Warner Music Group and Tencent have agreed to a distribution partnership in mainland China. This means that Tencent, one of China’s largest Internet companies and the maker of messaging app WeChat, will distribute Warner Music Group’s catalog and manage new releases to “all legitimate audio services” in mainland China.
Warner Music Group and Tencent said in its announcement that the deal marks the music industry’s “first ever master distribution partnership between a major music company and a leading Internet provider in mainland China.”
This does not include, however, Chinese mobile carriers, which Warner Music China hopes to strike separate deals with. Most people who stream music in China use services by Tencent, Alibaba, and telecom China Mobile.
This is a major step for both companies because even though the online and streaming music market in China has been stymied by piracy (according to the Financial Times, it accounted for less than 1 percent of the $15 billion in global revenues made in 2013 by record companies), record labels are optimistic that it will begin to grow as the government cracks down on copyright infringement.
A turning point was reached in 2011, when Chinese Internet search giant Baidu announced that it had reached a licensing deal with Universal Music Group, Warner Music Group, and Sony BMG that included shutting down access to pirated music found through its search engines.
But Warner Music Group and Tencent will still face several major challenges as they move their agreement forward. For one thing, most streaming music services in China are free to use, monetizing through advertising. The companies did not say how they will make money or share revenue. Though it’s important for it to build out different verticals as revenue growth from its core mobile gaming business slows, it’s unclear how much streaming music will help boost its bottom line. Several streaming music services have also struggled, including Yahoo Music for China and Google’s music streaming service for the country, which both shut down in 2012 due to lack of user adoption.
Warner Music Group will be able to monetize its catalog of music using Tencent’s various platforms, which include video and music streaming services and online games. One of Warner Music Group’s biggest outlets will be Tencent’s microblogging platform QQ, which now has 820 million active users in China. The partnership may enable QQ to explore a music-sharing strategy similar to Twitter’s and encourage user engagement among fans eager to hear the latest releases from Warner Music Group.
The announcement did not specifically mention Tencent’s WeChat, but presumably it will eventually be included in the deal as it is one of the company’s flagship products and an important distribution platform for services ranging from e-commerce to mobile gaming.
A spokesperson for Tencent said QQ Music will be the major platform for the Warner Music Group-Tencent partnership for the present, but added, “as we have a deeper partnership with Warner Music now, we can take an integrated approach to promote Warner artists in China, such as establishing Official Accounts on Weixin in China with interactive capability.”
This is the latest step that Warner Music Group has taken to increase its foothold in Asia. It recently acquired Gold Typhoon’s catalog, one of the largest and best-known sources of pop and rock music from China, Hong Kong, and Taiwan.