Tencent Holdings Ltd has entered into negotiations with Universal Media Group (UMG) to acquire a ten percent stake in UMG.

Under the proposals, Tencent will have a one-year call option to purchase an additional 10 percent at the same price and terms. 

UMG is the world's largest music group with a 30-percent market share and owns the rights of artists like Drake, U2, Madonna, the Rolling Stones.

In 2018, UMG had a global turnover of six billion euros (6.65 billion U.S. dollars). The company is wholly owned by Vivendi, the Paris-based entertainment and communications conglomerate.

Tencent, the Shenzhen-based tech firm, is among the world's 10 most valuable brands with over one million servers.

Tencent Music owns streaming apps QQ Music, Kugou, Kuwo and karaoke app WeSing, with over 800 million total monthly active users (MAUs) in the third quarter of 2018. Last December, Tencent Music Entertainment, a leading online music platform in China, filed for an initial public offering (IPO) of up to 1.23 billion U.S. dollars.

"That these two giants are joining forces is revealing of the trade tensions between China and the United States," Anro Pons, director of the Parisian think tank Digital New Deal, said of the share ownership talks. China will now look more to Europe for new partnerships. 

"But there is also another battle going on; it is a less visible one: The fight between the digital giants. We all know the American GAFA (Google, Amazon, Facebook, Apple), but the Chinese equivalent, the BATX (short for Baidu, Alibaba, Tencent and Xiaomi), are less known in Europe. Between them, there is a technological war as well as a fight over the best content. This new partnership is very strategic. Tencent is already a leader with games, but now it can add music as well." 

For Vivendi, the deal is more than welcome. "Tencent will pay six billion for Bollore, the owner of Vivendi. Since they have some companies that are doing less well, they can use the extra cash. Commercially it's a win-win deal. Vivendi Universal gets means access to the world's largest market, 1.5 billion Chinese. In the longer term, they will see growth for the next decade."

Vivendi's assets include Gameloft, one of the world's leading mobile game publishers. This could also be of interest to Tencent.

"There are certainly other potential strategic partnerships between them, which would make perfect sense," Pons said, adding that he expected the Tencent-Universal deal as one of the first of many.

"The Chinese are only at the beginning. The BATX have deep pockets. There is, of course, a lot of talk about the Belt and Road project, but just as important is the information highway. Like the new Silk Road, the internet allows China to have global influence. This is the real challenge behind this partnership."  

Vivendi headquarters in Paris declined to respond to the reports because the negotiations between UMG and Tencent are still ongoing. Investors reacted positively with Vivendi gaining almost two percent over the last week on the Euronext Stock Exchange in Paris. 

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