The Chinese tech group Tencent (OTC: TCEHY) is set to buy up to 20% stake in the Universal Music Group, owned by the French media company Vivendi (OTC: VIVHY), which is the label of artists such as Lady Gaga, Taylor swift, Drake and the Beatles.
Vivendi is set to first sell 10% of Universal music but the Chinese company would have the option to double its stake within a year on the same terms. The transaction would value the world’s largest music group at around EUR 30 Billion. The acquisition of the world’s biggest music label ahead of Sony music Entertainment by the Chinese company represents a sign of a sustained recovery in the music industry, which has suffered from online piracy and the collapse of the CD market. It also follows Spotify’s initial public offering that occurred last April in which Tencent holds a substantial minority stake.
Vivendi, whose shares jumped 6 percent after the announcement on Tuesday, has invested billions of euros in the video games and telecoms sector in the past decade. Vivendi’s first-half results showed that Universal accounted for 67% of Vivendi’s overall earnings in the first half, and that UMG’s revenue rose 18% to EUR 3.3 Billion boosted by the success of Billie Eilish, Ariana Grande and the soundtrack to A Star is Born.
Tencent, whose shares closed 1% lower in Hong Kong, after Vivendi’s announcement, has the potential to act as a gatekeeper to the growing Chinese music market, in which western music companies have had difficulties in entering because of cultural tastes and constant piracy.