Rampant piracy and a lack of transparency have long complicated efforts by record labels to do business in China. Still, for those willing to be flexible and patient, the Middle Kingdom could still prove to be a useful laboratory for new business models.

Relative to it’s potential, China’s music market remains microscopic. Recorded music sales totalled just $82 million in 2008, up 8% from a year earlier, according to IFPI data. But digital sales, which accounted for 62% of total music sales, provide a glimmer of hope, having surged 45% last year to $50.4 million.

Ed Peto, founder of the music business consultancy Outdustry in Beijing, believes artists must adopt a 360 degree approach to China. The man on the ground for the Beggars Group of labels, Peto works to tap a network of promoters, critics, DJs and Web entrepreneurs to position acts aiming to connect with Chinese music fans. Asked to identify the best means to promote music in China, Peto cautions that no single platform would suffice, given the China market’s fast pace: “The menu could change at any minute,” he says.

1. Land a billing at Beijing’s premiere live music event, the Modern Sky Music Festival

Founded in 2007 by Modern Sky record label boss Shen Lihui, past festival headliners included U.S. rockers Yeah Yeah Yeahs and local heroes Carsick Cars. This year’s event will be held Oct 4-7 at Beijing’s Chaoyang Park and will feature a roster including British Sea Power, the Buzzcocks, the Futureheads and Shonen Knife. Peto says Modern Sky is better organized than previous Chinese rock festivals, boasting sponsorship support, a wider range of bands and a more professional staff. “It’s not perfect, but it’s a really significant step up,” he says. Peto also suggests licensing a record to a local label first then using the fest to promote it. And don’t go shouting about politics like Bjork did about Tibet in 2008. “That incident did a disservice to everyone working hard for incremental change in music in China,” he says. “It is getting better, but she set things back five years.”

(Update: It is worth noting that Modern Sky Festival ran into some….’trouble’ this year, after the article was published. The week before the event, the organisers were told that none of the international bands would be allowed to play)

2. Hire an intern to start a discussion thread about a single or album on Douban.com

Douban.com is the most transparent, frank, witty and active collection of critical writing about music, books and films in the Chinese blogosphere. Knowledgeable music editor Xu Bo is also the guitarist for one of the capital’s top bands, the post-folk punk quartet P.K.14.

Peto says 80% of the traffic to Outdustry’s online community/record label site MicroMu comes from Douban. “It is the light at the end of the tunnel,” he says. “It’s what Myspace China wishes it could be.”

3. Make friends with Kelly ‘ZhaZha’ Cha

Cha is an influential TV/radio host educated partly in the United States whose shows on Hunan Satellite Television (“Midnight Mindtwist”), China Radio International’s Easy FM and the video channel of popular Web portal Sina.com (“The ZhaZhaClub Show”) expose fans to imported music by playing songs and discussing lyrics in English and Chinese. “She’s like a champion for Western music across a number of platforms in China,” Peto says.

4. License music to R2G

R2G is a Beijing-based online music distribution platform whose custom-built software detects illegal electronic listings of songs, then uses documentation of those posts (and the courts, if necessary) to negotiate legitimate royalty payments for future downloads from Web sites. Privately owned R2G takes a cut of the payments and thus far appears to have survived China’s Wild West environment by focusing on songs downloaded and used as ringtones and ringback tones by the nation’s 430 million cell phone subscribers. Peto calls R2G “the most transparent and Western-friendly of the music distribution sites in China”.

5. Upload a video to Youku

Youku is China’s largest online video portal. As with YouTube, a channel can be set up for free, pages customized and videos uploaded. “It is definitely worth adding Chinese and English subtitles,” Peto says. “Lyrics are very important to Chinese people, and having the translation there really adds value as the video also becomes an educational tool.” By posting a video, Chinese music fans can better appreciate a band’s over-all presentation, he says, noting that “where your music might not be particularly culturally applicable, your video might pique interest, be plucked from obscurity by the editorial team or community and hit a a feature page.”

Billboard article used with permission of Nielsen Business Media, Inc.

As a market where digital content has largely been free from the get-go, China is an obvious case study along with other developing nations such as Brazil. Chris has therefore devoted a chapter to these markets, looking at how people are dealing with such realities.

I met Chris for breakfast during one of his research visits to China towards the end of 2007 and, amongst other things, outlined the basic concept of MicroMu (不插店) to him a good 8 months before we actually got round to trying the idea out. A year and a half later (and a year into the MicroMu project) and our copy of Free arrives through the post, complete with a whole page devoted to MicroMu as an example of an experimental free music model:

“”The moment you put a fee on accessing music in China is the moment you cut off 90% of your audience,” says Peto. “[Paying for*] Music is a luxury for the middle class in China, a flippant expenditure. This model works against that. We simply use free music and media as a way of saying that ‘everyone is welcome’, building a dialogue, building a community, becoming the trusted brand of the grassroots music movement in China. To do this though, we have to become all things to all men: record label, online community, live events producers, merchandise sellers, tv production company.”

*Just to clarify: It is the idea of paying for music and not the idea of music itself that is a luxury for the middle class. The words “paying for” were not included in the original text.

The pressure is on to deliver! Many thanks for the mention Chris and good luck with the book launch.

© Outdustry 2009

It seems like it has been a hell of a lot longer, but our little concept record label MicroMu (known in Chinese as 不插店, or ‘Buchadian’), turns 1 year old today. You can feel paternal pride radiating throughout Outdustry HQ as we package up a one year compilation album of b-sides and rarities to celebrate:

Zip file album download, or track by track:

1.Zhao Guang – No Cloud In The Sky

2.Liu Dongming – Bird’s Nest

3.Gangzi – Untitled

4.Zhang Yiding – Red Scarf

5.Zhang Weiwei – Song

6.Wu Ningyue – The Lotus Blossom

7.Zhang Qianqian – Improvisation

8.6 Kings – Drinking Song

9.Di Ku Ai – Migrant Bird

10.Shouwang – Run Away

11.Liquid Oxygen – All Things Are Uncertain

12.Wu Junde – Lullaby

13.Li Zhi – Happy When You Feel Pain

MicroMu is our attempt at a sustainable record label model in an environment where people, by and large, aren’t used to paying for music. The solution? Give music (and lots of other things) away for free, build a loyal community around it all, and then support this (largely) through a partnership with a brand who shares your audience. Or, as we say in our label intro:

MicroMu is an experimental, sponsor-driven, free-to-user record label model designed to discover new talent, create original music and reward artists in seemingly impossible conditions.

It is obviously a lot more complicated in reality and in the long run involves a number of other areas of revenue generation, but you get the gist. I’m sure at some point we will get round to laying the whole thing out for you but we are still in a very ‘developmental’ stage so don’t feel justified in holding ourselves up as a successful case study quite yet.

How It All Began

Back in June 2008, we were putting on a show for folk legend Zhou Yunpeng in Beijing and were looking for a suitable support act. We heard demos from a young singer songwriter in Nanjing called Zhao Guang and liked what we heard to the extent that we paid for the engineering student to travel up to Beijing and support one of his all time heros. It seemed a waste for Zhao Guang to come and go without doing some recording while he was up here. It’s just that we didn’t have a record label.

