At the start of 2020, Tencent (TCEHY  ), one of China's largest internet and entertainment companies, announced that it agreed to acquire 10% of Universal Music Group from its parent company Vivendi (VIVHY  ) for $3.36 billion.

Universal Music Group is one of the world's largest and most dominant record label groups and is the parent company to Capitol Records, Blue Note and Republic.

The deal will likely push Universal Music Group's valuation to above $30 billion and was received well by Vivendi's investors. Vivendi first announced its intentions to sell a portion of the company equity back in 2018.

According to the deal, in addition to purchasing 10% of Universal Music Group, Tencent also reserved the right to buy another 10% stake on the same terms by January 15, 2021.

This additional deal will open up gateways to China's booming music market, which Entgroup, China's leading entertainment industry consulting firm, noted was expected to grow from 347.1 billion yuan ($50.43 billion) in 2017 to 523.5 billion yuan ($76.06 billion) by 2023.

This booming market is ripe for the pickings and Universal will tap into Tencent's resources and knowledge of the Chinese market to grow the profitability of Universal's Asia Business, which in 2018 represented more than 13% of its 2018 sales.

One of the key reasons Tencent took what some investors called a hefty price tag for a stake in Universal is the competitive advantage it will give its growing Tencent Music Entertainment streaming company, who is owner of services such as QQ Music, KuGou and Kuwo.

Tencent Holdings now owns China's largest music company, Tencent Music Entertainment, which controls roughly 60% to 70% of the Chinese music market and itself owns shares in many high-profile global music ventures. In fact, in 2018, Tencent Music and Spotify (SPOT  ) announced an unusual equity-swap agreement, in which the two companies purchased a roughly 9% stake in each other's equity.