Spotify and Tencent Join Forces

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Spotify, the world leader in paid music streaming, and the Chinese platform Tencent announced Friday a cross-shareholding agreement that will almost surely guarantee Spotify’s leadership in a highly competitive environment.

The agreement signed between Spotify and Tencent puts an end to the endless rumors in recent months of tough negotiations for the acquisition of the Swedish company by Tencent.

Spotify will acquire newly issued minority shares of an undisclosed value in Tencent Group’s music subsidiary Tencent Music Entertainment Group (TME) and vice versa, the two companies said in a joint statement.

Meanwhile, Tencent, which in November became the first Chinese technology group worth $ 500 billion, briefly surpassing the Californian Facebook, will invest in Spotify through the purchase of existing shares, according to the same source.

“Spotify and Tencent Music Entertainment are seeing significant opportunities in the global streaming market for all our users, artists, but also music and business partners,” said Spotify founder and CEO Daniel Ek.

“This transaction will allow both companies to benefit from the global growth of streaming music,” he added.

TME’s boss, Cussion Pang, was delighted to have sealed a partnership with “the world’s largest streaming music platform”.

“TME and Spotify will work together to explore ways to collaborate with a common goal of creating a dynamic music ecosystem that is supportive of users, artists, and content owners,” he said.

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Spotify, with 30 million shares, crossed the threshold of 60 million subscribers this summer, further strengthening its position as market leader.

The Swedish group claims 140 million active users in 61 countries.

Far behind, Apple Music had 27 million subscribers at the end of June. The French company company Deezer arrived in third position with 6.9 million subscribers reported by the end of November.

Music streaming has really taken off in 2016 with revenues up by 60% and 112 million subscribers paying for streaming services around the world.

This trend has allowed the global music industry to return to growth over the last two years, offsetting the continued decline in recorded music sales.

But streaming players still struggle to find their business model and achieve profitability despite their growing popularity, especially as competition becomes fiercer: after the United States, the United Kingdom and Germany, Amazon has launched this year in France, but also in Italy and Spain, its music streaming and download service, Amazon Music Unlimited.

Spotify was still losing money last year: Spotify Technologies, a Luxembourg-based holding company, posted a net loss of 539 million euros despite revenues of 2.9 billion euros (+ 53%).

The company announced in the spring a global agreement with Universal Music Group, running over several years, which industry analysts believe should lower the amount of money spent on contents and allow for the first profits.

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Spotify is also considering, perhaps as early as 2018, a direct listing, without new shareholders or raising capital, according to press reports.

Tencent is pursuing its development abroad. With its application WeChat (messaging, social network, e-commerce, games…) which has nearly a billion users, the conglomerate signed this year capitalistic alliances with Tesla and Snapchat.

Emy Torres

Emy holds a degree in Political Science from the University of Michigan and currently freelances part-time for The Talking Democrat.