Deal will improve promotion of artists and help identify new talent, says Vivendi

This article is more than 1 year old

This article is more than 1 year old

The Chinese tech company Tencent is in talks to take a 10% stake in Universal Music Group (UMG), the label to stars including Taylor Swift, the Beatles and Lady Gaga, based on a valuation of the world’s biggest music label of €30bn (£27.5bn).

UMG’s parent company, Vivendi, which is controlled by the French billionaire Vincent Bolloré , said the companies have entered preliminary negotiations for a deal that would include Tencent having a call option to buy a further 10% of the music label in a year, at the same valuation.

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“Together with Tencent, Vivendi hopes to improve the promotion of UMG’s artists, with whom UMG has created the greatest catalogue of recordings and songs ever, as well as identify and promote new talents in new markets,” Vivendi said in a statement. “Vivendi hopes that this new strategic partnership could create value for both Tencent and UMG.”

The two firms are also in talks to explore areas of “strategic commercial cooperation to capture growth opportunities offered by the digitalisation and the opening of new markets”.

Vivendi has been exploring the sale of a stake in UMG since last summer, with investment banks placing wildly divergent potential valuations on the business, ranging from €17bn to €44bn.

Vivendi said it was continuing to seek the sale of an additional minority stake in the company to another partner. Potential suitors include John Malone’s Liberty Media and the private equity firm KKR.

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Separately, Tencent is planning to spin off its music arm, Tencent Music, China’s biggest music streaming business, and list it as a separate business in the US.

The potential deal comes as the music industry reaps the rewards of the streaming music revolution after struggling for more than a decade due to the decline of CD sales and digital piracy.

Last year global music revenues grew at their fastest rate in more than two decades. Worldwide, recorded music revenues surged 9.7% to $19.1bn (£14.6bn) in 2018, the fastest rate of growth since at least 1997 when the Oasis album Be Here Now topped the UK albums chart.

It is the highest level of income earned by the music industry since 2006, when CD sales accounted for more than 80% of global revenues, of $19.6bn, and when streaming income was non-existent.