Spotify has finally filed to go public, and in doing so the Swedish company has shed light on another huge music company that has been tipped for IPO — Tencent Music — which is now valued at over $12 billion.
Tencent and Spotify announced a share swap in December that saw each side take an undisclosed slice of the other for strategic purposes going forward. According to Spotify’s filing, it took nine percent of Tencent Music Entertainment (TME) which it valued at €910 million at the time. That translates to a total valuation of €10.11 billion, or $12.3 billion, although Spotify includes 10 percent leeway above and below that figure.
In exchange, Tencent — which became Asia’s first $500 billion business last year — got 7.5 percent of Spotify to become one of its largest shareholders. It bought its stake using a mix of newly issued shares and secondary, but the value of that holding is around $1.5 billion based on a rough $20 billion valuation for Spotify.
TME was reportedly raising money at a valuation of around $10 billion in October, according to a Bloomberg report, and it has been tipped to raise as much as $1 billion in a listing that could happen this year. More color on this Spotify — both in terms of TME’s valuation and Tencent’s position as a major Spotify investor — give a little more insight into how the two companies might work together.
“Spotify believes the Tencent Transactions allow Spotify to invest in the long term potential of the music market in China and, in turn, TME to invest in the long term potential of the music market outside of China,” Spotify wrote in its filing.
Spotify also disclosed that it holds a registered trademark on its name in China. One source close to the company who spoke to TechCrunch in recent weeks said that Spotify had actively looked into the potential of the Chinese market a number of years, going as far as sending engineers and business development staff to meet with prospective partners.
In Tencent, it has found perhaps the most ideal partner should Spotify decide to pursue opportunities in China.
And there are plenty of opportunities. TME is the leading player in a market where there are over 20 million paying streaming customers with more growth to come.
China’s music industry itself grossed 320.5 billion yuan ($48.33 billion) in 2016 with eight percent annual growth, according to a report. Licensed streaming revenue grew by one-third to push revenue from music and video copyright to 183 million yuan.
Best known for its WeChat messaging app, which is China’s go-to chat service, Tencent offers three services — ‘QQ Music’, ‘Kugou’ and ‘Kuwo’ — while it also operates Joox in Southeast Asia and has invested in U.S. karaoke app Smule.
Earlier this week, Tencent also brokered another music alliance after it led a $115 million investment in India-based music streaming service Gaana.
Outside of music, Tencent has invested widely in overseas technology companies. Its investments have included Tesla, Snap, HERE, Amazon rival Flipkart, Uber competitor Ola, and more.
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Chinese internet giant Tencent is continuing to put its money in India and in music streaming services after it agreed to lead a $115 million investment in India’s Gaana.
Gaana is a music streaming service that was started by Times Media, the company behind the Times of India newspaper and tech incubator Times Internet among other things, seven years ago. Gaana didn’t reveal its user metrics, but CEO Prashan Agarwal said the company is “only 10 percent of the way towards building a business useful for 500 million Indians.”
The company plans to use this new capital develop artificial intelligence to create more personalized services and features for listeners. It said also it will develop its paid-user service, too. Aside from a Spotify-like subscription offering, it also provides an ad-based service which is available for free.
Times Internet is already an existing backer and it is the other investor in the deal. Tencent’s involvement represents the first ‘outside’ investment money raised for Gaana, which counts Saavn — a firm that raised money from Tiger Global and others — and Xiaomi-backed Hungama among its competition.
Spotify has spent the past year assessing the Indian market over a potential move, sources close to the company told TechCrunch. But, with a U.S. public listing happening at the end of March, it isn’t likely to make the move soon.
Tencent’s investment in Gaana follows a deal with Spotify which saw both companies swap shares in December. Tencent Music Entertainment (TME), the Chinese firm’s subsidiary that manages its music streaming and karaoke services, made an undisclosed minority investment in Spotify through new shares, while Spotify bought a similar undisclosed stake in TME. Added to that, Tencent bought into Spotify by purchasing secondary shares.
While not as prolific as arch-nemesis Alibaba, Tencent — which recently became Asia’s first $500 billion company — has steadily upped its investment in India in recent times. Companies in the country that it has backed include chat app Hike, Amazon rival Flipkart, Uber competitor Ola, medical platform Practo, and education startup BYJU’s.
Given its other music businesses and investments — which include Joox in Southeast Asia and karaoke app Smule — and the fact that TME is widely-tipped to head for an IPO this year, it isn’t a huge surprise to see Tencent expand its India focus with this move into music streaming.
“We are happy to welcome Tencent as a partner in Gaana and benefit from their global learnings. Tencent operates the largest music streaming business in China, and we look forward to working closely with them to continue to innovate and drive the digital music market in India,” Gautam Sinha, CEO of Times Internet, said in a statement.
“As more affordable mobile data plans are driving smartphone penetration in India, we believe growth in the music streaming market will accelerate. By investing in and collaborating with Gaana, we look forward to bringing more innovation and better experiences to all Indian music lovers,” added Tencent President Martin Lau.
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