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 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.

• Physical piracy runs at around 90%.
• The average gig ticket is £3 and charging anything over £7 for a concert will alienate the young Chinese music crowd.
• Publishing is a foreign idea to the Chinese and is therefore a tiny, unpredictable source of income.
• All media is government owned or heavily government monitored and, in most cases, requires ‘financial incentives’ in return for coverage.
• Despite a population of 1.3 billion people, the legitimate physical music market was only worth US$86million in 2006, making it the 20th biggest in world.
• All foreign companies must enter a joint venture in order to set up shop in China, handing over at least 51% of their company in the process.
• All music has to go through lengthy and seemingly arbitrary government censorship procedures.
• China is a black hole of statistics, quite often by design, making market research and due diligence incredibly difficult.

Kang Mao of legendary Beijing band SUBS, performing at ‘Hong Di’ : September 2007

As in most other markets in Asia, 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 very 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, its just that no-one is willing to spend money promoting an international (and therefore niche) act when the returns are currently so poor. It’s all about hitting the mass market straight out of the box ie. Not an easy climate for an indie to be operating in.

It’s not all doom and gloom though. China is a blank canvas for the music business. You just have to be VERY open minded, adventurous and, above all, patient to attempt to do business here. Please leave your pre-conceptions and western business models at the door as they will not serve you well. If you do come in this spirit then you will find a testing ground for the future of the global industry – a totally unique market where the rules are being made up on the hoof, all set in the most populous country on the planet.

© Ed Peto 2007

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