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	<title>Outdustry &#124; 格外音乐 &#187; Mobile</title>
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		<title>The Next Generation Of Music Consumers</title>
		<link>http://www.outdustry.com/2008/05/23/the-next-generation-of-music-consumers/</link>
		<comments>http://www.outdustry.com/2008/05/23/the-next-generation-of-music-consumers/#comments</comments>
		<pubDate>Fri, 23 May 2008 13:12:06 +0000</pubDate>
		<dc:creator>Ed Peto</dc:creator>
				<category><![CDATA[China - Music Industry]]></category>
		<category><![CDATA[Published]]></category>
		<category><![CDATA[Staff Blog]]></category>
		<category><![CDATA[Baidu]]></category>
		<category><![CDATA[BBS]]></category>
		<category><![CDATA[China Mobile]]></category>
		<category><![CDATA[China Unicom]]></category>
		<category><![CDATA[CNNIC]]></category>
		<category><![CDATA[CRBT]]></category>
		<category><![CDATA[Google]]></category>
		<category><![CDATA[Internet]]></category>
		<category><![CDATA[Long Tail]]></category>
		<category><![CDATA[Mobile]]></category>
		<category><![CDATA[MP3]]></category>
		<category><![CDATA[Ringtones]]></category>
		<category><![CDATA[Sina]]></category>
		<category><![CDATA[Sohu]]></category>
		<category><![CDATA[Top100.cn]]></category>
		<category><![CDATA[Walled Garden]]></category>

		<guid isPermaLink="false">http://outdustry.com/?p=112</guid>
		<description><![CDATA[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 [...]]]></description>
			<content:encoded><![CDATA[<p style="text-align: justify;"><em>This article originally appeared in Issue 191 (1st May 2008) of the <a href="http://www.musically.com" target="_blank">MusicAlly</a> Report.</em></p>
<p style="text-align: justify;"><strong>China never fully adopted the “traditional” tools of music discovery and consumption</strong>: 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.<span id="more-112"></span></p>
<p style="text-align: justify;">The bleak circumstances of China’s music business have resulted in the Chinese consumer inadvertently <strong>leapfrogging into the next generation of music consumption</strong>, even before their western counterparts.</p>
<p style="text-align: center;"><img class="size-full wp-image-48 aligncenter" title="picture-7" src="http://edpeto.com/wp-content/uploads/2008/05/picture-7.png" alt="" width="320" height="241" /></p>
<p style="text-align: justify;">In February this year, after a 53% growth rate in 2007, the Chinese Internet Network Information Centre (<a href="http://www.cnnic.com.cn/en/index/index.htm" target="_blank">CNNIC</a>) finally declared the Chinese internet base to be the largest in the world with <strong>221 million users</strong>. At 16% penetration, this still leaves huge room for growth.</p>
<p style="text-align: justify;">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 <strong>86.6% of all netizens use the web to listen to music</strong> – the highest of any usage <em>including</em> search and email.</p>
<p style="text-align: justify;">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 <a href="http://music.sina.com.cn/yueku/rank/newmoreboard.php" target="_blank">Sina</a>, <a href="http://music.yule.sohu.com/s2006/topinmusic/" target="_blank">Sohu</a> and clear leader <a href="http://list.mp3.baidu.com/list/topmp3.html?id=1" target="_blank">Baidu</a> (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 <em>possible</em> to find deep catalogue, t<strong>he average user simply does not look past the hits</strong>. High charting &#8211; and therefore high visibility &#8211; is crucial and, as a result, payola and chart rigging reputedly abound.</p>
<p style="text-align: justify;"><img class="aligncenter size-full wp-image-49" title="picture-8" src="http://edpeto.com/wp-content/uploads/2008/05/picture-8.png" alt="" width="427" height="196" /></p>
<p style="text-align: justify;">Full track downloadable MP3s have been (illegally) free to user from the outset, partly because <strong>86% of internet users earn less than $430 per month</strong> and partly because China’s poorly enforced copyright law is only just becoming a topic of public debate ie. too late.</p>
<p style="text-align: justify;">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 <a href="http://www.ifpi.org/content/section_news/20080407.html" target="_blank">lawsuits</a>.</p>
<p style="text-align: justify;">Leaked reports earlier this year suggest that <a href="http://www.g.cn" target="_blank">Google China</a> (g.cn) are planning on partnering with legal music site <a href="http://www.top100.cn" target="_blank">Top100.cn</a> 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<strong> seismic change in music consumption: major labels conceding that music must be free-to-user</strong>. 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.</p>
