Boy, Tencent is smart. If you want to get a handle on just how smart, consider this: Last Thursday (July 9th), entertainment-and-electronics giant Sony Corporation announced it was buying a minority stake worth $250 million in Epic Games, maker of Fortnite. Epic recently nailed a $17 billion valuation, meaning Sony’s stake will be worth around 1.5% of the company.
But eight years ago, in summer 2012, Chinese competitor Tencent already spent a comparable sum ($330 million) buying its own stake in Epic. This was five years before Fortnite publicly launched. The deal netted Tencent a 40% holding in Epic — around 27 times the stake that Sony bought itself in 2020.
Confirming the Sony deal last week, Epic Games CEO Tim Sweeney foreshadowed an increasing interconnectivity between entertainment companies, especially with Sony’s music companies (Sony Music, Sony/ATV etc.). “Sony and Epic have both built businesses at the intersection of creativity and technology,” said Sweeney, “and we share a vision of real-time 3D social experiences leading to a convergence of gaming, film, and music.” This perked up ears across the music industry, as it comes off the back of Travis Scott’s game-changing virtual Fortnite concert in April, which was witnessed by over 27 million in-game fans.
But the Epic-Sony coupling is actually only one of the two announcements out of Sony Corporation in recent weeks that have major ramifications for the music business. Coincidentally or not, the second also comes back to — you guessed it — Tencent.
On May 19th, the Tokyo-based Sony Corp announced via CEO Ken Yoshida that it will change its name to Sony Group Corporation, with effect from April next year. This is more than a cosmetic upgrade: As noted in the Financial Times, the new structure suggests Sony plans to give just as much limelight to games (PlayStation), movies (Sony Pictures), and music (Sony Music Group), as to the historical bedrock of Sony (its electronics division). This, in itself — especially when combined with that $250 million Epic Games maneuver — is of clear interest to the blockbuster music business, because it hints that the collaborative “One Sony” entertainment utopia I described in this column last year is poised to become even more of an exciting reality.
But there’s another element to Sony’s repositioning. As the FT’s Leo Lewis notes: “[Sony’s] real pivot — the more psychological one — is revealed through Mr. Yoshida’s reference to the diversity of the portfolio. Signaling that it is done with the current vogue for divestments that leave only the slim ‘core’ of once tubby corporations, Sony is making clear it is a conglomerate and proud of it.”
This has particular bearing on Sony Corp’s Music division. Over the past decade, a prominent investor in the company, Dan Loeb of Third Point LLC, has caused the company’s management repeated headaches. In 2013, Loeb, who was then Sony’s biggest single investor with over $1 billion in stock, lobbied Sony Corp’s management to spin off a chunk of its entertainment properties (including music) in order to pay off the debts of the electronics division. Sony resisted; that proved to be a very smart move.
Sony Corp has since deliberately swum in the opposite direction, doubling down on entertainment and, particularly, in music, as a profit center. In 2018, Sony Corp invested over $2.3 billion to acquire EMI Music Publishing; as a result, it now fully owns the world’s biggest music publishing operation (mainly via Sony/ATV), which turned over $1.4 billion in the last calendar year.
When scanning through the Japanese corporation’s latest annual report the other week, I spotted that, from end of March 2018 to end of March 2020, it cut over 5,500 employees globally (from 117,300 to 111,700). Yet in its music division, and only in its music division, Sony’s worldwide headcount grew during this period — from 8,200 to 9,900.
Both in terms of corporate positioning and financial investment, Sony Corp appears to have banished any suggestion (whether Daniel Loeb’s or otherwise) of chipping away at its music operation for a quick buck. Guess who won’t love this news?
And we’re back to Tencent. In the past four months, Tencent acquired minority stakes in two of the three biggest music rights companies: 10% in Universal Music Group via a $3.4bn share purchase in March, and 2% in Warner Music Group via a $200m share purchase in June, just as Warner floated on the NASDAQ. Don’t forget that, via stock-swap, Tencent also owns around 9% of Spotify.
Many have speculated that Tencent’s grand plan is to snaffle minority stakes in all of music’s most powerful global companies. This could give it a prime seat at the table when it comes to observing how some of its rivals (hello, Bytedance/TikTok!) are treated by the music industry. It could also allow Tencent to influence licensing agreements between labels and its own digital services — which include QQ Music, one of China’s biggest music-streaming platforms.
But Sony Corp’s recent moves may be the snag in that grand plan. With Sony’s music operations (including Sony Music Group, run by Rob Stringer — who also oversees Sony Music — and Sony/ATV, run by Jon Platt) more heavily backed than ever by their parent corporation, the likelihood of Tencent acquiring a stake in them feels less plausible.
Compare this to the situation at Universal Music Group, where not only is Tencent allowed to acquire a further 10% in UMG as a condition of its March deal, but could also swoop in for more shares when Universal’s parent Vivendi spins off another chunk of the music company via IPO before 2023.
All three major music companies are seeking differentiation from their rivals — so Sony’s boast, in its latest annual report, of being “the most talent-friendly music company” could probably be claimed by the other two companies as well. (Though Sony’s decision to ignore unrecouped artist balances when paying out millions its Spotify stock sale in 2018 does weigh in its favor in that respect).
To my mind, Sony’s true differentiation in the music industry comes down to two things it may never say outright in a corporate report: 1. The “One Sony” blueprint, especially now with Epic in the mix, which promises to offer certain artists a cross-media career. (I can see a Sony artist like Adele or Beyoncé “doing a Streisand” and winning an Oscar this decade, by the way.)
2. The fact Sony is now the only music major not owned by more than one party — and, very specifically, not by Tencent.
Tim Ingham is the founder and publisher of Music Business Worldwide, which has serviced the global industry with news, analysis, and jobs since 2015. He writes a weekly column for Rolling Stone.