TENCENT UNDER SCRUTINY: IS THE FREE PONY RIDE OVER?

Tencent is facing a possible regulatory inquiry from Beijing. The Chinese media giant, which made U.S. headlines recently for negotiating a 10% stake in UMG, is being scrutinized for the practices of its music-streaming division, according to multiple reports. Meanwhile, the Financial Times (behind a paywall) notes, the firm has struck back at its accusers with litigation.

“[Tencent chief] Pony Ma’s ambitions of building an entertainment empire are looking a little more fragile,” writes sector analyst Robyn Mak in a Reuters report. "It’s a reminder that China’s tolerance of its tech champions is waning.”

The music-streaming wing of the conglomerate, said to be valued at $21 billion, has deals in place with the major labels; its rivals, Mak reports, accuse the company of relicensing those rights at exorbitant and anticompetitive rates.

According to the Financial Times, Tencent has initiated legal action against three bloggers who posted comments about its activity on the WeChat app. Tencent controls that app, and also had the option of simply shutting down the offending accounts; its decision to sue instead has raised eyebrows.

The company’s stock has taken a hit in the days since news of the probe spread. Mak cites one analyst who estimates that 30% of the company’s revenue comes from music licensing.

These developments are certainly a speedbump for the Cussion Pang-led music division, which is widely believed to be pursuing a bigger ownership stake in Universal beyond the slice now being negotiated. But they could prove even more problematic for Ma and the parent company, which has massive holdings in games (already subject to a separate investigation), movies, social networks, comics and other media, and could be stymied in its bid for sector dominance.

Read Mak’s analysis here.