<p style="text-align: justify;"><strong>In this climate the real currency is the CRBT</strong>. The strength of this as a product is its “walled garden” environment: mobile operators <a href="http://www.chinamobile.com/en/" target="_blank">China Mobile</a> (69% of the market) and <a href="http://www.chinaunicom.com/" target="_blank">China Unicom</a> (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.</p>
<p style="text-align: justify;">China Mobile’s CRBT revenues might have leapt 74.7% to nearly <strong>USD $1.7billion</strong>, 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.</p>
<p style="text-align: justify;">According to M:Metrics an astounding <strong>34.8% of the 530 million mobile subscribers in China use their phones to listen to music, compared to 5.7% in the US.</strong> China’s networks, infrastructure and data capabilities might need to improve but the mobile juggernaut is well on its way.</p>
<p style="text-align: justify;">China Mobile launched the first over-the-air full track MP3 download service in February this year and expect brisk business. When you consider <strong>there are some</strong> <strong>300 million people who own a mobile but not a PC</strong>, 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.</p>
<p style="text-align: justify;">There is a lot of money to be made within that enormous walled garden. <strong>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.</strong></p>
<p style="text-align: justify;">© Ed Peto 2008</p>
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		<title>Enter The Dragon : Introduction To The Music Business In China</title>
		<link>http://www.outdustry.com/2007/11/05/enter-the-dragon-introduction-to-the-music-business-in-china/</link>
		<comments>http://www.outdustry.com/2007/11/05/enter-the-dragon-introduction-to-the-music-business-in-china/#comments</comments>
		<pubDate>Mon, 05 Nov 2007 11:07:55 +0000</pubDate>
		<dc:creator>Ed Peto</dc:creator>
				<category><![CDATA[China - Music Industry]]></category>
		<category><![CDATA[Published]]></category>
		<category><![CDATA[Staff Blog]]></category>
		<category><![CDATA[3G]]></category>
		<category><![CDATA[Airplay]]></category>
		<category><![CDATA[Baidu]]></category>
		<category><![CDATA[Brand Co-ops]]></category>
		<category><![CDATA[Canto-Pop]]></category>
		<category><![CDATA[CDs]]></category>
		<category><![CDATA[Digital Distribution]]></category>
		<category><![CDATA[DRM]]></category>
		<category><![CDATA[Indies]]></category>
		<category><![CDATA[J-Pop]]></category>
		<category><![CDATA[Joint Ventures]]></category>
		<category><![CDATA[K-Pop]]></category>
		<category><![CDATA[Majors]]></category>
		<category><![CDATA[Mando-Pop]]></category>
		<category><![CDATA[Media]]></category>
		<category><![CDATA[Mobile]]></category>
		<category><![CDATA[Modern Sky]]></category>
		<category><![CDATA[MP3]]></category>
		<category><![CDATA[MVAS]]></category>
		<category><![CDATA[Physical]]></category>
		<category><![CDATA[Piracy]]></category>
		<category><![CDATA[Record Labels]]></category>
		<category><![CDATA[Retail]]></category>
		<category><![CDATA[Ringtones]]></category>
		<category><![CDATA[Universal]]></category>

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		<description><![CDATA[This article originally appeared as &#8216;Music In China : The Inside Story&#8217; on The Register How To Do Business In China, China CEO, The New Chinese Consumer&#8230; 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 [...]]]></description>
			<content:encoded><![CDATA[<p style="text-align: justify;"><em>This article originally appeared as &#8216;Music In China : The Inside Story&#8217; on <a href="http://www.theregister.co.uk/2007/11/01/music_in_china_feature/" target="_blank">The Register</a><br />
</em></p>
<p style="text-align: justify;"><em>How To Do Business In China, China CEO, The New Chinese Consumer</em>&#8230; 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 <em>How To Do Business In China</em> book tucked under their arm.<span id="more-72"></span></p>
<p style="text-align: justify;">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 <strong>fully-rounded advice simply isn&#8217;t available yet</strong>.</p>
<p style="text-align: center;"><img class="aligncenter" src="http://edpeto.com/wp-content/uploads/2007/12/4280218.jpg" alt="China Business For Dummies" /></p>
