On-demand Streaming Music Services have expanded significantly in recent years and might dominate means of mass music consumption in the future. Among all the promising services, Spotify has always been welcomed by both subscribers and artists. However, it is also true that Spotify has struggled to successfully launch an IPO so far.
Meanwhile, China's Tencent Music Entertainment Group has become the most influential streaming music service since it now controls over QQ Music, Kugou and Kuwo, three local streaming services popular among Chinese listeners.
According to iResearch, QQ Music, Kugou and Kuwo hold 15%, 28% and 13% of total Chinese listeners respectively. All three services make up a 56% market share.
If Spotify and Tencent Music successfully engage in each other's businesses, they might be able to help each other expand globally in the future.
This is all about money
Since both Spotify and Tencent Music are pursuing an IPO, it is necessary for stockholders and potential stockholders in the future to evaluate these two companies' performance. Spotify has an estimated valuation of $16 billion before May 2017 and 46% of its 140 million users worldwide are paid subscribers. On the contrary, Tencent Music has an estimated valuation of $6 billion and only a small percentage, namely, 2-3%, currently pay a monthly subscription fee to these Chinese streaming services owned by Tencent Music.
The equity swap cooperation has been regarded as a win-win strategy from both sides. Since it is not easy for Spotify to enter China due to local government restrictions and Tencent's leading market position, this move might help Spotify to learn about Chinese market as well as to get through its financial crisis that happened from time to time.
From Tencent's perspective, this Chinese company has the ambition to take over other competitors in the global context. There were rumours that Tencent has attempted to purchase Spotify and was seeking an IPO listing in the US. Facing the governmental limitations on overseas investments, having up to 10% stakes in Spotify may help Tencent gain more profit in the long term.
What will happen to subscribers and artists?
Although this equity swap mainly meets the interests of stockholders, it might also influence subscribers and artists in the future. The traditional recording industry has been shaped by the uprising streaming music services and new business models have appeared, however, record labels and independent artists still follow the logic of royalties. It is said that the proposed equity swap deal would “align the two services in future licensing negotiations with major music labels”, in the future, royalty rates, streaming royalty payment system might be the consequent change. For artists, it is always better to reach a wider audience, no matter whether in a new market.
As for subscribers, all they care about is the quality of the streaming service. Therefore, except for earning money, both Spotify and Tencent Music need to offer better deals towards the production and consumption process: reasonable royalty payment for labels and artists, plus, excellent service for subscribers.
