Outdustry | 格外音乐

This article originally appeared in Issue 191 (1st May 2008) of the MusicAlly Report.

China never fully adopted the “traditional” tools of music discovery and consumption: TV, radio and the print press are all heavily monitored by the government and relatively anodyne as a result; CDs never really gained any meaningful traction; live music events are circuses of permits and arbitrary cancellations.

The bleak circumstances of China’s music business have resulted in the Chinese consumer inadvertently leapfrogging into the next generation of music consumption, even before their western counterparts.

In February this year, after a 53% growth rate in 2007, the Chinese Internet Network Information Centre (CNNIC) finally declared the Chinese internet base to be the largest in the world with 221 million users. At 16% penetration, this still leaves huge room for growth.

The internet has not only afforded a freedom of expression and identity previously unavailable to the Chinese, it has also almost totally usurped the roll of all offline music media: portals, webzines, bulletin boards (BBS), video sites, music blogs, music streaming. In fact, so important has it become as a medium that a full 86.6% of all netizens use the web to listen to music – the highest of any usage including search and email.

Despite a vast audience, hungry for music, the Chinese internet suffers from poor depth of catalogue with an almost negligible “long tail”. Super portals like Sina, Sohu and clear leader Baidu (with 75% of the search market) bottleneck music into charts of 100, 200, or 500 songs on their front pages and pay little attention to anything else, meaning that while it is possible to find deep catalogue, the average user simply does not look past the hits. High charting – and therefore high visibility – is crucial and, as a result, payola and chart rigging reputedly abound.

Full track downloadable MP3s have been (illegally) free to user from the outset, partly because 86% of internet users earn less than $430 per month and partly because China’s poorly enforced copyright law is only just becoming a topic of public debate ie. too late.

Baidu’s MP3 search efficiently presents “deep links” to copyright infringing material, free for download. It is through this service that the vast majority of full track digital music is consumed in China, while Baidu generates revenue through advertising and mobile services such as ringtones and Caller Ringback Tones (CRBT) ie. the tone you hear when you are calling someone and waiting for them to pick up. No surprise then that the company is facing various lawsuits.

Leaked reports earlier this year suggest that Google China (g.cn) are planning on partnering with legal music site Top100.cn to offer free-to-user major label catalogue found through Google MP3 search. This arrangement, due to launch towards the end of 2008, would allow Google to compete with incumbent behemoth Baidu in the music search sector but would also signal a seismic change in music consumption: major labels conceding that music must be free-to-user. China is increasingly being seen as a brutal testing ground for radical new models that can survive in a “more than 99%” (IFPI) digital piracy market.

In this climate the real currency is the CRBT. The strength of this as a product is its “walled garden” environment: mobile operators China Mobile (69% of the market) and China Unicom (the rest) host a catalogue of music on their servers – the user pays USD $0.70 CRBT service charge a month and then USD $0.29 for every new CRBT, all without the music ever leaving the operators’ servers or payment systems.

China Mobile’s CRBT revenues might have leapt 74.7% to nearly USD $1.7billion, according to their end of 2007 report, but there is some way to go with the distribution of wealth. The operator keeps the service charge in its entirety and only divides the individual tone purchases up, with roughly 35% for master and 10% for publishing if the deal is direct with China Mobile rather than an aggregator.

According to M:Metrics an astounding 34.8% of the 530 million mobile subscribers in China use their phones to listen to music, compared to 5.7% in the US. China’s networks, infrastructure and data capabilities might need to improve but the mobile juggernaut is well on its way.

China Mobile launched the first over-the-air full track MP3 download service in February this year and expect brisk business. When you consider there are some 300 million people who own a mobile but not a PC, their phone is likely to be their first personal access to the internet and only consistent access to digital music. Whether this convenience will result in people paying for that music remains to be seen.

There is a lot of money to be made within that enormous walled garden. It might be a long time, though, before anyone other than the monopolistic mobile operators and a select few music stars can see any of the benefits.

© Ed Peto 2008