What does it mean to suspend the antitrust investigation against Tencent Music?

If the antitrust investigation of Tencent Music is suspended, it may indeed disappoint its competitors or consumers who have suffered losses. However, the opening of Tencent Music’s anti-monopoly investigation means that my country’s dilemma that China has not carried out anti-monopoly enforcement against Internet companies for 11 and a half years is expected to be broken.

In early February, domestic media successively disclosed that the State Administration for Market Regulation’s anti-monopoly investigation of Tencent Music Entertainment Group had been suspended.

The hour hand was set back to mid-August 2019. At that time, a number of media disclosed that the Anti-Monopoly Bureau of the State Administration for Market Regulation began investigating the signing of exclusive music rights between Tencent Music and Universal, Warner, and Sony’s three major international record companies from January 2019. Whether the licensing agreement violates the Anti-Monopoly Law, we also interviewed representatives of companies such as NetEase, Alibaba, Apple, Baidu, Huawei, Xiaomi, and Bytedance.

The opening of Tencent Music’s anti-monopoly investigation means that since the “Anti-Monopoly Law” came into effect on August 1, 2008, my country will usher in a “zero breakthrough” in the anti-monopoly law enforcement of the Internet economy.

Now, what does it mean that the relevant departments have suspended the anti-monopoly investigation of Tencent Music? This starts with the harm of the exclusive authorization of music copyright.

Harm of Tencent Music’s Exclusive License

Whether it is musical works, film and television works, or literary works, it is very common for copyright owners to sign exclusive licensing agreements with distribution channels. However, the reason why Tencent Music is under antitrust investigation is related to the fact that it has signed a large number of exclusive license agreements for music copyrights to squeeze out other competitors. The harm is mainly reflected in the following aspects.

(1) Triggering a “vicious copyright war”

As early as 2017, after Tencent successively signed exclusive music copyright licensing agreements with the three major international record companies, Tencent broke out a “vicious copyright war” with NetEase Cloud Music and Alibaba Xiami Music, and it was unable to obtain music directly from the three major international record companies. Competitors authorized by copyright have not been able to reach relevant sub-licensing agreements with Tencent in a short period of time. After the copyright dispute litigation, Tencent Music’s competitors removed a large number of music works that Tencent had exclusive licenses, and watched users turn to QQ Music under Tencent Music, and Kugou Music and Kuwo Music acquired by Tencent. Some small and medium-sized online music platforms had to withdraw from the market because of the increased cost of obtaining music copyright sub-licensing.

(2) Expanding Tencent Music’s advantages in paying users

On September 12, 2017, the Copyright Management Department of the National Copyright Administration interviewed the principals of Tencent Music, Alibaba Music, NetEase Cloud Music, and Baidu Taihe Music on issues related to online music copyright, and called on online music platforms to avoid snatching copyright fees. Exclusive copyright, actively promote the widespread dissemination of online music, promote the sub-licensing of online music works, and eliminate illegal and unreasonable obstacles that affect the widespread authorization and dissemination of online music.

Under the promotion of the competent authority, in February 2018, Tencent Music and NetEase Cloud Music reached an agreement on online music copyright cooperation and mutually authorized music works, reaching more than 99% of the respective exclusive music works.

However, objectively, due to the huge number of exclusive music works owned by Tencent Music, even just 1% of them is a huge number. The number of exclusive music copyrights owned by Tencent is about 5 million, and the 1% of the exclusive music works reserved by Tencent Music is 50,000, and most of them are popular music with high popularity and playing volume. Among them are musicians with a large number of loyal fans, such as Jay Chou’s music works. Through these exclusive music works to lock its loyal fans, Tencent Music has also consolidated its user base and market share.

Moreover, Tencent Music did not give up obtaining more exclusive licenses of music rights because of being interviewed by the National Copyright Administration in 2017. In August 2018, Tencent Music reached an exclusive license for music copyright with Cai Xukun, who has a large number of fans. This also caused a large number of loyal fans of Cai Xukun to switch from other online music to Tencent Music and become its paying users.

The data for the second quarter of 2019 released by Tencent Music in August showed that the number of paying users was 31 million, an increase of 33.0% compared with the 23.3 million in the same period last year. Such substantial growth is related to the exclusive licensing agreement signed between Tencent Music and Cai Xukun.

Between this and the other, the gap between Tencent Music and its competitors in the total number of paying users will inevitably widen, so that the gap in the development scale and financing capacity of the subsequent music library will also become even greater. big.

(3) Increasing the cost of competitors, causing consumers to pay more

Tencent Music obtains a large number of exclusive licenses of music copyrights by driving up copyright fees, and then passes the cost to competitors through sublicensing, which will cause the latter’s copyright costs to rise and be at a competitive disadvantage. Moreover, the 1% of exclusive music works reserved by Tencent Music can have a user lock-in effect, allowing it to charge paying users a monthly fee that exceeds the constraints of competition, or carry out a “secondary charge” in addition to the VIP monthly or annual fee. .

In other words, if the monthly subscription fee of Tencent Music App is 8 yuan per month as its competitors, a considerable part of it will be paid to Tencent Music by competitors in the form of sublicense fees. Since Tencent Music has the strongest lock-in ability among paying users and has more pricing power, it lacks the motivation to carry out price competition. This has resulted in the entire industry’s monthly pricing being higher than the price level at which effective competition would exist without an exclusive licensing model. At least more than 30 million paying users need to pay for prices that are higher than competitive prices.