The MicroMu concept had been fully laid out at Outdustry some time before, but this recording opportunity with a new artist seemed to get those fires going again, except this time we had a deadline of a few days to get things rolling. One phone call to Plastered T-Shirts supremo Dominic Johnson-Hill later and we had our cash sponsor. Dominic’s clothing brand has seen rapid growth in recent years, largely thanks to his relentlessly creative marketing and appreciation of audience (and, of course, cool t-shirts). It was a perfect match. We were aiming at a young, alternative-culture loving audience, so was he. Money well spent on his behalf, money gratefully receieved on ours…

After the Zhou Yunpeng show we took Zhao Guang for a midnight recording session at rehearsal rooms up near Gulou. He was in and out within an hour, having laid down six tracks, most in the first take = our first release.

Within the following week we had come up with a name, MicroMu (in reference to the compact nature of the business model, amongst other things), set up our website and, exactly a year ago today, made our first blog post:

So, What Is MicroMu?

Lets keep this simple to start with:

MicroMu is a record label – We discover musicians, record these musicians and then release the recordings to you, the fan.

It is obviously a lot more complicated than this in practice but, to be honest with you, this is a huge experiment so lets start slowly. The most important thing for you to know at the moment is that we are going to give away all of our recordings for free through this blog.

The whole process is funded by one sponsor: Beijing based T-Shirt company Plastered. Why are they doing it? Simply because they love the idea and want to support independent music. Did we mention that they make the best t-shirts in China ?

We will obviously explain a lot more about how this will work as we go, through the blog. There is a long journey ahead of us and we hope you can help us along the way. Please, download our music, leave comments, tell a friend. Together we can change the way that music is made in China, in a way where everyone wins.

It’s all about the music.

MicroMu

Simple enough really. We then obviously had to go on and explain how this music could be free in another post, the idea being to involve the fans in the whole thinking behind the label in a never ending dialogue conducted through the blog. Nice and transparent:

How Can This Music Be Free?

MicroMu is an incredibly simple idea. Here is a handy bullet point guide for you:

• MicroMu records some music
• This music is put on MicroMu.com for free download.
• All of this amazing, free music means loads of people come to our website.
• Loads of people coming to our website means that a brand will want to share all the attention and will pay money to do so.
• Plastered T-Shirts is that brand. They are making the whole thing possible by paying us money to be our brand partner.
• We use this money to cover all of our costs and pay the artists.
• The more people that visit the site, the more money Plastered will give us.
• The more money Plastered gives us, the more music we can make, the more royalties we can pay artists…..the more free downloads we can have on the site!

You see how simple it is? The most important thing for us….is YOU! You are ‘paying’ for this music just by being on this site.

Tips on how to help:

• Visit the site often for updates.
• Leave comments, tell us what you think.
• Tell a friend
• Tell them to tell a friend
• Tell them to tell a friend to tell a friend
• Instead of emailing/bluetoothing our songs to people, send a link to where they can download them for free on MicroMu.com
• Write about us on your blog
• Turn up to our shows.

Very kind of you. Thanks a lot..

Fifteen releases, 100 blog posts, 2000 comments later and here we are. Oh, and a whole heap of videos:

Dead Flower by Shouwang

There are big plans in the pipeline for MicroMu but as with all big plans they are prone to big changes. As I said, it is all a huge experiment and we are amazed and hugely encouraged to have gotten this far. Particularly encouraging is the warmth of reaction we have received from the Chinese music fans. Our music has quickly found its place in the hearts of an impressively wide audience as well as plaudits in some of the most demanding forums of the Chinese media and internet. We have also been lucky enough to work with, and in some cases record, some of the biggest and best names in Chinese independent music. That’s about as good a start as we could have hoped for. Onwards and upwards!

Many thanks to Dominic Johnson-Hill: Scholar, philanthropist, patron of the arts, dyslexic. Many thanks also to Eggplant and all of our artists: Zhao Guang, Liu Dongming, Gangzi, Zhang Yiding, Zhang Weiwei + Guo Long, Wu Ningyue, Zhang Qianqian, 6 Kings, Di Ku Ai, Shouwang, Liquid Oxygen, Travellers, Li Zhi, Zhou Lao Er, Zhang Guonian.

© Outdustry 2009

As far as Danish bands go, I particularly enjoyed Oh Land‘s orchestral experimentation on the opening evening, as well as Kiss Kiss Kiss‘ danceable indie-pop on the P3 stage, with the Danish crown (in my ill-informed opinion) going to one of the best live acts I have seen in a while, Who Made Who, who rocked a packed out mega-barn of revellers on the Saturday night.

I also have to make an honourable mention of Norwegian artist Rockettothesky who’s esoteric take on song-writing – including a track about ‘horny ghosts’ – stayed with me for some time after the show, to the point where I bought her album Medea off eMusic as soon as I got home. Good stuff.

As far as me ‘spewing forth’:

Video made by (and courtesy of) SPOT Festival

Thanks very much to everyone at SPOT, particularly Martin Røen Hansen and Henrik Friis, for a fantastic weekend.

© Outdustry 2009

So far there is not much in the way of English language coverage of this story, but here is a translated version of Google’s blog post on the matter. This service is intended to boost Google’s fortunes in China, a market in which it is being comprehensively outgunned by resident search behemoth Baidu. Baidu themselves have responded to these announcements, translated here.

A quick search suggests that they do indeed have a deep catalogue. Try it for yourself here.

Bizarrely, however, at least one song we found had the following in the tagging: “RiP BY MUJi”, suggesting that their MP3s are not from the most wholesome of origins.

When unknown Chinese singer Yang Chengang wrote and recorded the song Mice Love Rice in Wuhan, Southern China in 2000, he would have had no way to predict it’s eventual impact. While the pop ballad languished in relative anonymity on CD format for four years, it’s eventual arrival on the recently booming internet in 2004 sparked off a word-of-mouth phenomenon that would ultimately peak with 6 million legitimate ringtone sales on China Mobile in one week as well as a rumoured 200 million illegal MP3 downloads within a year.

Once exposed to the powerful Chinese internet, Mice Love Rice and it’s exemplary use of instantly recognisable melody as well as inoffensive, syrupy lyrics – in this case a chorus that includes ‘I love you, loving you, just like mice love rice’ – came to define what is now known as a ‘wang luo ge qu‘ or ‘network song’, a literal reference to the exponential spread of a song through internet networks. This process of musical ‘crowd sourcing’ has proven to be the paradigm of the modern Chinese musical landscape.

Song Ke, founding CEO of one of mainland China’s leading record labels, Taihe Rye, employs a team who use software to monitor the various chart systems and music networks around the internet, looking for songs that are ‘making noise’ and stepping in and signing them up once they have proven to be a crowd pleaser. The practice has paid off: a few songs by unknown artist Dao Lang were “making a lot of noise on the internet,” says Song “We got in touch with him, signed all his digital rights, put our new media marketing team behind it and sold 30-40 million ringtones in 2005 alone.”

