Tencent Music Entertainment Group–the largest streaming service in Asia–is plotting an IPO that may top $25 billion, according to a recent report by the Wall Street Journal. That likely comes as welcome news for shareholders of its parent company, Tencent, one of the world’s biggest companies by revenue. It should also be music to the ears of the three major record companies.
Universal Music Group, Sony Music Entertainment and Warner Music Group all stand to profit from a potential Tencent Music IPO, as they own a piece of the company. That’s because they also hold a ten-figure chunk of Spotify, the streaming giant that recently went public at a valuation north of nearly $30 billion–and Spotify and Tencent own a piece of each other in the wake of a late 2017 share swap.
The latest news suggests the value of Tencent Music has increased markedly this year. As recently as last September, the service was thought to be worth somewhere around $10 billion; then again, Spotify’s last round of fundraising before going public valued the Swedish upstart at $8.5 billion, about one-third of what it turned out to be worth on the open market. Tencent’s 7.5% stake in Spotify is now worth more than $2 billion, so it’s likely Spotify holds a similarly large slug of equity in its Asian counterpart.
The major labels’ Spotify holdings have combined with a surge in streaming revenues to brighten the outlook for a music business recently thought to be facing an existential crisis. But while music companies have thrived, their balance sheets boosted by investments in streaming services, the artists whose music those labels used to acquire such stakes haven’t seen the same sort of windfall (read more about that in my Forbes magazine story, “Revenge of the Record Labels“).
As I wrote around the time of Spotify’s IPO earlier this month, it seems that the majors–all of whom have promised to share their spoils with artists–won’t do so until they actually sell their shares in Spotify. Nothing seems to have changed during the intervening weeks. A representative for Sony declined to comment; a spokesperson for Universal referred me to a video of parent company Vivendi’s chief mentioning plans to hold onto Spotify shares; WMG did not respond.
Will artists get a cut of any proceeds from a potential Tencent IPO? Since the labels’ holdings are arranged indirectly, through Spotify, artists will probably have to wait until the majors decide to sell shares of the Swedish streaming giant. And there’s no indication that’s happening anytime soon.
Source : Forbes