An official investigation found Tencent’s 2016 acquisition
of China Music Corp.’s stakes violated regulations partly because of a lack of
reporting to authorities, according to a statement by the anti-trust watchdog
on Saturday. The State Administration for Market Regulation (SAMR) required
Tencent and its affiliates to waive exclusive music rights within 30 days and
handed down a fine of 500,000 yuan ($77,145).
That deal had helped create Tencent Music Entertainment
Group, which was formed after the merger of QQ Music and China Music Corp.
The government agency also asked Pony Ma’s social media and
gaming giant and its affiliates to stop demanding music copyright holders to
give it better treatment than its competitors through practices such as
providing high advance payments. The companies must submit their plans for
rectification within 10 days to the watchdog and continue to report on their
enforcement of the changes annually in the next three years.
Tencent will make rectification plans with its affiliates,
including Tencent Music Entertainment, within the time limit designated and
“faithfully” carry out the SAMR’s order to ensure all requirements are met, the
company said in a statement on its official WeChat account.
The penalty levied on Tencent marks the most-direct hit to
Asia’s most valuable corporation from Beijing’s escalating campaign against its
tech giants. Fellow internet behemoth Alibaba Group Holding Ltd. was fined a
record $2.8 billion in April for antitrust violations, while its affiliate Ant
Group Co. had to scrap an initial public offering and restructure into a
financial holding company. Firms backed by Tencent have also come under
scrutiny: food-delivery leader Meituan is facing an anti-monopoly probe while
Didi Global Inc., operator of the country’s largest ride-hailing service, was
this month ordered off Chinese app stores by cyberspace regulators.
Beijing has sought to curtail the growing influence of
China’s powerful internet corporations over every aspect of Chinese life from
online shopping to chatting and ride-hailing. That campaign is now extending
into the arena of data security, with President Xi Jinping’s government said to
be exploring a number of models and actions to open up their information
hoards. Separately, financial regulators are planning rule changes that would
allow them to block a Chinese company from listing overseas even if the unit
selling shares is incorporated outside China, people familiar with matter have
said.
In response, the tech giants have pledged to comply with
regulations and refrain from anti-competitive behavior, while ramping up
spending significantly to spur growth. Tencent said in May it will plow a
larger portion of its incremental profits this year into cloud services, games
and video content, joining Alibaba and Meituan in telegraphing sharp hikes in
investment. The Shenzhen-based firm has also unveiled plans to invest 50
billion yuan in its so-called “social values initiative” to fund philanthropic
efforts in areas such as education, rural revitalization and carbon neutrality
that align firmly with Xi’s priorities.
China’s antitrust authorities had previously investigated
Tencent’s dealings with the world’s three biggest record labels but the probe
was suspended, people familiar with the matter said last February. Tencent
Music has noticed a tightening in antitrust scrutiny and has been cooperating
with regulators, executives said in May.
Tencent Music has long held a commanding lead in Chinese
music through exclusive rights to a major chunk of Universal Music Group, Sony
Music Entertainment and Warner Music Group Corp.’s catalogs, which it then
sublicenses to smaller platforms, including those operated by NetEase Inc.,
Alibaba and Xiaomi Corp. That dominance was weakened when NetEase struck deals
to directly license songs from Universal and Sony.
Over the past seven months, the watchdog has already imposed
token fines — amounting to at least 4.5 million yuan, excluding penalties for
affiliates — on the company for not seeking approval for a number of past
investments and acquisitions.
The firm, co-founded by China’s second-richest person more
than two decades ago, has previously been accused by rivals including TikTok
owner ByteDance Ltd. of alleged monopolies by blocking their content on its
WeChat super app, the chatting and payments service used by more than a billion
people. In February, ByteDance filed a lawsuit accusing the larger company of
violating antitrust laws by blocking content from Douyin, the Chinese twin of
its globally popular short app, on WeChat and QQ.
Tencent’s fast-growing fintech businesses are also under
separate scrutiny. China’s top financial regulators see Tencent as deserving
increased supervision after the clampdown on Ant, people with knowledge of
their thinking told Bloomberg in March. The firm was among 13 companies ordered
by watchdogs including the central bank and the banking regulator at the end of
April to rein in their financial operations, imposing upon them many of the
restrictions that have already been levied on Ant.
Executives have sought to assuage investor concerns, saying
that Tencent remains very focused on risk management and has been
“self-restrained” on the size of its non-payment financial products.
“When we look into the internal review, and when we look
into what other things that need to be done in order to make sure that we are
compliant with the spirit of the regulators, it’s actually relatively
manageable,” President Martin Lau said during the corporation’s first-quarter
earnings conference call.
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