Tencent move creates hopes of open music

Termination of exclusive music copyright agreements by Tencent Holdings Ltd, a Chinese tech giant best known for its killer app WeChat and gaming portfolio, will pave the way for long-term healthy development of the music industry, industry experts said on Thursday.

A market environment free of dominance or control by big companies can spawn continuous innovation in online music platforms, thereby making possible a variety of personalized services and experiences for consumers, they said.

Tencent's ameliorative step is a response to the order of the State Administration for Market Regulation on July 24 that it must give up its exclusive rights to music labels.

The regulator's order was in line with the ramping up of efforts by China to tackle unfair competition and monopolistic behavior to restore market order.

The regulator also imposed a penalty of 500,000 yuan ($77,400) on the internet giant for its monopolistic behavior.

The market regulator said on July 24 Tencent and its affiliates must not engage in exclusive copyright agreements with upstream owners of such rights, while existing agreements must be terminated within 30 days.

Tencent and its music arm own over 80 percent of music library resources in China, following its acquisition of China Music Corp in July 2016, which gave Tencent the power to block new entrants and create an unfair business environment, the regulator said.

Tencent said in a statement on Tuesday night it had notified the upstream copyright parties involved in such agreements as of Aug 23, and it will continue to cooperate and engage with these parties in a nonexclusive way.

Exceptional cases included cooperation periods with independent musicians not exceeding three years, and the exclusive launch period of new songs not exceeding 30 days, Tencent said.

"We have seen Tencent made an announcement to relinquish exclusive music rights, and we expect this to be a sincere decision," said Ding Lei, CEO of NetEase, an internet-based provider of a slew of services and content, during an earnings call on Tuesday night.

NetEase Cloud Music, an online music streaming service owned by NetEase, is a major competitor of Tencent Music. Ding said the anti-monopoly penalty decision made by the market regulator released a "very clear, positive and encouraging signal for the entire industry".

Ding called on record companies to open up licensing and jointly create an open, fair, and healthy environment for the industry's development.

Tencent's corrective action will promote competition among digital music platforms, and encourage them to innovate, improve services and lower membership fees, finally bringing benefits to consumers, said Yu Zuo, director of the Center for Industrial and Business Organization, which is part of the Dongbei University of Finance and Economics.

The antitrust efforts by Chinese regulators have great significance as they can promote the healthy development of the digital music industry, and maintain a fair market environment, Yu said.

Dong Yizhi, a lawyer at Shanghai-based law firm Joint-Win Partners, said exclusive music licensing is a very "controversial" model because while it can help protect intellectual property rights, it can also hinder innovation and healthy development of the music industry.

"Tencent's abandonment of exclusive rights to music labels will be good news for music creators, whose compositions will be broadcast and disseminated via more platforms," Dong said.

Now, major online music and entertainment companies should launch more video streaming content and services, as well as expand the diversified application scenarios of music, he said.