Spotify and Tencent Music Entertainment are among the world’s top online music streaming services. They have announced that they are purchasing a minority stake in each other’s business. Neither has announced what this share is, although some commentators have suggested that it is 10%. Each is buying 10% of the other’s shares.
Spotify Gains Access to Chinese Music Streaming Market
Launched in 2008, Spotify provides a music streaming service to 140 million worldwide users. Of these, around 60 million are subscribers to Spotify’s premium paid service, which is an advertisement free subscription service. The main benefit to Spotify is that it receives exposure to the Chinese market. This has always been a closed market to Spotify, and its holding in Chinese company Tencent now opens it up.
Spotify to Go Public and Offer Shares in 2018
Spotify is planning to go public and list its shares on the stock market in 2018. Without a Chinese market, it may have found it difficult to persuade potential investors that it was a truly global company. With this deal, Spotify can sell its product to the huge Chinese market, one more market added to the 61 countries in which it currently operates.
Tencent Holdings and WeChat
Tencent Music Entertainment is a part of Tencent Holdings Ltd which was formed in November 1998 and went public on the Hong Kong stock exchange in 2004. It owns KuGou and QQ Music, two music streaming firms that have a 450 million user base between them. Tencent Holdings is one of China’s huge businesses known also for the WeChat app, available for Apple, Google and Windows devices. The app has over 950 million active users.
Spotify and Tencent Deal Strengthens Spotify
By associating with Tencent, Spotify will find it much easier to enter the Chinese music streaming market. Because it focuses only on music streaming, Spotify is vulnerable to competition from Apple and Amazon streaming services. Its association with Tencent mitigates this vulnerability to a significant extent.