China's Tencent seals exclusive music licensing deal with music firm UMG

Despite proliferation of streaming sites, China's local music industry still in its nascent stage

Tencent Holdings, China's biggest gaming and social media firm, has reached a deal with US music firm Universal Music Group (UMG) to distribute licensed content in China.

Tencent Music Entertainment Group, the Chinese firm's music subsidiary, will also own exclusive rights to sub-license UMG's content to other content providers in China, the two firms said in a statement on Tuesday.

"The digital opportunity in China's music market is truly extraordinary, with over half a billion people enabled with smart phones. Our expansive new partnership with Tencent will enable UMG to fully address this opportunity," said Michael Nash, UMG Executive Vice President of Digital Strategy.

Last year Tencent and leading Chinese music-streaming company China Music Corporation struck a deal to combine their music businesses under a new venture valued at roughly $6 billion.

In 2015 Germany's BMG music rights company reached an agreement with Tencent rival Alibaba Group Holding Ltd to license 2.5 million copyrights in the Chinese market.

But despite the wide proliferation of streaming sites, China's local music industry is still in its nascent stage compared with neighbours Japan and South Korea, and subscription services are still less developed.

In 2015 the country said it was targeting a music industry output of $47 billion by 2020. According to research firm IFIR, China's music industry was worth $170 million in 2015.

The growth in China's online entertainment industry has also attracted the scrutiny of regulators, who have clamped down on unsanctioned music, films and livestreaming services in a wide-reaching censorship campaign which they say is designed to protect the country's minors and maintain political stability.

Tencent's music unit, which has over 600 million monthly active users and 15 million paying subscribers, oversees music services QQ Music, KuGou and Kuwo.

It will also work with UMG to build a recording studio "inspired" by the famous UMG Abbey Road studio in London, it said.