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Universal Music Breaks From Exclusive China Licensing Agreement to Sign With Both Tencent and NetEase

Universal Music Group in Santa Monica,
Michael Buckner for Variety

Universal Music Group (UMG) announced Monday that it has signed multi-year direct licensing agreements in China with both Tencent Music Entertainment (TME) and its competitor NetEase Cloud Music, breaking the past precedent of signing exclusively with the former.

The move signals a shake-up in the major labels’ approach to the Chinese market. Until now, UMG, Warner Music and Sony Music Entertainment had each signed a single, exclusive licensing deal in China with TME, which then sub-licensed its catalogs out to its rivals, including NetEase.

The practice provoked an antitrust investigation of Tencent by Chinese authorities last year. These types of deals left rival Chinese firms sub-licensing music from TME often paying as much as double or triple what they would if they had licensed from the major labels directly, according to Bloomberg.

The new NetEase deal “marks a great step forward for China’s music industry as a whole,” said NetEase CEO William Ding. “We are confident that the partnership will bring wider choice not only for music lovers and artists, but also for the industry.”

The firm will now directly distribute UMG’s full roster of music, “increasing the scope of premium offerings and experiences” available to its subscribers, it said.

Meanwhile, the extension of UMG’s agreement with Tencent will see TME continue to distribute UMG’s content on its platforms, which include QQ Music, Kugou Music and Kuwo Music, as well as its more money-making online karaoke and live streaming services.

Adam Granite, UMG’s London-based market development EVP, said he was “pleased to extend and evolve” the company’s existing Tencent deal.

The two firms also announced a new, still unnamed joint venture music label that will focus on cultivating Chinese artists for local audiences.

TC Pan, TME’s group vice president of content cooperation, said the two companies hoped to create “an international pioneering music label” that appeals to a younger demographic.

Tencent now has non-controlling stakes in a number of the major Western labels. In March, a consortium led by TME completed the purchase of a 10% stake in UMG worth about $33.6 billion. It still has the option to purchase another 10% in 2021. In June, Tencent also acquired a $200 million stake in Warner Music Group. 

On Monday, TME beat analyst estimates for quarterly revenue, thanks to a broader content library that has brought in a surge of paid subscriptions. Revenue rose 17.5% year-on-year to $981 million, beating estimates of $984 million, according to Reuters.

TME said its number of users paying for music rose 52% to 47.1 million in Q2, while its online music subscription revenues grew 65% year-on-year to $186 million.