China is preparing a substantial fine for Tencent Holdings as part of its sweeping antitrust crackdown on the country’s internet giants, but it will likely be less than the record $ 2.75 billion penalty imposed on Alibaba earlier this month , two people with direct knowledge of the matter. mentionned.
Tencent should expect a fine of at least 10 billion yuan ($ 1.54 billion), large enough for the State Administration of Market Regulation (SAMR) to make an example, said. the two people.
Tencent faces penalties for failing to properly report past acquisitions and investments for antitrust reviews, a violation with a fine capped at 500,000 yuan ($ 77,100) per case, and for anti-competitive practices at some of its businesses , with particular emphasis on music distribution.
Neither SAMR nor Tencent immediately responded to Reuters requests for comment.
“The regulator’s attitude is that unlike Alibaba, you are not the biggest target here, but it would be impossible not to penalize Tencent now that the campaign is in action,” one of the officials said.
China has sought in recent months to reduce the economic and social power of its once poorly regulated internet giants, as part of a crackdown backed by President Xi Jinping.
Tencent and Alibaba Group Holding Ltd are China’s two largest tech conglomerates, with market values of $ 776 billion and $ 642 billion respectively.
Earlier this month, SAMR imposed its record fine on Alibaba after an investigation found that the e-commerce company had abused its dominant position in the market for several years.
Tencent’s vast businesses include video games, content streaming, social media, advertising, and cloud services.
SAMR’s investigation focuses in part on Tencent Music Entertainment Group, which was split up and listed in the United States at the end of 2018, two people and other sources close to the company said. Tencent Music Entertainment did not immediately respond to the request for comment.
Stranglehold streaming
The regulator has informed Tencent that it should expect a fine, give up exclusive music rights and may even be forced to sell the acquired Kuwo and Kugou music apps, the people said.
However, Tencent’s core business of video games and WeChat will likely remain intact, one of the people said.
Tencent Music, China’s answer to Spotify, acquired competing apps Kugou and Kuwo in 2016 and secured exclusive broadcast rights with record companies including Universal Music Group, Sony Music Group, and Warner Music Group Corp.
It then sublicensed certain rights to competitors, including NetEase Cloud Music, which complained that the arrangement was unfair and that its prices were too high.
SAMR launched an investigation into Tencent Music in 2018, but dropped it in 2019 after the company agreed to stop renewing some of the exclusive rights, which normally expire after three years, two sources have already told Reuters.
However, he retained the exclusive rights to Jay Chou, the world’s most influential Chinese-speaking pop star, using him as a competitive advantage against small rivals NetEase Cloud Music and Alibaba-backed Xiami Music.
In front of the music
SAMR has told Tencent Music that it should expect to give up some of the remaining exclusive rights, two people said.
It may also be necessary to sell Kugou and Kuwo to competitors or other investors, one of the options being offered to senior government officials in Beijing, three sources said.
A forced sale of these units would set a precedent and could be difficult to execute, two of them warned.
Final confirmation of Tencent’s punishment will require a nod from China’s central leadership, the people said.
Tencent is pushing for a more lenient sanction, they added.
“Tencent doesn’t mind paying a hefty fine and is willing to pay more if necessary, as long as its core business remains intact,” one of the people said, referring to its video games and WeChat apps.
Last month, Reuters reported that Tencent will have to meet certain conditions in its plan to merge Huya and Douyu, two major video game streaming platforms, including giving up exclusivity to stream Tencent games on websites. streaming competitors.
SAMR said this week it was investigating Tencent-backed Meituan into allegations that the food delivery giant forced vendors to use their platform exclusively, the same offense for which Alibaba has been sanctioned.
