Tencent Holdings Ltd. (00700.HK) is expected to raise at least US$1 billion from an initial public offering of its music division, valuing it at US$10 billion, Bloomberg reports, citing people familiar with the matter.
There is yet no decision on where the unit will list, the sources said.
Underpinned by three separate platforms – QQ Music, KuGou and Kuwo – Tencent Music already has twice as many paying customers as Spotify Ltd.
Tencent, Asia’s biggest internet company, wants to capitalize on digital-music sales in mainland China that are expected to surge 88 percent within four years, the report said, citing PricewaterhouseCoopers.
Apple Music debuted in 2015, yet most smartphones bought in China use the Android operating system, and Spotify hasn’t announced plans to expand there, it added.
Tencent’s music unit also has the advantage of being a part of a conglomerate that also offers WeChat messaging app, a video-streaming site, a karaoke app and content-licensing deals with more than 200 international and domestic record companies.
“Tencent Music has a dominant status in China,” Li Yujie, a Hong Kong-based analyst with RHB Research Institute Sdn, was quoted as saying. “It would make sense to spin off the unit, allowing it to create strategic alliances and unlock value for investors. It could be one of the most-anticipated IPOs next year.”
The service offers more than 17 million songs to 700 million monthly active users, Tencent Music vice president Andy Ng said. About 120 million people have paid to stream or buy music, compared with Spotify’s 60 million paid users.
Also, Tencent’s music platforms are becoming important vehicles for Western pop stars such as Katy Perry and Rihanna to sell music in China alongside homegrown artists like Jason Zhang and Joker Xue.
“Tencent’s understanding of how to make money from traffic is far better than Spotify,” Alex Yao, a Hong Kong-based analyst at JPMorgan Chase & Co, was quoted as saying.
“If you want to make a singer not only sell copies but also have a great way to interact with fans, which company in the world can compete with Tencent?”
In fact, Tencent and its music division will acquire a minority stake in Spotify from current investors, while Spotify will get a piece of Tencent Music, the companies said last week.
Spotify will list on the New York Stock Exchange and is expected to get a market value of about US$15 billion, reports said. The firm declined to comment on a possible IPO.
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