<p style="text-align: justify;">As in most other Asian markets, <strong>pop music has a real stranglehold over the mainstream</strong> &#8211; <a href="http://en.wikipedia.org/wiki/Mandopop" target="_blank">Mando-Pop</a>, <a href="http://en.wikipedia.org/wiki/Canto-pop" target="_blank">Canto-Pop</a>, <a href="http://en.wikipedia.org/wiki/J-Pop" target="_blank">J-Pop</a>, <a href="http://en.wikipedia.org/wiki/K-Pop" target="_blank">K-Pop</a> &#8211; glossy, inoffensive music that satisfies the censors as well as the ‘bland criteria&#8217; 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.</p>
<p style="text-align: justify;">Your average western band, therefore, does not sound totally alien, it&#8217;s just that no one is willing to spend money promoting an international (and therefore niche) act when <strong>90 per cent of CDs</strong> <strong>are counterfeit</strong> and an even higher percent of online music is pinched. It&#8217;s all about hitting the mass market straight out of the box and selling big, if you want a chance of making money.</p>
<p style="text-align: justify;">Such a high piracy rate leaves you with a <strong>legitimate physical market of only $86m a year</strong> (2006 figures), making China &#8211; a country of 1.3 billion people, remember &#8211; 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&#8230;</p>
<p style="text-align: justify;">The arrival of western product in the early 90s came courtesy of <a href="http://www.time.com/time/magazine/article/0,9171,501030127-409647,00.html" target="_blank">‘saw-gashed&#8217; CDs</a>: 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 <strong>western majors who then had to come in and fight against the pirate networks they inadvertently helped set up</strong>.</p>
<p style="text-align: center;"><img class="aligncenter" src="http://edpeto.com/wp-content/uploads/2007/12/cds.jpg" alt="Saw-Gashed CDs" /></p>
<p style="text-align: justify;">A standard pirate CD retails for about 60p, whereas the legitimate product goes for around two to three times that &#8211; £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 <strong>‘third shift piracy&#8217;</strong> 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&#8217;s right, state-run piracy.</p>
<p style="text-align: justify;">As with most areas of business, the <strong>retail sector is a black hole of statistics</strong>, 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&#8217; 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.</p>
<p style="text-align: justify;">As you might imagine in this environment, the major labels are shadows of their western motherships and <strong>there is a gaping hole where the independent record label scene should be</strong>. While the traditional record label model isn&#8217;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 <strong>necessary for labels to take over an artist&#8217;s entire life</strong> &#8211; recording, publishing, management etc. &#8211; obsessively tapping all revenue streams in order to survive. You can count the number of recognisable independent labels on a pair of chopsticks.</p>
<p style="text-align: justify;"><strong><a href="http://www.modernsky.com" target="_blank">Modern Sky</a></strong> 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&#8217;s business model is a convoluted arrangement of media company, record label, artist management and design house &#8211; 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. <strong>Physical releases are practically a loss leader </strong>for Modern Sky with<strong> digital revenue also remaining a minor consideration</strong>.</p>
<p style="text-align: justify;">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&#8217;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.</p>
<p style="text-align: justify;"><strong>The ‘big four&#8217; majors are all over here</strong> in some form or other. However, like all foreign companies wanting to operate in China, they have had to enter into <strong>joint ventures with Chinese companies</strong>, 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.</p>
<p style="text-align: justify;">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&#8217;s share of domestic pop music (&#8220;domestic&#8221; in this case would be better translated as &#8220;regional&#8221; &#8211; 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.</p>
<p style="text-align: justify;">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 &#8211; bringing it to roughly 100 albums &#8211; and expect to see a 10-15 per cent growth in revenue. Sim puts his optimism down to: <em>&#8220;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.&#8221;</em></p>
