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Tencent to Acquire 60% of China Music Corp in $2.7B Deal

Tencent to Acquire 60% of China Music Corp in $2.7B Deal

The Wall Street Journal reported. The move comes a few weeks after Tencent agreed to acquire 84% of Finnish mobile game developer Supercell Oy from Japanese telecommunications giant SoftBank Group Corp. (TYO: 9984) in a $10.2 billion deal. In May, MCM had reportedly engaged Goldman Sachs and Morgan Stanley to conduct an IPO on NASDAQ. In January, MCM’s Chinese music behemoths – Kugou Music and Kuwo Music – signed a reciprocal licensing and syndication deal with Tencent’s QQ Music, to exchange music copyrights for over one million songs within China. Under the new buyout deal, Tencent is expected to integrate Kugou and Kuwo with its QQ Music app, considered one of the best streaming music app in China. China Music Corp., which has an offshore corporate structure, was founded by Xie Guomin, the company’s CEO. He is an attorney with experience in the digital licensing market, and former vice president and general manager of Sina’s music division, which he helped go public in 2000. CMC has become one of the largest music platforms in the world, reportedly with over 500 million users, and partnerships with hundreds of labels around the world. China remains a music market of enormous untapped potential, with an online user base of 650 million people and a growing number of licensed digital services, according to IFPI, the voice of the recording industry worldwide. However, an undeveloped culture of paying for music and a history of piracy makes progress slow. The hope is for further growth in the years ahead as labels and services roll out initiatives to establish a paid model for music. Revenue in China’s music streaming segment is projected at $373 million in 2016, according to Statista’s Digital Market Outlook. Revenue is expected to show an annual growth rate (CAGR 2016-2020) of 16.40% resulting in a market volume of roughly $685 million in 2020. User penetration is at 14.70% in 2016 and is expected to hit 20.34% in 2020. The average revenue per user (ARPU) currently amounts to $2.24. “The piracy issue has destroyed the whole system of online music (in China), regardless of the music quality, its market or administration,” Guomin commented last year. “As such, companies cannot earn much, and listeners are getting watered-down products. Another reason is that we do not have well-defined rules to protect the whole industry. Pirated music has negative consequences for the entire music industry,” he added. In December 2015, CMC’s R2G division developed an exclusive partnership with Imagem and INgrooves. Through CMC’s Kugou Music and Kuwo Music, it acquired the licensing and distribution rights to over one million songs from Imagem and INgrooves in mainland China. “We are committed to developing a vibrant and healthy marketplace for music in China which will be of great benefit to artists, and we are delighted to have one of the world’s biggest independent music distributors,” said Guomin after the deal with INgrooves. Tencent was founded in Shenzhen in 1998 by Ma Huateng and Zhang Zhidong, and went public on the Main Board of the Hong Kong Stock Exchange in 2004. The company is one of the constituent stocks of the Hang Seng Index. Tencent’s diversified services include QQ, Weixin, WeChat, Qzone and Tencent, serving hundreds of millions of Internet users through its integrated communications, social networking, online gaming, news and video platforms. South African media giant Naspers Ltd. (LSE: NPSN; SJ: NPN), owns a 34% stake in Tencent. In addition it has a sizable stake in Mail.ru (LSE: MAIL) and Flipkart. Tencent has been Naspers’s most successful investment, according to industry analysts.]]>

Swedish Music Streaming Service Spotify Raises $1B in Convertible Debt

Swedish Music Streaming Service Spotify Raises $1B in Convertible Debt

Spotify AB has raised $1 billion in convertible debt from private equity firm TPG Capital and hedge fund Dragoneer Investment Group. Other clients of bookrunner Goldman Sachs Group Inc. (NYSE: GS) also participated in the deal, which is expected to close at the end of this week. Spotify has raised to date over $1 billion in venture funding from major investors including Kleiner Perkins, Li Ka-shing, 137 Ventures, Accel, Goldman Sachs, Groupe Arnault, Founders Fund, D.E. Shaw, DST Global, Discovery Capital, Fidelity Ventures, Technology Crossover Ventures, The Coca Cola Co., and others. In January 2016, Spotify acquired two new companies, Cord Project and Soundwave, to expand its social networking and voice messaging capabilities. Tech startups are increasingly turning to convertible debt—bonds that can be exchanged for stock—as investors push back on rich valuations amid a volatile stock market and economic uncertainty, said The Wall Street Journal, which first reported the convertible debt deal. By raising debt instead of equity, Spotify adds to its war chest without the possibility of setting a lower price for its stock, which can sap momentum and hamper recruiting. In June 2015, Spotify was valued at $8.5 billion, the Journal added. The deal is similar to the one that Goldman Sachs arranged for Uber in January 2015, said The New York Times. The ride-hailing company raised $1.6 billion in convertible debt. Should the company not go public within a certain time, the interest rate on those securities would climb. “Spotify also agreed to pay annual interest on the debt that starts at 5% and increases by 1 percentage point every six months until the company goes public, or until it hits 10%, the people said. This interest—also called a “coupon” and in this case paid in the form of additional debt, rather than cash—is commonly used in private-equity deals but rarely seen in venture funding,” commented the Journal. Spotify is a commercial music streaming, podcast and video service that provides digital rights management-protected content from record labels and media companies. It is available in most of the Americas, Western Europe and Oceania. Music can be browsed or searched by artist, album, genre, playlist, or record label, featuring over 30 million songs. Spotify has over 75 million active users, including about 20 million paid users. The company was founded in 2008 by Swedish startup Spotify AB. Spotify Ltd. operates as the parent company, headquartered in London, while Spotify AB handles research and development in Stockholm. Spotify is facing increasing competition from companies including Apple Inc’s Apple Music, Pandora Media Inc and newer rivals such as Europe’s SoundCloud Ltd and U.S. music producer and rapper Jay Z’s Tidal, said Reuters. SoundCloud launched a music streaming service in the United States starting at $9.99 per month. TPG Capital is a leading global private investment firm with $70.2 billion of capital under management. The firm was founded in 1992 by David Bonderman, James Coulter and William S. Price III, and is headquartered in Fort Worth, Texas, and San Francisco, Calif. The company has additional offices in Europe, Asia, Australia and other parts of North America. It is one of the largest private equity investment firms globally, focused on leveraged buyouts, growth capital and leveraged recapitalization investments in distressed companies and turnaround situations. TPG also manages investment funds specializing in growth capital, venture capital, public equity, and debt investments. The firm invests in a broad range of industries including consumer/retail, media and telecommunications, industrials, technology, travel/leisure and health care. Dragoneer Investment Group LLC is a long-only, growth-oriented public and private investment firm based in San Francisco. The firm has $1.3 billion in assets under management. The firm was founded in 2012 by managing partner Marc Stad, who previously worked at TPG, Parthenon Capitol, McKinsey & Co., and Citigroup. He also served as president of the City and County of San Francisco Finance Corporation. He received an AB degree in Government from Harvard College and an MBA degree from Stanford. Pat D. Robertson is the firm’s COO and chief compliance officer.]]>