Friday, August 7, 2020

Executive order bans US transactions with ByteDance… and Tencent | Music Ally

As promised, President Trump has signed an executive order banning all transactions by US companies with TikTok’s parent company ByteDance. However, a separate order extends the ban to messaging app WeChat AND its parent company Tencent – including “any subsidiary of that entity”.

Strap yourselves in. Given Tencent’s web of investments in and from music industry companies, there may be some chaos ahead.

Here’s the TikTok/ByteDance executive order and here’s the WeChat/Tencent one. Both set a deadline of 45 days after which transactions with ByteDance and Tencent will be prohibited, and both note that the US Secretary of Commerce will “identify the transactions” covered by the order… in 45 days’ time.

So even now, we don’t quite know the scope of the ban, and what that means for: Universal Music Group (in which a consortium led by Tencent owns a 10% stake, with an option to buy another 10%); Warner Music Group (which owns a stake in Tencent Music (TME) with TME and another Tencent subsidiary owning stakes in WMG in return); and Spotify (it owns a stake in TME and vice versa).

This isn’t just a music industry issue: Tencent’s wide-ranging portfolio also includes stakes in Snapchat’s parent company Snap; in Fortnite maker Epic Games; a majority stake in top mobile games publisher Supercell; and full ownership of Riot Games, the publisher of one of the biggest esports games, League of Legends.

Depending on the scope of the executive order, all these companies and more may have some decisions to make in 45 days’ time.

“The near term scenario for UMG, WMG and Spotify is that they may all have to sever ties with Tencent (including Tencent Music Entertainment as it is a Tencent subsidiary) and then maybe even have to ensure Tencent divests its shareholdings,” suggested Midia Research this morning.

“After that, the big repercussions for music could kick in. Tencent has been willing to pay a premium for the investments it has made in US based music companies. In doing so it has helped push up the overall value of music assets. Tencent’s sudden (potentially permanent) withdrawal from the market at a time when the global economy is entering a recession, could have long term impact.”

We shouldn’t forget about ByteDance and TikTok: the latest on that proposed Microsoft acquisition is a report that the US tech giant is now hoping to buy TikTok’s global business, rather than just its operations in the US and a few other other English-speaking territories. The 45-day deadline for any deal to be completed was already known in that case.

It’s the expansion of the ban to WeChat and Tencent that’s the big surprise today. Tencent Holdings’ share price dropped more than 10% after news of the order, knocking more than $45bn off the company’s value. Now we’ll have to wait to see what transactions, exactly, are covered by the order, then gauge the possible knock-on effects.

Stuart Dredge


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