Unlike in the west, however, this ‘democratisation’ of music success – where the web organically decides which songs reach the top of the pile, or at least the attention of the likes of Taihe Rye – has not led to a vast broadening of musical tastes. In fact, the chat boards, blogs, instant messaging systems and peer to peer networks that organically built Dao Lang and Mice Love Rice into hits have shown the opposite to be true. Instead of a range of defined sub-genres, the network effect has crystallized music into one much larger homogenous category, based on the commercial pop song style and format exemplified by Yang Chengang’s hit. The much-feted ‘long tail’ of alternative music and niche genres has, to date, failed to emerge.

Songs that satisfy the ‘network song’ criteria for mass acceptance and go on to become internet hits are frequently gathered together by portals and websites into charts of ‘deep links’ to unlicensed MP3s or streamed music. “The charts we present are simple marketing tools to attract visitors, who mainly love pop. We do have a social network section for discovering music but it is our MP3 search which represents on average 40% of our entire traffic“, says Gregory Wu, Associate Director of Digital Entertainment for music search behemoth Baidu. While the IFPI estimates that China’s physical market was worth only $37.7 million dollars to the labels in 2007, Wu says that Baidu receives roughly 100 million MP3 search enquiries every day, giving some idea of the gulf between the ‘paid for’ and ‘not paid for’ music markets.

According to the latest China Internet Network Information Center report, 84.5% of Chinese netizens listen to music on the web, making it the most popular internet usage ahead of even search and email. These legally suspect music charts are therefore key traffic drivers and are typical of the average Chinese music browsing experience. They also represent bottlenecks that impair music exploration and “perpetuate low common denominator music, leaving music discovery to chance,” according to Wu Jun, CEO of digital distributors R2G, the company behind Wawawa, a non-mainstream legal MP3 store. “The big players are not necessarily music specialists, so have no real desire to develop music recommendation/discovery facilities beyond the simple chart format”.

The Chinese internet user base, which reached 253 million in June, is also getting, on average, poorer, younger and less educated every year as the socio-economic barriers to internet access are gradually lowered. Song Ke explains how this increasingly worse off audience skews the tastes further towards mainstream pop. “People who do not have a lot of money want to look up to their pop stars and imagine what life is like up there. Alternative music is a luxury for the middle class; for people who have tasted some of the high life and are looking for something else”.

What has resulted is a kind of echo-chamber effect, in which only low common denominator, crowd approved pop music is fed back into the network through these curated bottlenecks. The priority for the Chinese labels is to please the network and make it into these bottlenecks, not push musical boundaries forward, as failure to make it into these top strata of recognition brings with it a hefty price. As one of the only other major sources of music industry income, brands focus the bulk of their sponsorship monies on the highly visible hit artists, compounding the relatively anonymous non-chartees to further suffering.

According to analyst group Music 2.0, however, 64% of users surveyed said that they frequently could not find the music they were looking for on a music search engine suggesting that there is at least some desire to stretch beyond what is presented, but as Song Ke puts it “these music sites, search engines and charts are run by a generation of people who grew up on melodic Hong Kong and Taiwanese pop. They are pushing what they know and like. Future generations will want to change this and demand more variety, but it may take some time”.

© Ed Peto 2008

“The 4.7 billion viewers who accessed television coverage of the Beijing Olympics officially translates into approximately 70 percent of the world’s population, or more than two in every three people globally.”

When you consider that each country’s coverage of the Olympics would have used different theme music (including the ubiquitous Chinese theme songs), the one musical consistency for the entire 4.7 billion people would have been the national anthems played ad nauseam throughout the entire 16 days.

This must be a contender for the most exposure ever for a body of musical work in a two week period. You can imagine why Peter Breiner, the man who arranged all 200 national anthems for the Athens Olympics in 2004, was pretty pissed off to find out his works were being used this time around as well without any approval, recognition or compensation. The Washington Post reports that while the Beijing Olympic Committee say all anthems were “orchestrated by Chinese musicians”, Breiner is “100 percent positive” the arrangements are his.

I’m fairly certain Breiner will not see a penny for this. He will just have to enjoy the outstanding anecdotal fodder that comes from being the victim of perhaps the most visible copyright infringement of all time.

© Ed Peto 2008

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

Normally I would have turned this down as the money tends to be poor and the deadline was a bit abrupt, but the magazine in question was Rolling Stone China - re-named ‘InMusic’ after a disastrous launch left them unable to publish under that name – and the album was Radiohead’s ‘In Rainbows’.

Ultimately the prestige of the publication and the immediate relevance of the album (I had it on rotation at that point) saw me sitting down the following day to churn it out.

It was only after I got my copy back that I started to wonder why they had approached me, a westerner, to review such an important album. I met for a coffee with my editor Lua Zhou to ask how it came about:

Lua Zhou: There is a problem with Radiohead. We talked about this in the editors meeting and we found that so many people love Radiohead but no-one has ever clearly said why they are so good. There is no clear answer, no clear review in the past. So I thought maybe I should find a foreign writer to write about it. Especially someone who has experience working in the western music industry, or who is a musician, because they are really a musician’s band – that way we can find out technically why they are good.

Ed Peto: Would none of your writers be more suited to write about Radiohead for the Chinese audience?

LZ: In the past I have given my writers a list of things to write about to make a perfect article: Relationship the musician has with label, what kind of instruments do they use, who is the producer and how have they influenced the music. They all say to me, ‘why do you want to be so technical?’, because Chinese writers are only used to writing things from their feelings.

There is no clear line between categories of music as the genres are not mature enough, it is not so clear what type of music you are playing so things are described in a more general way. Reviewers do lots of comparisons – Say compare this album to Kid A. I don’t think they can do as much technical analysis. Traditionally they don’t do this. They always start with a factual band introduction – which I normally cut – then go into the spiritual side, the meaning of the lyrics and how it makes you feel.

EP: Do you think genre awareness is important?

LZ: I think China is a real mash-up country. We just listen to different stuff. The record shops don’t tell us what is what, they just put all the records together and you take all different styles at the same time.

EP: So would Chinese musicians not understand genres and the recording process and be able to write technically?

LZ: Actually, I included a small interview with a Chinese rock musician after your review. He’s a guitarist from a band (Sound Fragment) that actually quotes some of Radiohead’s songs in their music. He gave me very short answers. He could not explain why Radiohead is good:

• Do you listen to Radiohead? : Yes.
• How did you hear about In Rainbows? : The Internet.
• Why is it attractive to you?: Because they are Radiohead.
• Are you satisfied with the album? What do you think of Thom Yorke’s performance?: Surprisingly wonderful experience.
• What do you think of how they released this record?: Because they are rich, they can play with their record.

So, when you write about Jigsaw Falling Into Place, it sounds like a band who has very good control of their music, of their skill:

“It is back to the five-guys-in-a-room for album highlight and first single Jigsaw Falling In To Place. If ever there was a song to unite all Radiohead fans past and present this surely must be it. Starting with a simple acoustic guitar riff, then beefed up with bass and drums, then enter the vocals and backing vocals. There aren’t many acts in the world that can build this level of heat from the basics of band music. It just requires the change in vocal pitch to send this into the stratosphere, ready for the smooth middle section on 2.53, once again building to a second climax, now including strings, then winding down to a breathless finish.”

- Excerpt taken from original English draft of my article.

It takes a good technical explanation to show this. Chinese writers would never write like this, how Radiohead make the peak, how they control it with the voice.

EP: How would a Chinese writer describe that song then?

