Music Essays
China’s Music Industry
The fledgling music industry in China is a bewildering state of affairs. The traditional revenue source – the album – in CD form is not viable in a country where 90 per cent of CDs are counterfeit and an even higher percent of online music is downloaded for free. Such a high piracy rate leaves a legitimate physical market of only $86m a year (2006 figures), making China - a country of 1.3 billion people only the 20th largest market in the world. 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 were given a surprising head start with the arrival of western product in the early 90s 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. One result of this is that when the western majors arrived in China they had to 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. 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.
In order to survive it has become necessary for music labels to take over an artist’s entire life – recording, publishing, management etc. – obsessively tapping all revenue streams in order to survive. Very few independent labels exist. Modern Sky is one. It has just celebrated its tenth year in existence and its 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.
Get help with your essay from our expert essay writers...Label Manager Meng Jinhui explains that they normally take over management, allowing them to promote 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.
The ‘big four’ majors are all in China in some form or other. However, 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.
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 is acutely aware that broadcast media is the most effective medium for delivering key cultural and political messages. 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. 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.
Despite all 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 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 generous estimate) of down loaders actually paying (average price) 14p/download for the privilege. Even the major players 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 it's 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 (digital rights management), lack of will from the government, and a public who have been getting free music off the internet from day one. There is only an estimated 150,000 Chinese-language (Mandarin or Cantonese) songs available in digital form (compared with more than 10 million in the West). 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 lays, 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 ring tones, caller ring back tones, background music and wallpaper. MVAS generate revenue of over 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".
In conclusion, 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.
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