<p style="text-align: justify;">Sim has neatly summed up the <strong>problems facing western music marketers in China</strong>. 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&#8217;s state-run radio. An exception would be a station like Beijing&#8217;s <a href="http://hitfm.cn" target="_blank">HitFM</a> 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.</p>
<p style="text-align: justify;"><strong>The government is very protective of its airwaves</strong> 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. <a href="http://english.cctv.com/index.shtml" target="_blank">China Central Television (CCTV)</a>, 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<strong> impregnable fortresses of glittery, spandex-clad state guff</strong>.</p>
<p style="text-align: justify;">When Pop Idol imitator SuperGirl hit China in 2004, <strong>the final was watched by 400 million people</strong>. 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.</p>
<p style="text-align: justify;">So for international music marketeers there is a <strong>limited spread of outlets through which to promote artists</strong>. 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&#8217;s <a href="http://www.vchinese.com/v/" target="_blank">Channel V</a> 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 &#8220;What&#8217;s in it for us?&#8221;. In this sort of climate &#8211; where media needs to be bought &#8211; the returns simply do not justify a label allocating a significant marketing (or coverage) budget to &#8220;break&#8221; niche foreign artists. They generally rely on larger artists&#8217; spill-over publicity from the west.</p>
<p style="text-align: justify;">As in the rest of the world, <strong>the internet is changing everything</strong>. 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.</p>
<p style="text-align: justify;">It&#8217;s actually possible to <strong>find niche audiences and interact with them</strong> effectively on bustling chat boards and blogs. While the internet is reportedly monitored by 30,000 &#8220;internet police&#8221;, the sheer volume of activity means that smaller, non-threatening outfits can operate in a relatively uncensored capacity.</p>
<p style="text-align: justify;">The problem is that niche online audiences are very niche indeed. <strong>Genre awareness is perhaps one of the biggest spokes in the wheels of music development in China</strong>. It is possible to find all major genres &#8211; as well as a great deal of sub-genres &#8211; 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. &#8220;Backstreet Boys,&#8221; was her immediate reply.</p>
<p style="text-align: justify;">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&#8217;t even have a file title. <strong>You are left with a completely ‘naked&#8217; piece of audio</strong>. 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.</p>
<p style="text-align: justify;">Today&#8217;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, <strong>even your potential listener doesn&#8217;t know what he or she is listening to.</strong></p>
<p style="text-align: justify;">Despite this, <strong>digital is the hot topic in China</strong>. Due to the under-developed, pirate-dominated physical market and burgeoning mobile environment, China is on track to becoming <strong>the world&#8217;s testing ground for the digital age</strong>.</p>
<p style="text-align: justify;">The statistics are pretty staggering, with some suggesting a <strong>digital market of US$1.5bn by 2010</strong>. With the second largest broadband network in the world, the advent of 3G later in 2007, <strong>460 million mobile users</strong> and <strong>five million new mobile subscribers a month</strong>, who, on face value, would doubt them?</p>
<p style="text-align: justify;">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&#8217; against pirates, should be seen as totally superficial &#8211; a lip service to the lobbying western majors. <strong>Internet MP3 piracy remains endemic</strong>, with fewer than 10 per cent (a <em>very</em> generous estimate) of downloaders actually paying (average price) 14p/download for the privilege.</p>
<p style="text-align: justify;">Even the big boys are at it, with market leader Service Providers (SPs) like <a href="http://www.baidu.com" target="_blank">Baidu</a> (over 50 million users per day) openly hosting &#8216;deep links&#8217; to pirated tracks and making money through advertising while they&#8217;re at it.</p>