LZ: They would use an image to describe it. I think it is about the language. The Chinese language is more about scenery than English – more emotional. I think English is more technical. Colder.

EP: So what do you think are the advantages to writing in a more cold, technical way? Why do you want to influence your writers in this direction?

LZ: I think we need professionals. It is a basic thing, as a music journalist, you should know how the music is made and then you can go on to talk about the emotional side. Because anyone can write about emotions.

After we published this article I sent it to all of my writers some of my review writers [amended 09.02.08] and said ‘take this as an example of how western writers write about music’. I think they can do this if they just learn.

EP: Is that not telling them that they do not know how to write?

LZ: Japanese review writers also always talk about their personal life or feelings in the review. I don’t care about their personal life, all I care is if this album is good or not, how did they make it, what type of sound it has. I guess this situation in Japan is similar to China.’

N.B: For any Chinese readers wanting to read Chinese music writers, here is a quick list of some of the better known blogs:

Yang Bo
Yan Jun
Haofang
Wang Xiaofeng
Sun Mengjin

© Ed Peto 2008

Ahead of his MidemNet panel appearance, Mathew Daniel, VP of R2G (digital distribution company) in Beijing has a few observations and words of advice for labels seeking digital licensing opportunities in China:

As Olympic hosts and country-of-honor at MIDEM, China’s music industry is an increasingly common feature on the western agenda. There is, however, almost a whiff of the ‘Wild East’ in the way companies are approaching licensing in the Middle Kingdom.

It has to be realized that the vast majority of labels at MIDEM are probably currently unscathed by piracy in China and that’s likely because their music is so obscure in the Chinese consciousness that they have not even had the dubious honor of gracing the servers of China’s notorious MP3 search engine, Baidu.

Piracy in China often gets a lot of attention but many forget the other Ps of marketing and these are the basics that labels intending to come into China should first focus on. For dramatic effect, let me first quote Tim O’Reilly when he said that “Obscurity is a far greater threat to authors and creative artists than piracy“.

I wouldn’t go so far as to say that one is worse than the other as it is a case of horses for courses. I would also add that in China, in true Darwinian fashion, one man’s piracy is another man’s marketing. But as O’Reilly explained, piracy eventually develops in a manner akin to progressive taxation in exchange for greater exposure and appeal: There is always the regretful possibility that one may eventually despair at the crossroads of Robert Johnson.

Ed Peto’s piece about the music business in China also noted the labels’ part in engendering piracy in China:

“The arrival of western product in the early 90s came courtesy of ‘saw-gashed’ CDs: Excess stock and deleted titles from western majors attempting to avoid taxation and disposal costs. These CDs had their cases cut to mark them as defective and were then shipped in to China through free-market economic ports like Guangzhou, only to end up on the black market. An end result that can be seen as a partial shooting-in-the-foot for the western majors who then had to come in and fight against the pirate networks they inadvertently helped set up.”

Kaiser Kuo, one of the pioneers of China’s rock scene added, “During the 1990s they were an important source of foreign music”. And so, this rejected music from Western shores – a good proportion being hitherto obscure – has bizarrely taken root in China while the majors also propagate low common denominator fare like the Backstreet Boys, Britney Spears, Celine Dion, Sarah Brightman et al in CD stores. A recent alumnus of this group, UK’s X-factor winner Shayne Ward was in Beijing this week and was awarded a Gold Record for sales of 15,000 for his new CD ‘Breathless’.

The major labels are still counting on physical distribution to help make their numbers in China and International Marketing Director at Universal Music China, Danny Sim has worked tirelessly to develop the market for international artists. In 2007 his efforts resulted in “a significant increase in revenues for CDs and I expect it to be even greater in 2008″, but in general international artists still account for probably less than 10% of the majors’ overall digital revenue in China. As more Chinese are being exposed to Western music via the internet and the media playing more Western music, Danny also hopes that the labels and SPs can work together to cultivate music genres and themes instead of single song hits.

However, this cannot happen in a vacuum and other Western labels who do not have the benefit of an existing network in China will have to do their part to sow the seeds in areas that are often taken for granted, like pro-actively providing artist information in Chinese, building artists’ websites in Chinese and, in general, stimulating more literature and musical discussions about artists online.

The following is an important checklist for labels intending to license digital music in China and illustrates the prior requirements before their music even tempts the pirates:

In this chart, ‘Music’ refers to whether the song is present or absent on the Chinese networks and highlights the necessity to take control and seed the song in China as the first step. Even if the label has not managed this, third parties might already have done so, which gives rise to the pirated presence. Only when the content has been put in front of the consumer in a meaningful way can they judge whether it appeals to them or not. There are multiple applications and formats in which music manifests itself in China and the challenge in the last mile is to manage the revenue collection or at least ensure that the application mix results in net positive revenue overall.

It is of paramount importance that an infrastructure is developed wherein information about artists is propagated combined with recommendation engines to guide the user along in unfamiliar territory. Ian Rogers recently lamented the death of the album cover but in China a more profound barrier exists that stunts the dissemination and understanding of Western music: The lack of basic and standardized metadata including genre classification that allows listeners to recognize song titles and artists.

As part of this initiative, R2G has developed one of the largest Chinese music metadata databases in the world complemented with licensed lyrics.

Much fuss has been made about the impressive revenue from mobile music in China – iResearch estimates that Service Providers (SPs) and Content Providers (CPs) earned up to RMB 3 billion (US$400 mil) in 2006 and China Mobile reported revenues of RMB 5 billion in the first half of 2007 for Caller Ring Back Tones (CRBT) alone, but before prospectors start packing their digging tools, it is important to note three facts:

1. Of all the mobile applications, Caller Ringback Tones generate the largest revenues but it has to be noted that the bulk of it goes to China Mobile. When a user first subscribes to their CRBT package of choice (from one song to ten), only the first sign-up fee is shared amongst China Mobile, the SP, the distributor, the label and the music publisher after which the full monthly subscriptions of 5 RMB goes solely to China Mobile. However, substantial amounts can be made by top Chinese singers who can sometimes sell between 10 to 20 million subscriptions, but this is a rarefied space that is not breached by Western artists. (Graphics by China Mobile. Note: In Chinese lingo Color Ring = Caller Ringback Tones):

   

2. The bulk of the revenue in mobile music is being garnered by Chinese music albeit dominated again by low common denominator fare – and I do suspect that the rural population does sway the popular vote. An examination of the CRBT sales charts for 2007 reveals a dearth of non-Chinese tunes with notable exceptions being Groove Coverage’s ‘God Is a Girl’, with 2004/05 hits Michael Learns To Rock’s ‘Take Me To Your Heart’, Emilia’s ‘Big Big World’ and Backstreet Boys’ ‘As Long As You Love Me’ still earning residual revenues in 2007.
3. Small CPs and especially Western CPs are at a natural disadvantage in negotiating deals with SPs and regardless of whether a deal is struck, there is every possibility that the CPs songs (assuming that they have sufficient appeal) will appear on SPs properties for distribution/sale. And it being an extremely time consuming and technology intensive effort to find out who is pirating the songs, and also to verify how much is being actually made by existing SP partners, CPs are likely to realize much lower revenues than those actually being earned.

