MEDIA: Tencent, Alibaba in Music Swap as Regulator Gets Involved

Bottom line: A new music re-licensing deal between Alibaba and Tencent, combined with a meeting between the copyright regulator and major online music sellers, hint at attempts to create a more level playing field in the space.

Alibaba, Tencent in music cross-licensing deal

A couple of items from the music sector are in the headlines today, showing how tricky the situation is becoming with copyrights and online licensing in China. One of those has two major players, the music services of Internet giants Alibaba (NYSE: BABA) and Tencent (HKEx: 700), signing an agreement to cross-license music to each other when one of them owns the rights to such music. The other has China’s copyright office actually calling a meeting between those two companies and two other major players, NetEase (Nasdaq: NTES) and Baidu (Nasdaq: BIDU), to discuss issues confronting the industry.

Two issues appear to be driving these two deals that appear to be related. One is concerns from the music industry that rights to their songs will become fragmented and confined to single platforms under the current licensing system, limiting consumer choice. Similar concerns might also be what’s driving the regulator to get involved as well. An interesting footnote to this might be whether the same thing could soon happen in the video licensing arena, which shares similar issues.

The larger of the two headlines has the agency that oversee copyrighted material calling in the music arms of Tencent, Alibaba, NetEase and Baidu to discuss various issues confronting the industry. (Chinese article) Those include issues involving authorization of rights, exclusive rights and use of music that hasn’t officially been approved yet by the authorities for content.

This particular report is rather vague, and looks like it’s probably a reaction to something that isn’t explicitly stated. But the potential issue, or at least one potential issue, is contained in the second piece of news that has Alibaba and Tencent forming a tie-up to share their music copyrights. (English article)

According to that story, Tencent will sub-license music that it owns the rights to from Sony Music, Warner Music and Universal Music to Alibaba. Meantime, Alibaba will do the same for music it owns the rights to from Rock Records. The agreement looks quite one-sided, as the labels represented by Tencent in this deal are all quite major, while the one represented by Alibaba is quite small.

An analyst quoted in one of the reports hints at what might be happening. It appears the music labels are concerned that Tencent is getting too powerful in the industry and want to make sure their products are widely available over a variety of channels. That would also jibe with what’s happening at the copyright regulator, which probably wants to maintain a level playing field in the sector.

Too Much Power?

The fact that Tencent has acquired rights to so much music from three of the major labels probably speaks to its relatively early arrival to the space, and also its huge cash pile to spend on acquisition of such rights. By comparison, Baidu was also an early player in online music, but instead was largely focused on a peer-to-peer sharing platform that allowed people to trade in pirated music. NetEase is also a more recent arrival, and probably hasn’t bid as aggressively as Tencent for rights.

If the Alibaba-Tencent agreement is any indicator, perhaps we could see Tencent announce other deals with the other big players in the weeks ahead, again under pressure from both the music labels and also the regulator. At the end of the day such sub-licensing looks like a healthy way to maintain competition in the market, since Tencent now appears to have a near monopoly due to its early agreements with major labels.

An intriguing follow-on question is whether we might see similar re-licensing agreements in the video sector. I’m less familiar with that space, but I do recall there was a period when the major platforms, including Baidu’s iQiyi and Alibaba’s Youku Tudou, were aggressively sealing similar deals with the foreign production houses for popular movies and TV shows.

That case could be slightly different, as those agreements were probably more evenly distributed between the major players, whereas the ownership of such rights might be more one-sided with music. But this kind of forced sharing of rights between the major players does seem like a good way to go, and would compel the big video and music players to innovate in other ways to cement their place in the industry.

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