<p style="text-align: justify;">Legal sites such as <a href="http://www.top100.cn/" target="_blank">Top100</a> and 9Sky are on the rise, but change will be painfully slow due to a <strong>dislike of DRM</strong>, 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 <strong>Mobile Value-Added Services (MVAS)</strong>.</p>
<p style="text-align: justify;">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.</p>
<p style="text-align: justify;">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 &#8211; SPs are habitually siphoning off millions of dollars by simply under-declaring sales in what is known as &#8220;accounting piracy&#8221;.</p>
<p style="text-align: justify;">Even the legitimate numbers don&#8217;t look too rosey at the moment. The breakdown on your average truetone (for example) looks something like this:</p>
<p style="text-align: center;"><img class="aligncenter" src="http://edpeto.com/wp-content/uploads/2007/12/china_ringtone_revenue_split.jpg" alt="Ringtone Split" /></p>
<p style="text-align: justify;">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 <strong>2.6 pence for every ringtone sold.</strong></p>
<p style="text-align: justify;">Micro numbers like this are hard to get excited about, but <strong>if the devil is in the detail, then the angel is in the scale</strong>. 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&#8217;s just that no one is making any money out of it &#8211; certainly not with conventional, western business models.</p>
<p style="text-align: justify;"><strong>China needs to be seen as a blank canvas</strong>. While the numbers might suggest it is already going through a &#8220;boom&#8221; 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 &#8220;digital entertainment companies&#8221;, 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.</p>
<p style="text-align: justify;">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.</p>
<p style="text-align: justify;">So while there is no <em>How To Make Money Out Of Music</em> 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.</p>
<p style="text-align: justify;">© Ed Peto 2007</p>
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		<title>China Indie Music Report : Publishing</title>
		<link>http://www.outdustry.com/2007/10/15/china-indie-music-report-publishing/</link>
		<comments>http://www.outdustry.com/2007/10/15/china-indie-music-report-publishing/#comments</comments>
		<pubDate>Mon, 15 Oct 2007 19:37:45 +0000</pubDate>
		<dc:creator>Ed Peto</dc:creator>
				<category><![CDATA[China - Music Industry]]></category>
		<category><![CDATA[Published]]></category>
		<category><![CDATA[Staff Blog]]></category>
		<category><![CDATA[CASH]]></category>
		<category><![CDATA[Digital]]></category>
		<category><![CDATA[MCPS-PRS]]></category>
		<category><![CDATA[MCSC]]></category>
		<category><![CDATA[Mechanicals]]></category>
		<category><![CDATA[Mobile]]></category>
		<category><![CDATA[Publishing]]></category>
		<category><![CDATA[Syncs]]></category>

		<guid isPermaLink="false">http://edpeto.com/?p=18</guid>
		<description><![CDATA[Publishing is a tricky concept in China. The typical Chinese approach to intellectual property is that ‘ideas belong to everyone&#8217;, so while it is difficult to make money out of something tangible like a record or a download, it is VERY difficult to make anything from the intellectual property contained within it. The Copyright Act [...]]]></description>
			<content:encoded><![CDATA[<p style="text-align: justify;"><strong>Publishing is a tricky concept in China</strong>. The typical Chinese approach to intellectual property is that ‘ideas belong to everyone&#8217;, so while it is difficult to make money out of something tangible like a record or a download, it is VERY difficult to make anything from the intellectual property contained within it. <span id="more-69"></span>The Copyright Act was only passed in China in 1991, so it is still early days.</p>
<p style="text-align: justify;">The <strong><a href="http://www.mcsc.com.cn" target="_blank">Mechanical Copyright Society of China (MCSC)</a></strong> was set up in 1992 as the sole administrator for composition but it&#8217;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.</p>
<p style="text-align: center;"><img class="aligncenter" src="http://edpeto.com/wp-content/uploads/2007/12/mcsc.jpg" alt="MCSC" /></p>
<p style="text-align: justify;">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 <strong><a href="http://www.mcps-prs-alliance.co.uk/Pages/default.aspx" target="_blank">MCPS</a></strong> 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 <a href="http://www.cash.org.hk" target="_blank">Composers and Authors Society of Hong Kong (CASH)</a> who have a reciprocal representation agreement with MCSC and are more approachable/transparent.</p>
