Back and Forth in China

China, the second largest economy in the world, should be a beacon for the future of the music industry. Communism has given way to a leading edge marketplace with a record population of 1.3 billion, many of them young and with much buying power. Moreover, the emergence of private property, and China’s recent membership of the World Trade Organization, would suggest recognition of private property and, therefore, music rights, possibly ushering a bonanza for music publishers and record labels, both national and international.   In any case, access to music, especially for its growing young, has never been easier and compares favorably to any top five economy worldwide.

All of which begs the question as to why China has such a low position in global recorded music rankings and music publishing income. The most recent data of the International Federation of the Phonographic Industry (IFPI), for example, places China 19th in the world for total revenue generated through recorded music and a dismal 32nd position in receipts generated just from physical sound recordings. 95% of all music transactions in China are unauthorized, and free downloads, peer-to-peer exchanges, and under-the-table sales of records are rampant. Piracy has led to the decline in hard-copy value, and miserly payments to artists, managers, and other music workers.

Illegal MP3s are rife and downloaded from China’s main search engines online, Baidu and Sogou. Baidu’s operation, in particular, is predicated on a simple premise: free downloads bring plenty of advertising revenue. Baidu is the most popular search engine and the most common way for Chinese citizens to get digital music. Lawsuits against Baidu by the local record industry are, of course, ongoing. Piracy decimates sales but it also prevents the proper collection of music rights, stunting growth in the domestic market.

Universal Music, Sony BMG Music Entertainment Hong Kong, and Warner Music Hong Kong filed suit against Baidu in 2008 and, remarkably, did not prevail. However, the lawsuit paved the way for better accommodation with the majors starting in 2010. Recently, in July of 2015, China’s National Copyright Administration implemented stricter laws regulating the distribution of music online, forcing sites to only distribute licensed material or face hefty fines. Downloads can be free and the search engines will still monetize from advertisers only, but now artists can license music ahead of time. It is a step in the right direction for the future of the industry and copyright law, but it is too early to tell if there will be a trickle down effect on talent, record labels, and publishers.

In the meantime, money generated through music in China continues to grow despite piracy and shrinking hard-copy sales. While physical sales have decreased throughout the years, the digital marketplace has more than made up for it. In 2014 China was ranked 11th in the world for their digital music market, with their digital revenue in 2015 exceeding their total national revenue of music only five years prior. More and more hard-copy distributors are going out of business and streaming websites have taken center-stage. Studies on the Chinese market are encouraging. The China Internet Network Information Center (CNNIC) showed that in 2014 the most popular online and mobile entertainment application was music. The number of people accessing music through mobile apps exceeded those accessing video game apps. Even if much of this is still a result of freely available product, Apple has recently opened for business with Apple Music, after years of dithering about what to do (iTunes had avoided China).

Publishing in China has mostly flowed through one company, the China Music Group. The group also serves as a performance rights organization. It has little competition. Political tensions, however, are always in the backburner and not neutral to potential entrants. The country is still a prisoner of its social history, where intellectual private property, not least, was non-existent. In February of this year a new plan outlawing the publishing of any video, video game, audio, article, map, art, or literature by a foreign company within China has dampened the enthusiasm of music publishers worldwide. This is unfortunate for the business: Last year, BMG had acquired two publishing catalogues and it was rumored that Apple Music was contemplating acquisitions too.

Still, there are promising signs. The number of synch licenses requested within the country has doubled since 2011. Advertisers, films, television shows, and other media are buying synchs to tap spending by the world’s most populated nation. Earlier this year, Beijing Enlight Pictures requested a synch license for The Beatles’s “Hey Jude”, to be used in the upcoming local film, Yesterday Once More. The synch, for four minutes of music, cost the company a six-figure sum, which it promptly paid to Sony/ATV. This is remarkable news for it establishes the commoditization of music, and therefore the recognition of musical talent, like few events can. The story also illustrates a particular facet of China. Local industry is more likely to bring about change and grow the music marketplace than any foreign corporation.


By Nick Sanchez


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