China’s version of Spotify is following the Swedish giant to Wall Street.
Three months after Spotify’s debut on the U.S. stock market, Tencent Music Entertainment (TME) – China’s leading music-streaming company that operates three of the country’s biggest digital services with QQ Music, Kuwo and KuGou – is also gearing up for a stateside public listing, according to corporate filings.
Tencent, the immense $500 billion Chinese internet corporation that has majority ownership of TME, announced in a letter to shareholders on Sunday that it plans to spin off its music business on a “recognized stock exchange in the United States through a registered public offering.” Terms of the spinoff, including price range and offering size, haven’t yet been finalized – but analysts have tagged TME with valuation estimates as high as $30 billion. That figure is right on par with the $29.6 billion market cap of Spotify, which opened on the New York Stock Exchange in April at $165.90 a share after its (sort of) IPO.
Without more public detailed financials, it’s hard to say what TME’s listing on the U.S. stock exchange will mean for either the Chinese music company or the global music-streaming market. But one point of interest – for investors and music-industry executives alike in both markets – is that TME and Spotify don’t just share a similar market value: They also have direct investment in each other. In December, Tencent and Spotify completed a stock swap that saw the Chinese company take a 9.1 percent stake in the Swedish one (with a quarter of that being taken by TME directly); in return, Spotify also took 9 percent non-controlling equity interest in TME.
Though no business or product partnerships have been forged yet, that deal sets the two digital music companies to team up in the future. And China’s music industry is also exploding at a furious pace: According to the International Federation of the Phonographic Industry, which tracks global music consumption, the country became the 10th largest music market in the world in 2017, up from 19th in 2014. (The U.S. has reigned for decades at number one, followed by Japan and Germany.)
But more broadly, Tencent’s soon-to-go-public music business is a hot topic to follow because the company, unlike Spotify, is actually profitable.
While Spotify has 170 million users helping generate revenue, the massive payouts it has to make to labels, artists and other rights-holders still put it in the red every year. TME, on the other hand, took in profits of $91 million in 2016 and $283 million in 2017, according to Chinese filings. The secret to its success? TME’s parent company Tencent has a market value of $480 billion and owns a plethora of internet businesses outside of music, including a gaming platform, a social network and the hugely popular messaging app WeChat. Thanks to Tencent’s immense reach into China’s population, TME can likely negotiate more favorable deals with labels and rights-holders; it also boasts 700 million users, three times more than Spotify, and offers non-streaming features like concert tickets and exclusive song downloads.
The Chinese music company has managed to turn a profit by being an integrated entertainment experience, backed by a tech giant, with eyes on global expansion. If its U.S. IPO goes well, its particular business strategy could spur a new way of thinking in the music-streaming community. (We’re already seeing some companies taking cues. An Apple Music bundle, anyone?)