Tencent Holdings and its subsidiary, Tencent Music Entertainment Group (TME), have been fined by the State Administration of Market Regulation (SAMR) of China for monopolistic practices, and have been barred from signing exclusive music copyright agreements, according to Reuters.
Shares of TME were down 15% in pre-market trading at the time of witting. Shares have lost 31.8% over the past month alone due to the ongoing probe. (See Tencent Music Entertainment stock charts on TipRanks)
As per the report, after closely monitoring Tencent’s activities in the online music streaming platform market in China, the SAMR concluded that music copyrights formed the main asset for the company.
Following Tencent’s acquisition of China Music Corporation in 2016, the company held more than 80% of exclusive music library resources in China. This gave Tencent an undue advantage when making exclusive deals with copyright holders, thereby shunning competition.
Following the investigation, on Saturday, the antitrust regulator charged Tencent with a 500,000 yuan ($77,150) fine and asked the company to give up all of its existing copyright agreements within 30 days of receiving the notice.
In response to the SAMR decision, Tencent said, “We are committed to improving our operations in strict compliance with all laws and regulations and strengthening our compliance system, with a view to fostering innovation, fulfilling our social responsibilities, providing users with better services, and promoting the long-term, healthy development of the digital music industry.”
Today, Oppenheimer analyst Bo Pei assigned a Buy rating to the stock with a price target of $24, implying a whopping 122.6% upside potential to the current levels.
Commenting on the SAMR’s decision, Pei said that similar requirements will apply to other Chinese streaming platforms as well, not just TME. Although TME will have to give up its exclusive music rights, the music labels do not necessarily need to sign deals with multiple platforms.
Additionally, Pei said, “Going forward, we believe streaming platforms will focus more on user experience, indie musicians, new song launch partnerships, and more innovations.”
The analyst also stated that in light of the current regulations, smaller video streaming platforms like TikTok may become potential competitors as they evolve with innovations and have more capital to acquire content.
Overall, the stock has a Moderate Buy consensus rating based on 9 Buys and 5 Holds. The average Tencent Music Entertainment price target of $20.31 implies 88.4% upside potential to current levels.
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