Music streaming company Spotify and Chinese Music Entertainment company Tencent will be buying stakes in each other ahead of the Spotify’s anticipated stock market listing next year. This deal will help Spotify—a music streaming leader in Europe and North America—and Tencent Music increase coverage in each other’s core markets.
“Following these transactions, Spotify will hold a minority stake in TME, and both Tencent and TME will hold minority stakes in Spotify,” the companies said in a joint statement.
Although the financial terms of the deal were not disclosed, a report published by the Wall Street Journal last week said the deal would give Spotify an upward valuation of $10 billion. The report also stated that Spotify and Tencent were talking about trading stakes of up to 10% with each other.
“This transaction will allow both companies to benefit from the global growth of music streaming,” Spotify founder and CEO Daniel Ek said.
Spotify, founded in 2008, now streams music for 140 million users globally, of which 60 million users pay for its premium advertising-free subscription.
As per music industry analyst Mark Mulligan, who is the Managing Director at MIDiA Research, the deal sends a clear signal to its investors that Spotify is thinking in-depth about its strategy in China. “China is very much a missing link for Spotify,” he said. “As it progresses towards a public listing, that’s really a box it needs to have ticked to convince investors it really is a global player.”
Spotify is set to go public in early 2018, and is reportedly planning to launch an IPO as a direct listing rather than a conventional offering. The move is intended to make it convenient for the company to go public, but it also means it wouldn’t raise any new capital with the IPO.
Spotify’s founder and CEO Daniel Ek said that Spotify and Tencent Music Entertainment see significant opportunities in the global music streaming market for all our users, artists, music and business partners. “This transaction will allow both companies to benefit from the global growth of music streaming,” said Ek.