(4) Distorted market competition for original musicians

In addition to increasing the user base and squeezing out competitors, Tencent Music’s use of the accumulation effect of exclusive music copyrights can also widen the gap between musicians’ influence and income level. Because of cost-benefit considerations, it is impossible for Tencent Music to sign exclusive licensing agreements with most musicians.

However, only those musicians who can reach an exclusive license agreement with Tencent Music can get more traffic resources and promotion efforts of Tencent Music. This will inevitably make it difficult for other musicians to compete fairly with those who have signed exclusive licensing agreements with Tencent Music. In the long run, Tencent Music, which has 652 million monthly active mobile users, can easily distort the competition in the original musician market through an exclusive licensing model.

The industry pays more attention to the rectification measures that Tencent Music will take

Suspension of anti-monopoly investigations is a unique concept in Article 45 of the Anti-Monopoly Law. According to previous anti-monopoly law enforcement practices, if the investigated operator promises to rectify and eliminate the impact of its restrictive competition behavior, then the anti-monopoly investigation can eventually be terminated without fines and confiscation of illegal gains. For example, the Inner Mongolia Administration for Industry and Commerce and the Ningxia Administration for Industry and Commerce have successively launched antitrust investigations into China Mobile, China Telecom, and China Unicom for suspected abuse of market dominance, and suspended investigations after the companies involved promised rectification without penalizing the companies involved.

Therefore, it is very beneficial for Tencent to be able to suspend antitrust investigations through rectification commitments, and ultimately implement rectification measures in exchange for exemption from penalties. Compared with whether Tencent Music has been punished for violating the “Anti-Monopoly Law”, the rectification measures Tencent Music will take are the issues that the industry is more concerned about.

At present, neither the State Administration of Market Supervision and Administration nor Tencent Music has disclosed rectification measures. It is foreseeable that these measures may be embodied as: either abandoning part or all of the exclusive license agreement, or promising not to extend the extension after expiration, or promising non-discriminatory and reasonable consideration to competitors or potential competitors, downstream derivative application scenarios involved Operators (such as the use of background music such as short videos, online card songs, etc.) open all exclusive music copyright authorizations, or reach other forms of cooperation models, and ultimately eliminate the crowding out effect caused by exclusive music copyright authorization to competitors.

Of course, if the exclusive music copyright authorization and reserved cross-authorization cause some actual losses to competitors, then the rectification measures will not rule out the settlement of related compensation. It is worth noting that due to disputes between Tencent Music and competitors based on the exclusive license of music copyright, many consumers who used NetEase Cloud Music and Xiami Music to recharge their members had to choose to recharge to Tencent Music to join their membership. Will cause consumer losses. Therefore, these consumers should objectively be compensated.

However, due to the lack of public hearing procedures for the design of rectification measures, Tencent Music’s competitors and consumers cannot express opinions on whether the investigation should be suspended or whether they should be exempted from punishment through public participation in the hearing, nor can they promise rectification to Tencent Music. Objections to the measures. Therefore, competitors and consumers may find it difficult to obtain compensation for losses if they can prove the existence of related losses. Of course, this does not preclude Tencent Music’s competitors and consumers from presenting their own evidence to sue Tencent Music again in the court. However, since the decision to terminate the antitrust investigation cannot be used as the basis for Tencent Music’s violation of the Antitrust Law, relevant civil litigation Not only will it be protracted, but the odds of winning are small.

Therefore, it is not ruled out that competitors of Tencent Music or users of online music apps will raise objections to the compromise reached by the Anti-monopoly Bureau of the State Administration for Market Regulation and Tencent to suspend the investigation, so that the suspension of the anti-monopoly investigation through administrative reconsideration or administrative litigation challenge Decide. Therefore, for Tencent Music, in order to avoid fines and confiscation of illegal income, it is a wiser choice to support reasonable compensation requests from competitors and online music App users. After all, these compensations are far lower than antitrust fines and illegal income. Income.

Outlook: exempt from punishment in exchange for rectification

If the antitrust investigation of Tencent Music is suspended so that Tencent does not need to be punished for crowding out competition in the online music market, it may indeed disappoint its competitors or consumers who have suffered losses. However, the opening of Tencent Music’s anti-monopoly investigation means that the dilemma that my country has not carried out anti-monopoly enforcement against Internet companies for 11 and a half years is expected to be broken. Chinese Internet companies will have to pay more attention to anti-monopoly law compliance and other suspected violations of the ” The Anti-Monopoly Law’s actions were rectified.

Exempting from punishment in exchange for rectification is not a big loss for Tencent. It is also very beneficial to the competitive environment and innovation of the online music market. It can attract existing companies and potential entrants to make more investment and create more Employment opportunities, especially in the field of music production independently developed by online music platforms. If Tencent Music can abandon its exclusive distribution cooperation with popular musicians’ new works, then musicians like Jay Chou who previously had exclusive license cooperation with it, are expected to be able to distribute new works on Tencent Music’s competitors’ platforms such as NetEase Cloud Music. This is helpful for increasing the income of musicians and preventing piracy.

In the end, what impact the case will bring is yet to be announced by the State Administration for Market Regulation. Let us wait and see.

The Links:   6DI150AH-060 MG15J6ES1