Spotify and Chinese tech titan Tencent are investing in each other’s music-streaming services as part of what Tencent president Martin Lau calls a “strategic collaboration.”
The reciprocal agreement between Spotify, Tencent, and the latter’s subsidiary Tencent Music Entertainment Group (TME) seeks to boost the companies’ respective prospects for growth in key markets around the world.
China remains notably absent from Spotify’s international roster, and as the Swedish company prepares to go public in 2018, this deal could open doors that were previously closed.
TME is a major digital music service provider in China, operating the likes of QQ Music, KuGou, and Kuwo across the country, and Tencent owns a majority stake in TME. The tie-up with Spotify will lead to TME and Spotify acquiring minority stakes in each other “for cash,” according to a joint statement issued by the companies, while Tencent will invest directly in Spotify through secondary purchases. Spotify is the world’s largest music-streaming service outside of China, so the investment is a no-brainer for Tencent and its TME subsidiary.
But what will this all mean in real terms? Well, it’s not entirely clear, but TME CEO Cussion Pang said that the companies will work toward exploring “collaboration opportunities, with a common objective to foster a vibrant music ecosystem that benefits users, artists, and content owners.”
While Apple Music launched in China back in 2015, Tencent is thought to control more than 75 percent of the Chinese digital music market, with services from local players such as Baidu, Alibaba, and Netease also proving popular. In short, Apple Music is hardly thriving in China. Spotify’s approach to China echoes that of other U.S. technology players, including ride-hailing companies and cloud computing services, which have ultimately had to rely on local partnerships to operate. In July last year, Uber unfurled the white flag and merged its Chinese operations with local e-taxi giant Didi Chuxing in a $35 billion deal, while Amazon recently announced it was selling the hardware from its public cloud business to existing Chinese partner Sinnet to comply with local law.
Spotify knows it wouldn’t stand a chance in the Chinese market on its own, but by joining forces with Tencent it hopes to gain traction in some form — though we don’t know exactly what that will look like.
“Spotify and Tencent Music Entertainment see significant opportunities in the global music streaming market for all our users, artists, music, and business partners,” added Spotify CEO Daniel Ek, somewhat vaguely. “This transaction will allow both companies to benefit from the global growth of music streaming.”