by : Featured Articles, Feb. '11

China’s Road Forward: A Lesson There?

China’s Road Forward: A Lesson There?

China’s music industry is immense and has enormous potential. It has over six hundred million users of mobile phone and counts nearly five hundred million web surfers. Its Internet market is the largest in the world. Yet digital distribution is largely unmonitored, and in general the market is so unregulated that illegal downloading of music is rampant.

In spite of its vast usage, China does not rank among the top five digital markets. By share of value, the US (39%), Japan (19%), UK (16%), France (12%), and Germany (9%) far exceed China, which is aggregated into a Rest Of World category that represents half of one-tenth of all digital music sales. The International Federation of the Phonographic Industry (IFPI) estimates that nearly 99% of all music downloaded in China is done so without proper clearance.

In an attempt to take advantage of a later correction in the sales of digital music, Google Music Search was launched in March 2008. Released exclusively in China, this new service is a platform that offers free, unlimited music downloads from most major labels. Google seems to be saying, “let’s join the pirates”—and so gain a foothold in a market that is likely going to be ebullient as time goes on. Ironically, since Google’s service is only available in China, music consumers around the world have been highly vocal about bringing the same service to their respective countries.

Google Music Search and Baidu

In fact, Google’s Music Search was launched to directly compete with the number one local search engine, Baidu. Baidu grants millions of users access to illegal downloads. Instead, Google Music Search also allows users to download unlimited free content, but it is completely legal. Google’s music catalog is limited, however, with only 1.1 million songs. Since Baidu has been in operation for longer, it can offer hundreds of millions of songs to download, which is much more enticing to music consumers. Furthermore, Baidu’s search engine gives users multiple download links of the same song, as well as different file format options (wav, mp3, aiff). Baidu’s advantages have made the site hugely successful in maintaining its large Chinese user base and trumping Google Music Search.

 

This can be seen in the numbers. Baidu has a search market share of about 60%, where as Google’s search market share is only 26%. Baidu’s lead may be attributed as well to its willingness to abide by the huge Chinese system of state Internet censorship, also known as “the Great Firewall of China.” Baidu spokesman Kaiser Kuo has stated, “We do have an aggressive and extensive system to comply with regulations.” Google has voiced opposition to China’s Internet censorship policies, but it is possible its stand may be hurting it commercially.

On the other hand, users of Google Music Search have written favorable testimonials in their blogs. They claim that the service’s selection and audio quality are superb. Although the most recent releases may not be available, most US artists are searchable as well as a large variety of Chinese artists, all of which are available on high quality MP3 format.

Google Music Search’s business model is based on banner advertising, and it is expected to generate an annual revenue of 100 million Yuan ($14.6 million) within the next few years. The revenue is divided amongst approximately 140 label partners, in addition to the four major labels: Warner Music Group, Universal Music, EMI and Sony Music Entertainment. Song distribution is handled through Google’s partner Top100.cn, a locally owned Chinese company that operates in Beijing and was established in 2005.

Top100.cn is essentially a one-stop shop for Chinese consumers to easily discover, listen to, and download music. Users can also purchase other music products like ring tones, CDs, and concert tickets. The website provides legitimate music downloads in China, with licensing partners such as EMI, SonyBMG, and other indie labels. Having signed with over one thousand labels around the world, Top100.cn has built the largest legal music database in China (over one million songs). Yet, despite the collaboration between Top100.cn and Google Music Search, Baidu’s illegal music database trumps the numbers of Googles’s selections by a large margin.

 

China’s Model and the Rest of Us

Piracy in China has affected local record labels and their artists. As a result, talent is being pushed hard and crowded out of the market. CDs are regarded mostly as a promotional tool. Since pirated music is so widely available, many consumers have been downloading any and all music they can get their hands on, regardless of whether or not it suits their taste. On the bright side, and given the hopelessness of the traditional market in legal recordings, this may give artists an opportunity to reach an exponentially greater audience: if piracy is the means of exposure, larger audiences may be obtained at concerts, where artists can, get endorsement deals and land commercial appearances; also, fans that are not willing to spend money on albums, may have an interest in supporting artists through the products and services they endorse.

Overall, the stranglehold that Chinese piracy has on recorded music could be lessened. Google Music Search could, given time, catch up with Baidu. Its challenge is to outweigh Baidu’s longevity, extensive music database, and file format options. Certainly, better customer service and delivery of product will be a requirement if Google is to wean customers for legal downloads.

There has been speculation that Google Music Search may launch globally, particularly in the United States. If so, labels may have to learn to live with an ad-generated revenue service. Given the difficulties that Spotify has experienced here, this seems a long way off yet. Artists too will have to come on board, and although a younger breed might (because free music would be a quick way to gain mass market exposure), megastars may not. Finally, it is good to remember that China by-passed the CD revolution, and so is less bound than other countries to the idea that recorded music has to fetch its value. Its model may not be as easily exportable.

By Sahil Mehrotra

Sources

1. https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html
2. http://www.forbes.com/2009/08/27/music-search-internet-intelligent-technology-google.html
3. http://www.economywatch.com/world_economy/china/
4. http://www.theregister.co.uk/2007/11/01/music_in_china_feature/
5. http://www.web2asia.com/2009/03/31/download-free-licensed-mp3s-google-music-china-explained
6. http://www.musicdish.com/mag/?id=12822
7. http://news.asiaone.com/News/Latest%2BNews/DigitalOne/Story/A1Story20101205-250895.html
8. http://www.gordonchoi.com/google-music-search-20090420
9. http://techcrunch.com/2009/03/30/google-china-signs-big-music-for-free-mp3-search-engine/

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  1. oluwaseyi says:

    This is really an eye opener in the music business world.Brilliant from Berklee.

  2. Endy Daniyanto says:

    What about the songwriters? Do they get a percentage of the artist’s live performance? The producers get paid by the project (and sometimes they take a percentage of the album sales); engineers are paid by the hour; but the songwriters are paid per royalty, right? If the CD’s aren’t selling – if the SONGS aren’t selling – then how do the songwriters make an income? Because the artist – sure, could be paid for live performances and endorsement deals. But it’s the songwriter that gets sidelined. Cheers,

  3. dan says:

    You actually make it seem so easy with your presentation but I to find this matter to be really one thing which I believe I would by no means understand. It sort of feels too complex and extremely huge for me. I’m looking ahead in your subsequent post, I will attempt to get the cling of it!

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