<p style="text-align: justify;">The <a href="http://www.mcps-prs-alliance.co.uk/Pages/default.aspx" target="_blank">PRS</a> entered an agreement with MCSC in 1995 but due to a <strong>non-existent airplay royalty system</strong> last year&#8217;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 &#8211; 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.</p>
<p style="text-align: justify;">MCPS-PRS International Manager Liam Donnelly explains:<br />
<em><br />
&#8220;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&#8217;t happen overnight &#8211; indeed we&#8217;re taking a long term view of the market &#8211; but I think we&#8217;re making some progress.&#8221;</em></p>
<p style="text-align: justify;">In truth, there really <strong>isn&#8217;t a lot of western content currently being broadcasted</strong> anyway but this situation will slowly improve &#8211; 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.</p>
<p style="text-align: justify;">As with other areas of the industry, <strong>digital is a glimmer of light</strong> 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.</p>
<p style="text-align: justify;"><strong>Covers</strong> 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.</p>
<p style="text-align: justify;"><strong>Ad syncs</strong> 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.</p>
<p style="text-align: justify;">It really needs to be said that <strong>publishers are not having a fun time over here</strong>. 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.</p>
<p style="text-align: justify;">© Ed Peto 2007</p>
<p style="text-align: justify;">NOTE: This is an extract from the ‘Access China&#8217; report commissioned by <a href="http://www.ukti.gov.uk" target="_blank">UK Trade and Industry Department</a> and <a href="http://www.britishunderground.net" target="_blank">British Underground</a>.</p>
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		<title>China Indie Music Report : Digital &amp; Mobile</title>
		<link>http://www.outdustry.com/2007/09/24/china-indie-music-report-digital-mobile/</link>
		<comments>http://www.outdustry.com/2007/09/24/china-indie-music-report-digital-mobile/#comments</comments>
		<pubDate>Mon, 24 Sep 2007 16:48:19 +0000</pubDate>
		<dc:creator>Ed Peto</dc:creator>
				<category><![CDATA[China - Music Industry]]></category>
		<category><![CDATA[Published]]></category>
		<category><![CDATA[Staff Blog]]></category>
		<category><![CDATA[3G]]></category>
		<category><![CDATA[Baidu]]></category>
		<category><![CDATA[Digital]]></category>
		<category><![CDATA[DRM]]></category>
		<category><![CDATA[Mobile]]></category>
		<category><![CDATA[MP3]]></category>
		<category><![CDATA[MVAS]]></category>
		<category><![CDATA[Piracy]]></category>
		<category><![CDATA[Publishing]]></category>
		<category><![CDATA[Ringtones]]></category>

		<guid isPermaLink="false">http://edpeto.com/?p=10</guid>
		<description><![CDATA[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&#8217;s testing ground for the digital age. The statistics are pretty staggering, with some suggesting a digital market of US$1.5billion by 2010 &#8211; With the second largest broadband network in [...]]]></description>
			<content:encoded><![CDATA[<p style="text-align: justify;"><strong>Digital is the hot topic in China</strong>. Due to the under-developed, pirate-dominated physical market and burgeoning mobile environment, China is on track to becoming the world&#8217;s testing ground for the digital age. <span id="more-66"></span>The statistics are pretty staggering, with some suggesting a digital market of <strong>US$1.5billion by 2010</strong> &#8211; 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?</p>
<p style="text-align: justify;">The view from the ground, however, is that <strong>all of these statistics need to be taken with a bucket of salt</strong>. All attempts by the Chinese government to combat online MP3 piracy, including all public ‘victories&#8217; against pirates, should be seen as totally superficial &#8211; a lip service to the lobbying western majors. Internet MP3 piracy remains endemic, with less than 10% (a <em>very</em> generous estimate) of downloaders actually paying 14 pence/download for the privilege.</p>
<p style="text-align: justify;">Even the big boys are at it, with market leader Service Providers (SPs) like <a href="http://www.baidu.com">Baidu</a> (who allegedly see over 50 million users per day) openly hosting ‘deep links&#8217; to pirated tracks and making money through advertising while they&#8217;re at it.</p>
