The Tencent Music Entertainment (TME) F1 filing makes for extremely fascinating reading however don’t expect copious amounts of knowledge to allow you an indoor track within the means that Spotify’s F1 filing did. Instead, TME’s F1 bears a lot of similarity to iQyi’s F1, specifically a basic level of KPIs, a lot of market narrative and even more room assigned to explaining all of the risks related to financing in an exceedingly Chinese company. But, maybe the foremost vital issue of all is that TME isn’t very a music company or investment chance, however, it is instead a series of social entertainment platforms, of that music – and far of it not even streaming music – is one minor half.
What are the Risk Factors?
As with iQiYi’s F1 filing, plenty of the document is preoccupied with outlining the risks related to finance in an exceedingly Chinese company, notably with relevance the assorted ways that within which the Chinese government will place the business out of existence. However real this threat is, for Tencent it is incredibly on the brink of home. The Chinese authorities presently refused to authorize any new Tencent games, whereas it also brings in new restrictions on the game taking part in for youths.
As a result, Tencent’s shares tumbled. The matter for Chinese corporations providing due diligence for overseas investors is that they need to admit that they could not be compliant with all Chinese laws. With the mainland China (People’s Republic of China) government cannot have democratic checks and balances, Chinese corporations ought to face the important risk of unpredictable, unquestionable, Athenian intervention just like it is going on with games.
Areas of Potential Difficulty
TME makes abundant of its cash from social gifting and virtual things. TME argues this doesn’t represent virtual currency, thus it mustn’t be subject to tight mainland China laws. However, the mainland China government doesn’t agree with it.
TME is registered within the island and doesn’t truly own several of its Chinese streaming services however it holds shares in them and has written agreement relationships with them. This can be a risk-laden approach at the simplest of times, however, is given additional spice by the very fact that the mainland China might verify TME to be a remote interest, which might place it in breach of a full bunch of mainland China laws.
Other notable risk factors include:
UGC: TME explains: “Under mainland China laws and laws, on-line service suppliers, which give space for storing for users to transfer works or links to different services or content, is also answerable for copyright infringement”.
It goes on to say: “Due to the huge quantity of content displayed on our platform, we have a tendency to might not forever be ready to promptly determine the content that’s smuggled.” There are 2 potential outcomes: 1) things keep on as they’re 2) rights holders get wanderlust and TME has to notice somebody assist it monitor and police infringement of copyright.
Another one being, ADS: TME isn’t giving shares available however instead yank Depositary Shares (ADS), that in heavily simplified terms implies that investors’ cash is deposited in United States banks in USD and so will, in essence, be regenerate into RMB shares at the prevailing currency rate of exchange, which can be higher or less than once the ADS was purchased.
TME’s Social Centre
TME’s social skills don’t seem to be restricted to WeSing. Social seeps from nearly every pore of its music services, with options such as likes, comments, shares, ability to form and share lyrics posters from a song, ability to sing songs, see native trending tracks, get personage packages, etc. TME has puzzled out the way to bake true social behavior into the center of its music services just like a way few western corporations have (YouTube and Soundcloud are rare exceptions). Soundcloud and YouTube designed their services while not having to play by the record label accumulation. Browse into that what you may.
Through its acquisition of contender services Kugo and Kuwou, TME has designed a music empire, giving it a seventy-six percent music subscriber market share and feat 2 key competitors: Apple Music and NetEase Cloud Music. TME pointedly makes no regard to Apple Music, despite it having 2.6 million Chinese subscribers in 2017. NetEase, however, will get a reputation check.
The loophole between the SEC and CSRC has allowed Chinese companies to falsely report numbers in the SEC filings, with the SEC unable to do anything to prosecute those Chinese companies and the CSRC unable to take action relying on the SEC filing. Unfortunately, TME didn’t mention a single thing about international expansion in the TME F1 filing.