William Bao Bean, analyst at Softbank China has calculated that such slippages or under-reporting of revenues to CPs averaged at between 20%-35% while R2G‘s close monitoring via its proprietary SCM system has caught a number of SPs under-reporting CRBT revenues by as much as 50%. It is thus critical that a trusted music partner is sought in China in order to maximize one’s revenues whilst monitoring accounting piracy levels.

Mobile for now seems to be the domain of Chinese music so Western labels coming to China would do well to invest and focus on developing their training wheels in other areas so that they too can make the leap into this relatively more lucrative arena.

The Chinese song universe is estimated to be not more than 300,000 with a smaller commercial subset with the potential to provide meaningful revenue – and in discussions that some of us had with Chris Anderson during his trip to Beijing last month, he also concluded that there is currently no Long Tail of Music in China. This Long Tail will evolve in China and will be populated by international music and this is where the opportunity lies. Evolving tastes and growing individualism are already seeing Chinese listeners trying seek out non-mainstream music, but this music is poorly represented on the free networks and that is an opportunity to be tapped by Western labels.

It has to be realized that almost all full-length mainstream music in China is currently being downloaded for free, facilitated by P2P networks and search engines like Baidu and Yahoo (who have both already been found guilty of infringements by the courts). And until music labels pro-actively put in more effort to inhibit Baidu’s ability to illegally deliver music, the few existing paid full-length music retail download stores will have a hard time. However, I do believe that with better metadata and genre classification, music education and accessible representation of some of this niche music eg. classical, jazz, heavy metal, punk etc, a paid model at fair prices can exist.

Tim O’Reilly encapsulated it best in 2002:

“Services like Kazaa flourish in the absence of competitive alternatives. I confidently predict that once the music industry provides a service that provides access to all the same songs, freedom from onerous copy-restriction, more accurate metadata and other added value, there will be hundreds of millions of paying subscribers. That is, unless they wait too long, in which case, Kazaa itself will start to offer (and charge for) these advantages. (Or would, in the absence of legal challenges.)”.

For ‘Kazaa’ read ‘Baidu’ and certainly, China is currently in such a situation where if a viable alternative is not delivered soon, the opportunity will be hijacked by less well-meaning entities. Labels who are seeking to move into China should first seek trusted partners and forget about seeking a quick buck via minimum guarantees or advances and instead should help to build up the infrastructure accordingly. Labels that do not do their homework will inevitably get burned by unscrupulous partners.

Likewise, licensing music for streaming to SPs will only provide returns if there is sufficient marketing support for the artists and also supporting literature and metadata. For example, one of the top music streaming sites 1ting.com records Avril Lavigne’s Girlfriend as the top ranked English song for 2007 at a lowly position of 132 with 25,000 streams. The top song for 2007 registered 3 million streams in comparison.

In conclusion, it is important to note the following:

1. China offers its opportunities but when a new Western label comes into town, it naturally falls into the Long Tail.
2. The Long Tail will be a black hole unless the supporting information and tools are provided to help the labels’ acts stand out.
3. This will involve working with a trusted partner who not only knows the China market but also understands the label’s culture and potential of its acts. It might possibly also involve sharing of investment and development costs.
4. Giving away music is not the solution – there is potential to develop a paid model with a valued service. The search engines would have us believe otherwise as befits their objectives.

There is no silver bullet in music for China and the gold at the end of the rainbow can only be mined with a proper infrastructure supported by the labels and retail partners.

© Mathew Daniel 2008

When Pop Idol imitator ‘SuperGirl’ hit China in 2004, the final was watched by 400 million people. The rush of mobile votes sent the government into a panic and severe restrictions were implemented, preventing the show ever happening in the same format again – The idea of a democratically decided pop show proving too much for a one-party state.

Further down the pecking order, regional TV is a bit more conversational about the idea of coverage but the act really has to be sizeable due to the broad audience – Mass appeal rules. You have to go to the foreign owned stations to find recognisable music programming. MTV has a minute presence in China and has only been granted ‘landing rights’ (access to broadcasting through terrestrial cabling, thereby becoming available to everyone) in Guangdong Province. The most successful foreign-owned music channel in China is a subsidiary of News Corp’s Asia flagship station, Star TV – Channel V. Channel V doesn’t have any landing rights in China, so both it and MTV are essentially satellite stations, available only in foreign designated compounds and three star or above hotels. Their main methods for broadening exposure is through syndication of content and large scale events, such as Channel V’s Summer Shake and the Channel V Chinese Music Awards, the longest running music awards show in China, now in it’s 13th year.

Reliable viewing figures are almost impossible to come by as there is no transparency when it comes to data gathering. The stations themselves are mildly embarrassed about their lack of reach. Excellent brands with poor penetration.

Major labels regularly buy their way into programming for these channels. As with all media, quality is not the deciding factor for coverage. Programme packages have to be paid for to get on air, in most cases by a third party sponsor, so you might have the best half-hour tour documentary in the world but the response from the channels will probably be along the lines of ‘what’s in it for us if we broadcast it?’ Content is not king. Money is.

Radio reads in a similar way. The government is very protective of its airwaves and rules its network of regional licensee stations with a rod of iron, both in broadcast policy and physical presence – The live studios are frequently under armed guard for fear of them being stormed by subversives. Radio’s potential potency is well highlighted when you consider the millions of new cars pouring on to China’s roads every year, with a thousand new cars a day on Beijing’s roads alone.

Despite the increasing importance of radio as a medium, the country’s radio programming remains in the stone age with very little choice available to the listener. Western music, in the few places it is played, is almost entirely restricted to UK and US Top 40 acts. There have been attempts by foreign companies to come in and shake things up a little. In 2003 Virgin Radio made a pioneering half million USD deal with China Radio International (CRI) to re-launch it’s Beijing western music station, HitFM. After a year of excellent programming, CRI decided to increase its asking price eightfold. Virgin obviously pulled out immediately.

Stations like HitFM (which remains the only real western music station in Beijing) are open to the idea of a few spins and an interview around a tour but this requires good connections within the station. Unsolicited contact is fairly futile.

© Ed Peto 2007

NOTE: This is an extract from the ‘Access China’ report commissioned by UK Trade and Industry Department and British Underground.

How To Do Business In China, China CEO, The New Chinese Consumer… my shelves here in Beijing are stacked full of such books, all trying to throw some light on a country and market of seemingly endless allure to the west. A population of 1.3 billion people has marketeers around the world girding up their loins to do business here, each with a How To Do Business In China book tucked under their arm.

Unfortunately for the western music entrepreneur or artist, these books are helpful in only the most general terms. While there is a slew of practical, detailed advice on how to deal with rubber-ball factories and sales chains, the fledgling music industry here is such a bewildering state of affairs that fully-rounded advice simply isn’t available yet.

As in most other Asian markets, pop music has a real stranglehold over the mainstream – Mando-Pop, Canto-Pop, J-Pop, K-Pop – glossy, inoffensive music that satisfies the censors as well as the ‘bland criteria’ necessary for across-the-board media coverage. Despite the diverse musical heritage of China, mainstream pop is almost entirely informed by western music, from the basic pop song format through to instrumentation and lyrical content, although general production quality is still fairly poor. The Chinese audience, therefore, are already well familiar with all of the stock traits of western music: Guitar solos, crap raps in the middle-eight of pop songs, warbly diva vocals, key changes at the end of ballads, pseudo-rock bands, pseudo-hip-hop bands etc.

