Tencent Spared From Pressured Gross sales in China Motion
The government move is part of a broader attempt by Beijing to regulate its domestic tech sector, which has grown rapidly after years of relatively little regulation. As of last December, regulators have fined 11 companies, including Tencent, Baidu, Alibaba and ByteDance, for failing to disclose past acquisitions and investments.
News of the regulatory fines sent Tencent Music Entertainment’s shares on the New York Stock Exchange down more than 10% to $ 12.69 per share on Wednesday and Thursday. Shares in other US-listed Chinese tech companies, including JD.com, Alibaba and Pinduoduo, also fell. (TME rebounded slightly on Friday, rising 1.5% to $ 12.88.)
However, despite the massive fines imposed, the lack of foreclosures seemed to allay investor concerns that Tencent Music would have to sell its 2016 music services Kuguo and Kuwo, which helped the music company gain a dominant position in the Chinese streaming market. Regulators have expressed concern about how the company’s streaming concentration and exclusive deals it has signed with major music labels have allowed TME to grow rapidly at the expense of its competitors.
According to QuestMobile, a Chinese research firm, TME’s three main platforms – QQ, Kuguo, and Kuwo – controlled 77% of China’s monthly active users among China’s top five streaming apps as of December. Since TME went public on the New York Stock Exchange in 2018, its market capitalization has grown from $ 21 billion to $ 26 billion.
“At this point it doesn’t look like there will be a sale of TME’s music apps.” Andy Mok, a senior research fellow at the Center for China and Globalization, a Beijing think tank, told Billboard. “It seems more like a matter of notification. The government is looking for a demonstration of greater sensitivity from tech companies. “
Still, the crackdown on Tencent Holdings, which has been fined at least five times since last December, could create further problems for failing to report acquisitions to antitrust authorities for review. The company has acquired many smaller companies whose acquisitions have not yet been sanctioned.
The regulator said the cases did not constitute a monopoly by restricting market competition, but the companies had failed to get proper authorization. Much of the business is done through subsidiaries of the parent companies.
The cartel fines were imposed less than a week after China’s internet watchdog launched a data security investigation into ride hailing giant Didi and several other overseas listed Chinese internet companies.
Last week (July 2), the Cyberspace Administration of China banned Didi from signing up new users while conducting a cybersecurity review of the company days after conducting the second largest US public offering for a Chinese company. The regulator said Didi illegally collected users’ personal data. Didi’s shares on the New York Stock Exchange fell nearly 20% to $ 12.49 per share on the news. (In Wednesday’s action, Didi also received eight tickets for merger irregularities.)
Shortly after announcing its Didi investigation, the regulator also opened cybersecurity reviews for US-listed boss Zhipin, an online recruiting platform supported by Tencent Holdings. The regulator also named Yunmanman and Huochebang, subsidiaries of the New York-listed Full Truck Alliance.
The Cyberspace Administration of China said the investigation was opened to “prevent national data security risks”.
Regulatory measures go beyond the technology sector. On Tuesday, China’s cabinet announced that it would strengthen oversight of overseas-listed Chinese companies to tackle illegal activities in the securities market and punish fraudulent securities issues.
According to a Reuters report, the Chinese Securities Commission is assembling a team to review Chinese companies’ plans to go public abroad.
Tencent Music is also under possible scrutiny on the data it collects on its 615 million monthly average users (including 61 million subscribers), Mok says. “It is psychographic data that not only indicates musical preferences, but can also be assigned to other aspects of a user’s personality and psychological variables,” explains Mok. “TME’s recommendation engines are almost like TikTok – you can infer a lot from the content the user is interested in.”
And while it was spared this time around, Tencent Music’s market concentration continues to risk it being downsized, Mok says. “A divestiture is not unthinkable and the government may request it later after discovering or deciding on more information [the company] In fact, it harms competition. “
Additional coverage from Kyle Mullin in Beijing