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$1.5billion 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 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.
Ed,
So as an indie band, if we’re seeing a largest traffic coming from Asia (soso.com, baidu), how do we enhance our exposure? Them driving free downloads of our mp3s off the site is fine. Wondering how we go about expanding the reach or monitizing in some form. The language barrier makes it difficult to see if the sites have options for the artists.
Posted by Joe on January 17th, 2008.
[...] I have moved my music industry blog to a new home at OUTdustry. Follow this link for my article on digital and mobile music in China. [...]
Posted by ed peto — China Indie Music Report : Digital & Mobile on October 25th, 2008.