Tencent Music Entertainment Group is being probed by Chinese authorities over its exclusive licensing deals with major record labels, an investigation that may complicate Tencent Holdings Ltd.'s plan to acquire a 10% stake in Universal Music Group Inc., Bloomberg News reported, citing people familiar with the matter.
China's State Administration of Market Regulation launched the investigation in January, with the company's deals with Universal Music, Sony Music Entertainment Inc. and Warner Music Group Corp. under review.
Tencent Music, which owns exclusive rights in China to the catalogs of the top three record labels, sublicenses content to rival platforms, including those operated by Alibaba Group Holding Ltd., Baidu Inc. and Beijing ByteDance Technology Co. Ltd. The sublicensing arrangements are deemed "unfair" by competitors, as Tencent Music reportedly charges high fees in order to offset the expensive licensing costs. A source said licensing songs from Tencent Music for use in China can be twice as expensive compared to licensing directly from major labels.
In 2017, regulatory authorities in China warned music streaming services against entering into exclusive licensing deals. Following the warning, Tencent Music and NetEase Inc.'s NetEase Music agreed to sublicense more than 99% of their catalogs to each other, the report said.