<p style="text-align: center;"><img class="aligncenter" src="http://edpeto.com/wp-content/uploads/2007/12/baidu.jpg" alt="Baidu" /></p>
<p style="text-align: justify;">
Legal sites such as <a href="http://www.top100.cn" target="_blank">Top100</a> and <a href="http://www.9sky.com" target="_blank">9Sky</a> are on the rise but change will be painfully slow due to <strong>a dislike of DRM</strong>, lack of will from the government and <strong>a public who have been getting free music off the internet from day one</strong>. 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&#8230;</p>
<p style="text-align: justify;"><strong>Mobile Value-Added Services (MVAS)</strong>: 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 &#8211; SPs are habitually siphoning off millions of dollars by simply under-declaring sales in what is known as <strong>‘accounting piracy&#8217;</strong>.</p>
<p style="text-align: justify;">Piracy aside, the big question for you as a western rights owner is <strong>&#8220;can I get a piece of this?&#8221;. The answer is &#8220;not easily&#8221;</strong>. 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 <a href="http://www.r2g.net" target="_blank">R2G</a>, China&#8217;s largest digital distribution company explains:</p>
<p style="text-align: justify;"><em>&#8220;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.&#8221;</em></p>
<p style="text-align: justify;">If you do end up with digital distribution, the breakdown on your average truetone (for example) looks something like this:<br />
<strong> Average cost of truetone: 2RMB = 14pence</strong><br />
15% to Telecommunications Company<br />
10% to publishing<br />
37.5% (half of the remainder) to Service Provider</p>
<p style="text-align: justify;"><img src="http://edpeto.com/wp-content/uploads/2007/12/china_ringtone_revenue_split.jpg" alt="Ringtone Split" /></p>
<p style="text-align: justify;">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&#8230;..<strong>2.6 pence for every ringtone sold.</strong></p>
<p style="text-align: justify;">There are deals to be had but they are few and far between. Companies like <a href="http://www.r2g.net" target="_blank">R2G</a>, <a href="http://www.theorchard.com" target="_blank">The Orchard</a>, <a href="http://www.artspages.com" target="_blank">Artspages</a>, <a href="http://www.iodalliance.com/" target="_blank">Ioda</a> 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. <strong>Piracy isn&#8217;t all bad</strong>.</p>
<p style="text-align: justify;">© Ed Peto 2007</p>
<p style="text-align: justify;">NOTE: This is an extract from the ‘Access China&#8217; report commissioned by <a href="http://www.ukti.gov.uk" target="_blank">UK Trade and Industry Department</a> and <a href="http://britishunderground.net" target="_blank">British Underground</a>.</p>
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		<title>China Indie Music Report : Record Labels</title>
		<link>http://www.outdustry.com/2007/09/10/china-indie-music-report-record-labels/</link>
		<comments>http://www.outdustry.com/2007/09/10/china-indie-music-report-record-labels/#comments</comments>
		<pubDate>Mon, 10 Sep 2007 09:28:17 +0000</pubDate>
		<dc:creator>Ed Peto</dc:creator>
				<category><![CDATA[China - Music Industry]]></category>
		<category><![CDATA[Published]]></category>
		<category><![CDATA[Staff Blog]]></category>
		<category><![CDATA[Airplay Royalties]]></category>
		<category><![CDATA[Album Licensing]]></category>
		<category><![CDATA[Brand Co-ops]]></category>
		<category><![CDATA[Chinese Rock]]></category>
		<category><![CDATA[Digital]]></category>
		<category><![CDATA[Indies]]></category>
		<category><![CDATA[Joint Ventures]]></category>
		<category><![CDATA[Majors]]></category>
		<category><![CDATA[Masters]]></category>
		<category><![CDATA[Ministry Of Culture]]></category>
		<category><![CDATA[Mobile]]></category>
		<category><![CDATA[Modern Sky]]></category>
		<category><![CDATA[Record Labels]]></category>
		<category><![CDATA[Universal]]></category>

		<guid isPermaLink="false">http://edpeto.com/?p=6</guid>
		<description><![CDATA[Due to piracy and negligible airplay royalties, the western record label model simply does not work in China. In most cases, domestic companies take over an artist&#8217;s entire life &#8211; Records, management, publishing etc. There is so little money to be made from simply exploiting a master that a label has to ensure it doesn&#8217;t [...]]]></description>