Your average western band, therefore, does not sound totally alien, it’s just that no one is willing to spend money promoting an international (and therefore niche) act when 90 per cent of CDs are counterfeit and an even higher percent of online music is pinched. It’s all about hitting the mass market straight out of the box and selling big, if you want a chance of making money.

Such a high piracy rate leaves you with a legitimate physical market of only $86m a year (2006 figures), making China – a country of 1.3 billion people, remember – into only the 20th largest market in the world. Physical has never really had a good time in China. The all-important distribution process never really found its feet, and labels find it a constant battle to get their product on the shelves before, or instead of, the pirate versions. The pirates, though, were given a surprising headstart…

The arrival of western product in the early 90s came courtesy of ‘saw-gashed’ CDs: Excess stock and deleted titles from western majors attempting to avoid taxation and disposal costs. These CDs had their cases cut to mark them as defective and were then shipped in to China through free-market economic ports like Guangzhou, only to end up on the black market. An end result that can be seen as a partial ‘shooting-in-the-foot for the western majors who then had to come in and fight against the pirate networks they inadvertently helped set up.

A standard pirate CD retails for about 60p, whereas the legitimate product goes for around two to three times that – £1.50 to £2. This obviously makes piracy a big business with plenty of people profiting, plenty of vested interests and not a whole lot of will to change. There is the occasional very public haul of counterfeit CDs, but realistically this is already a lost battle when you consider the impending end of the CD format.CD manufacturing plants are mainly state run but this does not deter rampant ‘third shift piracy’ in which, once the two normal daily factory shifts are completed, a third one goes on through the night to make the same product for the pirate market. That’s right, state-run piracy.

As with most areas of business, the retail sector is a black hole of statistics, where misinformation and mendaciousness are key pirate protection devices. A visit to China will clear this up for you nicely as you only have to wander around a few streets and speak to a few ‘legitimate’ retailers to see the impossibility of gathering any meaningful statistics. Even legitimate retailers like FAB stock some pirated goods and it takes a very keen eye to spot the difference in some cases, although most pirated CDs are laughably poor quality.

As you might imagine in this environment, the major labels are shadows of their western motherships and there is a gaping hole where the independent record label scene should be. While the traditional record label model isn’t exactly going through a golden age in the west, it never even had a golden age in the Middle Kingdom. In order to survive it has become necessary for labels to take over an artist’s entire life – recording, publishing, management etc. – obsessively tapping all revenue streams in order to survive. You can count the number of recognisable independent labels on a pair of chopsticks.

Modern Sky is one such label. It has just celebrated its tenth year in existence and, much like its rabbit warren of an office in West Beijing, it’s business model is a convoluted arrangement of media company, record label, artist management and design house – a model that has allowed it to survive in this most hostile of environments. In the process of surviving it has also amassed a significant percentage of the Chinese rock catalogue. Physical releases are practically a loss leader for Modern Sky with digital revenue also remaining a minor consideration.

Label Manager Meng Jinhui explains that they normally take over management, allowing them to promote the hell out of the artist rather than the album. Resultant brand co-operations with these artists and the label itself generate the bulk of Modern Sky’s income, alongside consultancy for mobile content and a wide range of video production and design projects. You have to be versatile to survive for 10 years in China.

The ‘big four’ majors are all over here in some form or other. However, like all foreign companies wanting to operate in China, they have had to enter into joint ventures with Chinese companies, yielding 51 per cent of the new China collaboration in the process. Warner Music Group created Warner Music China, EMI joint ventured with Push Typhoon, SonyBMG with Shanghai Audio And Visual Press, and Universal Music partnered with Shanghai Media Group.

Normally taking up just one or two floors of an office building, the majors have also had to adopt different tactics in order to survive. They own the lion’s share of domestic pop music (“domestic” in this case would be better translated as “regional” – Taiwan, Korea, Japan, and Hong Kong all contribute heavily as their less pirated markets allow for better artist development) but with regards to international repertoire, they stick very much to front line releases and global priorities with the occasional catalogue title. Universal Music China, for example, is pushing its reggae catalogue throughout the year to see if it can find any sort of audience.

Danny Sim, international marketing manager at Universal Music China, is optimistic about growth in western music sales. UMC will release 40 per cent more international titles this year – bringing it to roughly 100 albums – and expect to see a 10-15 per cent growth in revenue. Sim puts his optimism down to: “a) More people getting a better education, and therefore more people with English as a second language, b) More western music spread through the internet, and c) More media channels will become western music friendly.”

Sim has neatly summed up the problems facing western music marketers in China. While there is already a smattering of English in a lot of homegrown music, a full English language track is a different thing altogether. Learning English is a high priority for your average urbanite and consuming English language media and entertainment is a natural part of this. There is some way to go, however, before this manifests itself in legitimate music sales. As Sim points out, a good starting point would be an increase in western music coverage in the media. As a niche concern, very little western music is played on China’s state-run radio. An exception would be a station like Beijing’s HitFM which plays US and UK Top 40 hits to an audience of English language students, expats and western-trend-conscious young people. This is an exception, though.

The government is very protective of its airwaves and rules its own network of regional licensee stations with a rod of iron, both in broadcast policy and physical presence. The live studios are frequently under armed guard for fear of them being stormed by subversives. The same applies for TV as the Chinese government are acutely aware that broadcast media is the most effective medium for delivering key cultural and political messages. China Central Television (CCTV), the state-run national station operates a range of channels, which, in the main part, are barefaced propaganda and state trumpet-blowing. Their large scale, televised music galas showcase traditional and government approved music forms and are regularly watched by audiences in the hundreds of millions. These are the kind of viewing figures that excite people about China, but in reality the shows are impregnable fortresses of glittery, spandex-clad state guff.

When Pop Idol imitator SuperGirl hit China in 2004, the final was watched by 400 million people. The rush of mobile votes sent the government into a panic and severe restrictions were implemented, preventing the show ever happening in the same format again. The idea of a democratically decided pop show proved too much for a one-party state to countenance.

So for international music marketeers there is a limited spread of outlets through which to promote artists. This is especially true when you consider that music coverage is based more on cold hard cash than on merit. You could turn up to one of the few music-specific TV channels like Newscorp’s Channel V or MTV (which has a minute presence in China) with the best pop video in the world looking for airplay, but the response is likely to be “What’s in it for us?”. In this sort of climate – where media needs to be bought – the returns simply do not justify a label allocating a significant marketing (or coverage) budget to “break” niche foreign artists. They generally rely on larger artists’ spill-over publicity from the west.

As in the rest of the world, the internet is changing everything. Where broadcast media and press are government owned or heavily government-monitored, the internet is seen as a more effective way of promoting releases, with freedoms and readership figures that make printed press almost insignificant.

It’s actually possible to find niche audiences and interact with them effectively on bustling chat boards and blogs. While the internet is reportedly monitored by 30,000 “internet police”, the sheer volume of activity means that smaller, non-threatening outfits can operate in a relatively uncensored capacity.

