Sale of the Tencentury: What UMG's proposed stake deal means for the music biz

Universal Music Group

Sir Lucian Grainge is excited. Investors certainly seem happy, with Vivendi's share price up in Paris after the announcement. Those who were starting to believe the slow-moving Universal Music Group stake sale might never happen will be thrilled. And the rest of the music industry? Well, for now, they’d probably be filed under ‘intrigued’.

Because the announcement that Vivendi is in negotiations to sell a 10% stake in UMG to China’s Tencent Holdings will kick off a wave of speculation about multiple aspects of the proposed deal.

Is the deal’s valuation of UMG at €30 billion (£27.6bn) realistic? Does the limiting of Tencent’s stake to a pleasingly symmetrical 10% (with an option to buy a further 10%) rule out the notion that they might buy the major in its entirety one day? And, with Vivendi declaring its intention to still seek out other partners, will they now have to be compatible with Tencent’s interests and expectations?

But perhaps the main area of interest will be around the implications of Tencent owning a stake in the world’s biggest recorded music company. Because, while Tencent Holdings has interests in everything from online gaming to social media, it’s probably best known outside China for its multiple music streaming services.

The advantages for Universal are obvious

UMG and Tencent already work happily together, of course, as do the other majors. And, once upon a time, labels, retailers and everything in between would operate under the same corporate umbrella. And, indeed, Universal still holds shares in Spotify. But it’s difficult to imagine, say, Apple, Amazon or Spotify (which actually owns a slice of Tencent Holdings and vice versa, making this a very tangled web indeed) taking a direct stake in a major in 2019 without it causing raised eyebrows amongst other services, let alone other record companies. And, while China represents a very different music landscape to the west, Tencent Music’s ambitions – as illustrated by its successful 2018 IPO in the US – do not appear to stop at Hong Kong.

The advantages for Universal are obvious. Sir Lucian says the deal will help “accelerate and broaden our strategy”, and it will certainly help the major crack what’s likely to be a hugely important global market over the next few years. And while UMG’s huge current success means it’s not exactly cash-strapped, a further injection of capital isn’t going to hurt as it looks to continue its domination.

What Tencent will want for its €3bn-€6bn outlay is less clear, but few people lay down that sort of money and plan on being an entirely silent partner, however much cash UMG’s business is currently throwing off. And the deal would strengthen Tencent's Chinese domination and could help fend off a surging TikTok, while giving it access to many of the world's biggest artists. Whatever they do, you can bet the music industry will be watching closely...

subscribe link free-trial link

follow us...