the three Chinese music streaming service owned by Tencent. Tencent Music Entertainment Group (TME), the largest music streaming platform in China, is preparing for what will be one of the largest IPOs ever by a technology company. This IPO, which could take place in the second half of 2018, would be one of the largest transactions of the year and should raise 25 billion dollars.  (Photo Illustration by Chesnot/Getty Images)

Photo Illustration by Chesnot/Getty Images

Tencent Music Entertainment, China’s leading music-streaming company, filed to go public in the U.S. on Tuesday, kicking off what’s expected to be a history-making tech IPO.

In its Registration Statement filed with the Security and Exchange Commission, TME — which operates QQ Music, Kuwo and KuGou, three of China’s biggest digital services, as well as karaoke app WeSing, boasting more than 800 million monthly active users across the board — said its total revenues in 2017 were $1.66 billion and stand to be even bigger for 2018. According to analysts, TME’s IPO will value the company around $30 billion — a number comparable to that of Spotify, which debuted via direct listing on the U.S. stock market in April at $29.5 billion and is currently worth $32 billion.

Clearly, it’s a big year for music-streaming companies. But when comparing Tencent Music and Spotify, one thing immediately stands out: While the latter has been taking losses year after year because of its cheap product and big royalty payouts to artists and other rights-holders, Tencent Music is profitable. According to the filing, it has posted a significant annual profit for the last two years. The secret to its success? TME’s parent company, the internet giant Tencent Holdings, has immense reach with its ownership of other digital businesses such as a gaming platform, social network and the popular messaging app WeChat. Such a broad ecosystem puts TME in a much more powerful position in the music industry than standalone company Spotify.

TME also offers more than just music streaming: QQ Music, for instance, is an integrated entertainment experience offering listening subscriptions, concert tickets and exclusive song downloads. Per the filing, online music services accounted for only 29.6 percent of TME’s revenues in the first half of 2018, and “social entertainment services and others,” such as in-car audio, event ticketing, online karaoke and sales of headphones and karaoke microphones, made up the other 70.4 percent. Investors interested in the music space will be keenly watching those two numbers, as will other music-streaming companies looking to refine their own growth strategies.

Tencent Holdings owns 58 percent of TME; Spotify owns a further 9 percent, after the two streaming companies took place in a stock swap last year. As Music Business Worldwide points out, Warner Music Group and Sony Music Entertainment — two of the “Big Three” music labels — have acquired, via an aggregate cash consideration of around $200 million, a total of around 68 million ordinary shares in the company.

In This Article: China, music industry

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