			<content:encoded><![CDATA[<p style="text-align: justify;">Due to piracy and negligible airplay royalties, <span style="font-weight: bold">the western record label model simply does not work in China</span>. In most cases, <span style="font-weight: bold">domestic companies take over an artist&#8217;s entire life</span> &#8211; Records, management, publishing etc. There is so little money to be made from simply exploiting a master that a label has to ensure it doesn&#8217;t miss any area of income in order to survive.<span id="more-64"></span> This obviously poses a problem to western rights owners/managers looking to make money out of their narrower areas of interest.</p>
<p style="text-align: center;"><img class="aligncenter" src="http://edpeto.com/wp-content/uploads/2007/12/modernsky.jpg" alt="modernsky" width="325" height="271" /></p>
<p style="text-align: justify;"><!--more--><span style="font-weight: bold"> The majors are all here doing their stuff, struggling away</span>, but like all foreign companies they have had to enter into <span style="font-weight: bold">joint ventures</span> to operate in China, slashing their already slender profits. They own the lion&#8217;s share of domestic pop music but with regards to international repertoire, they stick very much to frontline releases and global priorities with the occasional catalogue title. Universal Music China, for example, are doing a reggae push throughout the year to see what sort of audience there is for the genre. Danny Sim, International Marketing Manager at Universal Music China, is optimistic about growth in western music sales. They will release 40% more international titles this year &#8211; bringing it to roughly 100 albums &#8211; and expect to see a 10-15% growth in revenue. Sim puts his optimism down to <em>‘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&#8217;.</em>Truth be told, the returns (and therefore the marketing budgets) are really not there for majors to ‘break&#8217; niche foreign artists. They have to rely mainly on larger artists&#8217; spill-over publicity from the west, so for the emerging independent, there is very little fun to be had with regards to major licenses.</p>
<p style="text-align: justify;"><span style="font-weight: bold">There is a gaping hole where the independent record label scene should be</span>. You can count the number of truly viable independent labels on a pair of chopsticks.</p>
<p style="text-align: justify;"><a style="font-weight: bold" href="http://www.modernsky.com" target="_blank">Modern Sky</a> has just celebrated its 10th year in existence and, much like it&#8217;s rabbit-warren of an office in West Beijing, it&#8217;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 hostile environment. It has amassed a significant percentage of the Chinese rock catalogue in the process. <span style="font-weight: bold">Physical releases are practically a loss leader</span> for Modern Sky with <span style="font-weight: bold">digital revenue also remaining a minor consideration</span>.</p>
<p style="text-align: justify;">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&#8217;s income, alongside consultancy for mobile content and a wide range of video production and design projects. <span style="font-weight: bold">You have to be versatile to survive for ten years in China</span>.</p>
<p style="text-align: justify;">This business model means that Modern Sky gain very little from licensing foreign albums and only really do so occasionally, as with their release of Radiohead&#8217;s ‘Kid A&#8217;. They are very open to approach on the subject of licensing but prefer to look down the route of collaborative work between their artists and the west &#8211; to create something new. In general, if you&#8217;re looking to license an independent album over here, be prepared for a luke-warm response. Modern Sky have been trying to release Mogwai&#8217;s ‘Mr Beast&#8217; for over a year now but still have not been cleared by the censors at the Ministry Of Culture. Even when it eventually is released they only really expect to shift 2,000-3,000 albums. These guys are in it for the love. <span style="font-weight: bold">As you can imagine, advances are very difficult to come by</span>.</p>
<p style="text-align: justify;">© Ed Peto 2007</p>
<p style="text-align: justify;">NOTE: This is an extract from the ‘Access China&#8217; report commissioned by <a href="https://www.uktradeinvest.gov.uk/" target="_blank">UK Trade and Industry Department</a> and <a href="http://britishunderground.net" target="_blank">British Underground</a>.</p>
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