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Why Tencent Music May Want to Buy Universal Music Group

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Nov. 20 2020, Updated 4:19 p.m. ET

Vivendi looking to sell up to 50% of Universal Music Group

Tencent Music (TME) may be thinking about purchasing a stake in UMG (Universal Music Group), the world’s largest music label and a division of French media conglomerate Vivendi (VIVHY). Vivendi is seeking to sell up to 50% of UMG for ~$45 billion, Reuters reports. Liberty Media (FWONA) also has shown interest in buying a stake in the business, and ome analysts believe that Google (GOOGL) and Amazon (AMZN) may also be interested in purchasing a piece of UMG. Google and Amazon run music streaming services that could benefit from UMG’s song catalog.

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Tencent Music sitting on $2.5 billion in cash

UMG’s large portfolio of music rights makes it an attractive asset for streaming music companies, which could leverage its massive song catalog to enhance their own services. Tencent Music, a unit of Tencent Holdings (TCEHY) before it separated and went public last year, is China’s top streaming music service by subscriber count. In addition to selling music subscriptions on its own platform, Tencent Music licenses its songs to other services. Therefore, UMG, which own a massive portfolio of songs, could be a huge boost to Tencent Music’s song licensing business.

However, given that Tencent Music exited 2018 with just $2.5 billion in cash, it may have to borrow heavily or partner up to raise the ~$45 billion that Vivendi is expected to seek for its UMG stake.

Spotify owns part of Tencent Music

Tencent Music’s revenue grew 50.5% year-over-year to $785 million in the fourth quarter of 2018. Spotify (SPOT) owns a stake in Tencent Music, which was valued at ~2.3 billion euros ($2.6 billion) at the end of March.

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