Chinese Tech Giant Tencent Seeks to Purchase a Stake in Warner Music

While much of the focus in TikTok’s meteoric rise has been on the competition that the app has brought to Facebook, Instagram and Snapchat, many have overlooked the app’s rivals in China, which are also seeking to stifle its growth and fend off competition.

Tencent is chief among them. Tencent is essentially the Facebook of China, with its most popular app WeChat ​dominating the market, with over 1.2 billion monthly active users. But ByteDance, which owns TikTok and its Chinese variant Douyin, is on the rise. In fact, in 2019 ByteDance overtook both Baidu and Tencent to become China’s second-largest earner of digital advertising revenues, only trailing Alibaba Group. 

And now Tencent, much like Facebook, is seeking ways to quash its growing rival.

Tencent has already tried the traditional Facebook replication tactic, launching several TikTok-like apps, and similar tools within WeChat, in order to keep users from straying. But ByteDance has continued to grow. Which is why Tencent’s latest moves are particularly interesting.

This week, The Wall Street Journal has reported that Tencent is seeking to purchase a $200 million stake in Warner Music as part of Warner’s IPO next week.

As noted by WSJ:

“The Warner investment would further reinforce Tencent’s growing presence in the music industry. It swapped stakes with Spotify in 2017 ahead of the music-streaming giant’s listing, while Vivendi SA sold a 10% stake in Universal Music Group to Tencent for $3.36 billion late last year, valuing the world’s largest music company at more than $33 billion.” 

When Tencent made that investment in Universal last year, analysts predicted that Tencent would eventually look to use its sway within the music giant to influence future licensing negotiations between Universal and Bytedance, which could restrict the use of Universal music in TikTok clips.

TikTok signed new licensing deals with UniversalWarner and Sony earlier this year, but all of those deals were ‘shorter-than-usual’, based on industry norms. That means that TikTok’s licenses will be up for review relatively quickly, and if Tencent is able to influence the decision-making on such within two of the three main players, that could be a big problem for ByteDance, and by extension TikTok.

If TikTok were unable to allow users to add popular music to their clips, that could cripple the short-form video app. Music is central to how TikTok functions, and while it would be stretch for Tencent to stop TikTok using music content entirely, it could force significant impositions on any future deals.

And that’s not the only front on which Tencent is looking to hit TikTok.

Earlier this week, we reported that short-form video app Zynn has seen a massive surge in the US App Store charts, less than a month after its launch. Chinese-owned Zynn is essentially a TikTok clone, with the added lure of paying users for engaging within the app, and getting their friends to sign up.

So what’s that got to do with Tencent?

Zynn is funded by Kuaishou, which is the main rival for Douyin, the Chinese version of TikTok. In December last year, Tencent invested $2 billion in Kuaishou, in the hopes of using it to blunt the growth of ByteDance.

And now, it’s seeking to hook western users as well, with the strong lure of essentially paying users to watch video clips. And it’s working – as noted, Zynn hit the top of the App Store charts in the US this week, and with more people out of work due to COVID-19 restrictions, and with more time on their hands due to the same, it could well be the perfect time to attack TikTok’s presence, particularly in the US.

At present, TikTok remains in a relatively good position, but these indicators show that it will face an increasingly tough path as it looks to advance to the next stage of growth. TikTok’s looking to add in more revenue generation tools for influencers, in order to keep them around, while it’s also seeking to further ingratiate itself with Western audiences by partnering with celebrities and donating to charitable causes. It’s also looking to distance itself from its Chinese roots in order to avoid regulatory scrutiny – but the arrival of Zynn could cause significant challenges, in each respect, while Tencent’s interest in music providers could also, eventually, become a key sticking point. 

That’s not to say that TikTok won’t win out, but like Snapchat, its path to expansion could become a lot tougher, especially if bigger rivals continue to copy its key functions and bring them to their larger audiences.

Basically, while TikTok is the darling right now, it’s worth noting that its whale competitors are circling, And that could spell danger for the platform moving forward.

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