Tencent Music to Face U.S. Lawsuit for Exclusive Licensing Deals

Investor rights firms have called on investors to join the class action, yet in its early stage, against China's music conglomerate.

Author: Belinda Zhou   

Tencent Music Entertainment Group (NYSE: TME) may soon face a class action suit as more than 10 U.S. law firms have called on investors in the Chinese music giant to join in the investigation.

It was late August when it surfaced that China has been scrutinizing TME's exclusive licensing deals with major record labels Sony Music Entertainment, Warner Music Group Corp. and Universal Music Group.

The company has acquired exclusive rights for a number of the record labels' catalogs, then sold some content to other music and video platforms, including those operated by Alibaba Group Holding Ltd. (NYSE: BABA), Baidu Inc. (Nasdaq: BIDU), NetEase Inc. (Nasdaq: NTES) and ByteDance Inc., as reported by Bloomberg at the time. The probe by Beijing authorities was launched in January but only recently came to light in the United States.

The news sent a number of investor rights litigators on the heels of the music conglomerate. Among them were Rosen Law Firm P. A., Klein Law Firm, Glancy Prongay & Murray LLP and Bronstein, Gewirtz & Grossman LLC, just to name a few.

A paralegal at Rosen Law Firm said in a phone call with CapitalWatch on Monday:

"According to the lawsuit, defendants throughout the Class Period made false and/or misleading statements and/or failed to disclose that: (1) Tencent Music's exclusive licensing arrangements with major record labels were anticompetitive; (2) consequently, sublicensing such content from Tencent Music was unreasonably expensive, in violation of Chinese antimonopoly laws; (3) these anticompetitive efforts were reasonably likely to lead to regulatory scrutiny; and (4) as a result, defendants' statements about its business, operations, and prospects, were materially false and misleading and/or lacked a reasonable basis at all relevant times. When the true details entered the market, the lawsuit claims that investors suffered damages."

He also said the case was in its early stage and the firm expects to file a motion to be selected as lead council by Nov. 25.

A wave of reminders for investors to join the lawsuit has been set out, with no lead council yet selected on the case.

Tencent Music said in its prospectus regarding the content licensing and sub-licensing: "From a business strategy perspective, we believe that being a content sub-licensor under our master distribution agreements with music labels allows us to continue to work closely with music labels to drive the growth and development of China's online music entertainment industry."

Tencent Music did not respond to requests for comment on Monday. 

Shares in Tencent Music closed at $12.77 per ADS, down 16 cents.