China’s largest music streaming service has had a turbulent year. With 800 million monthly users across multiple apps and a profitable business, Tencent Music Entertainment is gearing up for one of the most anticipated initial public offerings in the United States this year. But the company has landed in hot water in the months leading up to its first share sale.
Last week, Chinese investor Hanwei Guo accused TME co-chairman of using misinformation, threats and intimidation to force him to sell his stakes in Ocean Music, which eventually became part of TME after QQ Music and China Music Corporation se merged in 2016.
Han filed a motion of discovery in the US seeking information from Deutsche Bank AG, JPMorgan Chase & Co., Bank of America Corp. and other underwriters for the TME IPO that the investor plans to use in an ongoing arbitration in China . The investor is requesting TME co-chair Guomin Xie Guo and other parties involved to return percentages of their stakes in the musical vehicle and compensate him for the economic losses.
Han claims that he invested an equivalent of $ 26 million in Ocean Music in 2012 after Xie’s repeated invitation. Xie first promoted Ocean Music with the promise that the music company would make a profit the following year and go public in three years, but then informed Guo that the business was failing and threatened to sell his shares, according to a Guo’s statement. legal counsel. The investor eventually sold his shares “under pressure.”
The fraud allegation came two months after TME delayed its IPO due to weakening stock markets around the world. The music giant resumed the process and met with the US Securities and Exchange Commission on December 3. According to its prospectus, TME plans to raise as much as $ 1.23 billion with a listing price of between $ 13 to $ 15 per share.
TME is now in a quiet period in which federal rules limit what the company can say in public before its IPO, which according to Bloomberg will begin taking orders on December 12.
As a spin-off subsidiary of Tencent, TME operates three music streaming apps: QQ Music, and brought about by the merger of CMC, Kuwo Music, and Kugou Music. The entertainment group also runs China’s best karaoke app, WeSing, in which users can record and upload their work.
Unlike its money-losing Western counterparts, Spotify, TME is profitable thanks to a flourishing social business. For example, WeSing users can send virtual gifts to reward content creators, from which TME takes a commission. On the other hand, only 3.6 percent of TME users are paying subscribers as of the second quarter, part of the result of China’s online piracy problem. The rate is much lower compared to other music services around the world, but TME says in the prospectus that it expects revenue from paid subscriptions to increase over time.