What happened

Shares of Tencent Music Entertainment (NYSE:TME), the self-proclaimed "leading online music entertainment platform in China," are down 3.5% in 1:55 p.m. EDT trading Monday. The drop happened after Reuters reported that China's State Administration for Market Regulation (SAMR) fined the company and said it would not be permitted to enter into exclusive music copyright agreements in China anymore.    

So what

China has been waging a full-scale regulatory war against its own Chinese tech companies over the past several weeks. In this latest broadside, SAMR said that after investigating Tencent's activities in online music broadcasting, it has concluded that Tencent has engaged in unfair market practices against smaller rivals.

The company currently controls some 80% of "exclusive music library resources," reports Reuters, giving it "leverage over upstream copyright parties and allowing it to restrict new entrants." Accordingly, SAMR is stepping in to demand that Tencent sign no more exclusive copyright agreements with upstream owners of such rights. Worse for Tencent and its shareholders, SAMR is demanding that the company terminate its existing exclusive agreements within the next 30 days.

Glowing red stock chart arrow trending down.

Image source: Getty Images.

Now what

SAMR's action amounts to a government expropriation of intellectual property from the streaming giant and diminishes the value of the stock by taking away some of its assets. Viewed in that light, investors' decision to bid the stock down today makes perfect sense.

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