The problem is that niche online audiences are very niche indeed. Genre awareness is perhaps one of the biggest spokes in the wheels of music development in China. It is possible to find all major genres – as well as a great deal of sub-genres – represented in tiny fan-groups online. However, the elaborate categorisation of music we seem to so enjoy in the west is the preserve of only a few music obsessives in China. While Converse trainers and drainpipe jeans might make your average Chinese high street hep-cat seem like an alternative cognoscenti, the chances are that understanding is lacking and there is very little consistency between any two elements of their identity, including music preference. Whilst hanging at the bar in Beijing underground live venue D-22, I noticed a Chinese girl next to me with crazy hair, blackened eyes, torn clothes and black fingernails. I got talking to her and asked her what kind of music she listened to. “Backstreet Boys,” was her immediate reply.

The kind of deeper involvement with a genre that would mean a goth could never admit to liking the Backstreet Boys is noticeably absent here. This girl is just as likely (or unlikely) to go out and download an Aaron Carter track as she is a Lacrimosa one. Music online is rarely searched out or bought according to genre. In fact, not only is your average MP3 not sold as part of a genre, it is also almost certainly pirated, completely DRM-free, with no meta data attached and, in a huge number of cases, doesn’t even have a file title. You are left with a completely ‘naked’ piece of audio. China simply never went through the age where music was bought at a premium on vinyl, cassette or CD, then lovingly horded, categorised and put on display for all your dinner party guests to see, encouraging in-depth dinner discussions about prog-rock or jazz.

Today’s China sees single-track, naked MP3s being Bluetoothed, file-shared, emailed, flash-disked, hard-drive-dumped and herded around the digital sphere in complete anonymity. Targeting potential listeners for your band in this scramble of a market is incredibly difficult because, in a great deal of cases, even your potential listener doesn’t know what he or she is listening to.

Despite this, digital is the hot topic in China. Due to the under-developed, pirate-dominated physical market and burgeoning mobile environment, China is on track to becoming the world’s testing ground for the digital age.

The statistics are pretty staggering, with some suggesting a digital market of US$1.5bn by 2010. With the second largest broadband network in the world, the advent of 3G later in 2007, 460 million mobile users and five million new mobile subscribers a month, who, on face value, would doubt them?

The view from the ground, however, is that all of these statistics need to be taken with a bucket of salt. All attempts by the Chinese government to combat online MP3 piracy, including all public ‘victories’ against pirates, should be seen as totally superficial – a lip service to the lobbying western majors. Internet MP3 piracy remains endemic, with fewer than 10 per cent (a very generous estimate) of downloaders actually paying (average price) 14p/download for the privilege.

Even the big boys are at it, with market leader Service Providers (SPs) like Baidu (over 50 million users per day) openly hosting ‘deep links’ to pirated tracks and making money through advertising while they’re at it.

Legal sites such as Top100 and 9Sky are on the rise, but change will be painfully slow due to a dislike of DRM, lack of will from the government, and a public who have been getting free music off the internet from day one. It is becoming increasingly common for record labels to give away MP3s for free in order to build profile for a track and then profit from where the real money potentially lies, namely Mobile Value-Added Services (MVAS).

While only a tiny percentage of Chinese people own a credit card (thereby making online download purchases difficult), the cash-pre-pay nature of mobiles means there is an established, digital payment system existing between the user and the mobile operators.

This allows for easy purchase of MVAS such as ringtones, caller ringback tones, background music and wallpaper. MVAS generate revenue of over half a billion dollars (US) a year but accounting is far from sturdy – SPs are habitually siphoning off millions of dollars by simply under-declaring sales in what is known as “accounting piracy”.

Even the legitimate numbers don’t look too rosey at the moment. The breakdown on your average truetone (for example) looks something like this:

15 per cent is returned to the telco, and 10 per cent to the publisher. Of the rest, the service provider takes half, with the remaining 37.5 per cent being split between the aggregator and the sound recording rights owner, with the aggregator taking anywhere from 20 to 50 per cent for his troubles. In this example, assuming you have a 50/50 deal with the aggregator, this leaves you with a grand total of 2.6 pence for every ringtone sold.

Micro numbers like this are hard to get excited about, but if the devil is in the detail, then the angel is in the scale. Music and the booming Chinese nation are at the start of a wonderful relationship on a scale that will dwarf any other territory in the world. It’s just that no one is making any money out of it – certainly not with conventional, western business models.

China needs to be seen as a blank canvas. While the numbers might suggest it is already going through a “boom” period, this is clearly not the case in relation to the copyright dependent industries. The boom is yet to come and the salient business models are yet to show themselves. What is certain is that the record label as you know it is dead and in its place have risen “digital entertainment companies”, who only produce single-track MP3s and are just as savvy at dealing with brand partnerships, pre-loaded mobile content and online guerilla marketing as they are at making music. While all these facets are increasingly important in the west, they are essential in China.

It is understood that DRM is not the horse to back. The pay-per-download system is also looking shaky and attention is increasingly turning to subscription models. China will be quite a way ahead of the west in turning the corner into this more fluid consumption of digital music.

So while there is no How To Make Money Out Of Music in China handbook yet, I suspect that when it is eventually written, it will be translated into a hundred different languages and ultimately be tucked under the arm of every music industry executive in the west, from London to New York.

© Ed Peto 2007

The Mechanical Copyright Society of China (MCSC) was set up in 1992 as the sole administrator for composition but it’s effectiveness is often brought into question by the publishers. In the last few years, the majors have taken it upon themselves to either do their own collection or find independents to take it on for them.

While the MCSC claims that they maintain a good flow of revenue back to the western rights owners, there is no mechanical collection agreement in place between MCSC and, say, the MCPS in the UK. There is a 6% first-run mechanical (PPD) but the draw back is that you need to be a China registered company to collect direct from the MCSC. One way mainland international independents get around this problem is by dealing with The Composers and Authors Society of Hong Kong (CASH) who have a reciprocal representation agreement with MCSC and are more approachable/transparent.

The PRS entered an agreement with MCSC in 1995 but due to a non-existent airplay royalty system last year’s PRS China returns were roughly equivalent to the likes of Estonia, Jamaica and Kazakhstan. Up until amendments to the Copyright law in 2001, broadcasters were not obliged to pay publishing royalties. Now, six years after these amendments, there has been no real pay off. Such is the way in China – Surface impressions are all important and it often takes many years for public gestures of compliance to gain any traction in real-terms, if at all.

MCPS-PRS International Manager Liam Donnelly explains:

“PRS is working closely with MCSC by helping to lobby the Chinese authorities along with other international rights bodies, governments and the European Commission to bring about improvements in the Chinese collection system. These won’t happen overnight – indeed we’re taking a long term view of the market – but I think we’re making some progress.”

In truth, there really isn’t a lot of western content currently being broadcasted anyway but this situation will slowly improve – a very long-term view is the only way to go. Optimists are suggesting that broadcasters will be paying performance royalties by late 2008 but, knowing China, you might have to wait a lot longer.

As with other areas of the industry, digital is a glimmer of light as the payment structure actually has publishing factored into it at source. The accounting system is still far from perfected but this represents a tiny foothold in a relatively promising area. The unspoken consensus is that the industry is moving towards 10% publishing at source for Mobile and 8% for Digital. As I mention elsewhere, when you consider that a ringtone retails for 14 pence and even frontline western digital catalogue tends to be sold in the hundreds and thousands rather than the tens of thousands, no-one is going to be triumphantly high-fiving anyone any time soon.

