China prepares Tencent penalty in antitrust crackdown


China is preparing a substantial fine for Tencent Holdings as part of its sweeping antitrust clampdown on the country’s internet giants, sources have confirmed.

Tencent should expect a penalty of at least 10 billion yuan ($1.54 billion), significant enough for the State Administration of Market Regulation (SAMR) to make an example of it,the sources say said.

Tencent faces penalties for not properly reporting past acquisitions and investments for antitrust reviews, an offence with a fine capped at 500,000 yuan per case, and for anticompetitive practices in some of its businesses, with music streaming in particular focus, said the sources.

China has in recent months sought to curb the economic and social power of its once loosely regulated internet giants, in a clampdown backed by President Xi Jinping.

Tencent and Alibaba Group Holding Ltd are China’s two biggest tech conglomerates, with market values of $776 billion and $642 billion, respectively.

Earlier this month, SAMR imposed its record fine on Alibaba after an investigation found the e-commerce firm had abused its dominant market position for several years.

Tencent’s vast businesses include video games, content streaming, social media, advertising and cloud services.

SAMR’s investigation partly focuses on Tencent Music Entertainment Group, which was spun off and listed in the United States in late 2018.

The regulator has informed Tencent that it should expect a fine, give up exclusive music rights, and may even be forced to sell the acquired Kuwo and Kugou music apps.

However, Tencent’s core businesses, video games and WeChat, are likely to remain intact.

Tencent Music, China’s answer to Spotify, acquired competitor apps Kugou and Kuwo in 2016, and pursued exclusive streaming rights with record labels including Universal Music Group, Sony Music Group and Warner Music Group Corp.

It then sublicensed some of the rights to competitors including NetEase Cloud Music, which complained that the arrangement was unfair and prices too high.

SAMR launched a probe into Tencent Music in 2018 but dropped it in 2019 after the company agreed to stop renewing some of the exclusive rights, which normally expire after three years, two sources told Reuters previously.

However, it kept exclusive rights to Jay Chou, the most influential pop star in the Chinese-speaking world, using it as a competitive edge against smaller rivals NetEase Cloud Music and Alibaba-backed Xiami Music.

SAMR has told Tencent Music that it should expect to give up some of the remaining exclusive rights.

It may also be required to sell Kugou and Kuwo to competitors or other investors, one of the options being proposed to senior government officials in Beijing.