With China MIDEM 2008’s country of honour, the MidemNet Forum will be rife with discussion on this promising yet challenging new territory. Forum speakers Billy Koh, of rapidly-growing music company Ocean Butterflies, and Mathew Daniel, of digital music distributor and anti-piracy setup R2G, here address these very challenges…
For Koh, many westerners are “very curious to know the ‘truth’ about how a successful music business can be run in China;” and given his company’s strong performance since it first set up in China in 2003, Koh believes he can “share a lot of real-life experience with the westerners who wish to unveil the cultural curtain of China.”
The truth is that with the IFPI estimating illegal music sales in China at around $400m, with 90% of all recordings to be illegal, and full tracks easily available for free download online, foreign and local companies alike are actively investigating alternatives to tap into the huge country’s rich potential. Mobile music is already doing well in sales terms, says Daniel: “According to iResearch, mobile service providers earned almost RMB 3bn/$400m in revenues in this space in 2006; but how much did artists and labels earn from this?”
As such, R2G is dedicated to ensuring these revenues are farily distributed. “Service providers tend to illegally keep a large portion of these revenues and labels are not able to impose their will to obtain accurate royalty statements, if at all,” says Daniel. “So accounting piracy exists amongst the service providers; and this is where R2G has had a few successes, having won all of our last 6 legal cases against errant service providers, including NASDAQ-listed companies Hurray and China.com [for the unlicensed use of ringtone applications for songs by Taiwanese singer Jay Chou].”
That said, Daniel confirms that whilst physical music in China may be a lost cause, the country’s digital achievements and potential are enormous. “Already labels are reporting up to 70% of revenue being attributed to digital; this percentage is emphatically much more than that existing in mature music markets in the rest of the world,” he says.
Koh shares this digital optimism, noting that “music on mobile is a huge business opportunity in China. For example, ‘Love’s in the Air,’ a song performed by [Ocean Butterflies artists] JJ Lin and Kym released in spring this year, has generated RMB1.5m/$200m for copyright owners in 6 months! The internet, on the other hand, should be seen as a promotional platform, rather than an income-generating device, at least for the time being.”
Another piracy workaround is live music; but as Koh explains, artists have to be particularly big in China to earn significant revenue (JJ Lin’s last tour averaged audiences of 25,000 per show…). The prerequisite to this is of course a major hit song… and “as China is such a huge country, most of the time it’ll take a much longer time for a song to become a big hit,” says Koh. A decent-sized tour in China will also require a sponsor, which will obviously be easier to attract if the artist has “commercial value,” as Koh puts it.
So what advice would Koh and Daniel give to western companies looking to break into China? “Major label chiefs unrealistically pine for the rest of Asia to follow Japan,” says Daniel. “But let’s face it, Japan could well be on another planet in terms of its totally different attitude to music compared to the rest of Asia. My message would be for the music industry to look at Asia (and for that matter South America, Eastern Europe, etc.) and find practical business models to distribute music to these areas taking into account the unique cultural, social and technological environments.” Also adds Daniel, “too many people in the western music industry are sometimes just expecting handouts and a red carpet from the Chinese government instead of being a little more entrepreneurial in their exploitation of the digital music environment.”
For Koh, the key is choosing the right partner. “Everyone will tell you he has contacts in China…,” says Koh. “A right partner with the right strategy & right execution power would make a big difference.” Alternatively, he adds, “one way for western music companies to get into China market effectively would be to start off with music publishing. Get an Asian-friendly western song covered in Chinese by an Asian singer and earn the royalties first. When the song gets popular, brings in the original version of the song and do promotion with the western artist. Once the artist gets really big, start the concert tour… and make big bucks!”
Billy Koh speaks on a MidemNet Forum panel on new live models in Asia; and Mathew Daniel takes part in a mobile music panel.