Covers are hard to come by as the standard practice is for the songwriter to sell their songs lock-stock to the label, meaning that western practice seems awkward in comparison.

Ad syncs show promise. You do hear of the odd reasonable sync license but even major operators are regularly caught with uncleared tracks in campaigns, with no real repercussions. Once again, very early days and a sea-change in copyright attitude is required for this to become the staple it is in the west.

It really needs to be said that publishers are not having a fun time over here. There have been a couple of brave, pioneering outfits setting up shop but they have been met by a very bleak landscape and their futures are uncertain.

© Ed Peto 2007

NOTE: This is an extract from the ‘Access China’ report commissioned by UK Trade and Industry Department and British Underground.

The big question is where do those 20,000 indie music fans (and people like them) go for the rest of the year? Midi costs £3.50 per day, so is a cheap way for these fans to see pretty much every rock band in China in one sitting. Outside of the festival, a similar ticket price is essential if you really want to reach the ‘Midi crowd’. £3.50 obviously isn’t enough to pay for an international band to fly into China on ticket sales alone. Sponsorship is the only way to pick up the slack. Slowly you are starting to see brands become interested in the idea of forking out for an opportunity to market to this hip, new music crowd. Getting brands to bite for global names like The Rolling Stones, The Black Eyed Peas and Eric Clapton is a no-brainer but the idea of sponsoring emerging artists is fairly new and may take some time to develop.

The truth is that the domestic live scene is in a glorious shambles – Fragmented but bursting with potential. In any major western city worth its salt you can’t move for well promoted live nights, from pretty much any genre, making it easy to find a promoter with a ready-made, genre-specific crowd to work with. Not so in China. I was standing next to a Chinese girl at a gig in D-22, a Beijing underground rock venue. She was dressed as a goth, with crazy hair, blackened eyes, torn clothing and black finger nails. I asked her what sort of music she was in to. ‘Backstreet Boys’ was her immediate reply. Genre awareness is a real problem, leaving music marketers and promoters in a real pickle when it comes to introducing new international bands to anyone but the most well-versed of Chinese music fans.

Good mid-level acts have started to come over in recent months eg. Go! Team, Maximo Park, The Roots, Ziggy Marley, The Infadels. While all have been well received gigs, the crowds have predominantly been expats, with door prices ranging from £25 for The Roots, through to £5 for The Infadels (a ticket price that still did not guarantee a crowd). As with everything else in China it’s early days. None of these promoters are going to retire on their earnings any time soon and the dream of the West’s finest new bands playing to packed theatres of their chanting Chinese fans is still a fair way off. It’s all part of the slow education process. Western acts are generally way ahead of most of their Chinese counterparts in terms of performance discipline and showmanship so every international gig will be a small step in the right direction.

If you decide to pay for yourself to come over here, there are gigs to be had but do not expect to play to hordes of people who are just thrilled to have a western band playing. The Chinese are slightly harder to impress than that. Especially in Shanghai, which is predominantly a DJ city, boasting, as it does, roughly four decent small/mid-size rock music venues for a city of 18 million people.

Then there is the issue of performance permits. All performances require permits from the local cultural bureau as well as the national Ministry Of Culture. These permits have to be obtained by a government approved ‘performance company’ who will provide the application service for a fee. The permits themselves vary in price according to size of band and venue. Materials required include scanned passports, band biog (in English and Chinese), set list with lyrics and live show footage on DVD and the whole process tends to take 30 days. Nathaniel Davis from Spli-t Works says of the whole permitting nightmare that ‘foreign band shows promoted by the smaller, “underground” clubs are typically overlooked by the authorities. For bands performing at licensed live venues or government-owned performance venues, however, performance permits are a must. Once performance permits are received, the local foreign affairs bureau will issue a visa letter for the bands to take to their country’s respective China embassy to apply for official Z class work visas.’

So there you have it. You need a friend on the inside – ie. be invited to perform in China – if you want to be legit. In truth though, most small bands turn up here on tourist visas without too many problems.

© Ed Peto 2007

NOTE: This is an extract from ‘Access China’ report commissioned by UK Trade and Industry Department and British Underground.

The view from the ground, however, is that all of these statistics need to be taken with a bucket of salt. All attempts by the Chinese government to combat online MP3 piracy, including all public ‘victories’ against pirates, should be seen as totally superficial – a lip service to the lobbying western majors. Internet MP3 piracy remains endemic, with less than 10% (a very generous estimate) of downloaders actually paying 14 pence/download for the privilege.

Even the big boys are at it, with market leader Service Providers (SPs) like Baidu (who allegedly see over 50 million users per day) openly hosting ‘deep links’ to pirated tracks and making money through advertising while they’re at it.

Legal sites such as Top100 and 9Sky are on the rise but change will be painfully slow due to a dislike of DRM, lack of will from the government and a public who have been getting free music off the internet from day one. It is becoming increasingly common for record labels to give away MP3s for free in order to build profile for a track and then profit from where the real money potentially lies…

Mobile Value-Added Services (MVAS): While only a tiny percentage of Chinese people own a credit card (thereby making online download purchases difficult), the cash-pre-pay nature of mobiles means there is an established, digital payment system existing between the user and the mobile operators. This allows for easy purchase of MVAS such as ringtones, caller ringback tones, background music and wallpaper. MVAS generate revenue of over half a billion dollars (US) a year but accounting is far from sturdy – SPs are habitually siphoning off millions of dollars by simply under-declaring sales in what is known as ‘accounting piracy’.

Piracy aside, the big question for you as a western rights owner is “can I get a piece of this?”. The answer is “not easily”. Put simply, western music does not sell well digitally, with only a couple of examples of English language tracks making any sort of returns. In the current climate, there is very little financial incentive for digital distributors and SPs to push foreign language (ie. niche) music, as Mathew Daniel, VP Strategy Development at R2G, China’s largest digital distribution company explains:

“There is certainly the potential for Western music in the long run but this can only materialize if there is more investment in the form of music promotion and even education of music styles, genres and history but to reap the benefits of this investment, there ultimately has to be better revenue accounting.”

If you do end up with digital distribution, the breakdown on your average truetone (for example) looks something like this:
Average cost of truetone: 2RMB = 14pence
15% to Telecommunications Company
10% to publishing
37.5% (half of the remainder) to Service Provider

The remainder (in this case 37.5%) is then split between the aggregator and you, with the aggregator taking anywhere from 20% to 50% for his troubles. In this example, assuming you have a 50/50 deal with the aggregator, this leaves you with roughly…..2.6 pence for every ringtone sold.

There are deals to be had but they are few and far between. Companies like R2G, The Orchard, Artspages, Ioda etc. are pushing western content online in China, but the returns are minimal. The general advice is that, for independent western music, the internet should be seen as an excellent way to get your music heard in order to make money elsewhere, at least for the moment. Piracy isn’t all bad.

© Ed Peto 2007

NOTE: This is an extract from the ‘Access China’ report commissioned by UK Trade and Industry Department and British Underground.