Music in China: The Inside Story
Behind the Great Wall of sound
Special Report Want to break into China? Ed Peto reports from the nation where goths adore boy bands, where the major labels created the black market, and where digital looks poised to leapfrog analogue.
How To Do Business In China, China CEO, The New Chinese Consumer... my shelves here in Beijing are stacked full of such books, all trying to throw some light on a country and market of seemingly endless allure to the west. A population of 1.3 billion people has marketeers around the world girding up their loins to do business here, each with a How To Do Business In China book tucked under their arm.
Unfortunately for the western music entrepreneur or artist, these books are helpful in only the most general terms. While there is a slew of practical, detailed advice on how to deal with rubber-ball factories and sales chains, the fledgling music industry here is such a bewildering state of affairs that fully-rounded advice simply isn’t available yet.
The new, new sound of China
As in most other Asian markets, pop music has a real stranglehold over the mainstream - Mando-Pop, Canto-Pop, J-Pop, K-Pop - glossy, inoffensive music that satisfies the censors as well as the ‘bland criteria’ necessary for across-the-board media coverage. Despite the diverse musical heritage of China, mainstream pop is almost entirely informed by western music, from the basic pop song format through to instrumentation and lyrical content, although general production quality is still fairly poor. The Chinese audience, therefore, are already well familiar with all of the stock traits of western music: Guitar solos, crap raps in the middle-eight of pop songs, warbly diva vocals, key changes at the end of ballads, pseudo-rock bands, pseudo-hip-hop bands etc.
Your average western band, therefore, does not sound totally alien, it's just that no one is willing to spend money promoting an international (and therefore niche) act when 90 per cent of CDs are counterfeit and an even higher percent of online music is pinched. It’s all about hitting the mass market straight out of the box and selling big, if you want a chance of making money.
Such a high piracy rate leaves you with a legitimate physical market of only $86m a year (2006 figures), making China - a country of 1.3 billion people, remember – into only the 20th largest market in the world. Physical has never really had a good time in China.
Re-TROS front man Hua Dong performing at 'Hong Di' at MAO Live, Beijing, June 2007
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, though, were given a surprising headstart...
Creating the pirates
The arrival of western product in the early 90s came 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. An end result that can be seen as a partial ‘shooting-in-the-foot’ for the western majors who then had to come in and 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. There is the occasional very public haul of counterfeit CDs, but realistically this is already a lost battle when you consider the impending end of the CD format.
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. That’s right, state-run piracy.
As with most areas of business, the retail sector is a black hole of statistics, where misinformation and mendaciousness are key pirate protection devices. A visit to China will clear this up for you nicely as you only have to wander around a few streets and speak to a few ‘legitimate’ retailers to see the impossibility of gathering any meaningful statistics. Even legitimate retailers like FAB stock some pirated goods and it takes a very keen eye to spot the difference in some cases, although most pirated CDs are laughably poor quality.
360... or bust
As you might imagine in this environment, the major labels are shadows of their western motherships and there is a gaping hole where the independent record label scene should be. While the traditional record label model isn’t exactly going through a golden age in the west, it never even had a golden age in the Middle Kingdom. In order to survive it has become necessary for labels to take over an artist’s entire life – recording, publishing, management etc. – obsessively tapping all revenue streams in order to survive. You can count the number of recognisable independent labels on a pair of chopsticks.
Modern Sky is one such label. It has just celebrated its tenth year in existence and, much like its rabbit warren of an office in West Beijing, 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.
Label Manager Meng Jinhui explains that they normally take over management, allowing them to promote the hell out of 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. You have to be versatile to survive for 10 years in China.
The ‘big four’ majors are all over here in some form or other. However, like all foreign companies wanting to operate in China, 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.
Kang Mao of legendary Beijing punk band SUBS,
performing at one of the author's 'Hong Di'
nights at MAO Live, Beijing, Sept 2007
Normally taking up just one or two floors of an office building, 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.
Behind The Great Firewall
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 are acutely aware that broadcast media is the most effective medium for delivering key cultural and political messages. China Central Television (CCTV), the state-run national station operates a range of channels, which, in the main part, are barefaced propaganda and state trumpet-blowing. Their large scale, televised music galas showcase traditional and government approved music forms and are regularly watched by audiences in the hundreds of millions. These are the kind of viewing figures that excite people about China, but in reality the shows are impregnable fortresses of glittery, spandex-clad state guff.
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. This is especially true when you consider that music coverage is based more on cold hard cash than on merit. You could turn up to one of the few music-specific TV channels like Newscorp’s Channel V or MTV (which has a minute presence in China) with the best pop video in the world looking for airplay, but the response is likely to be "What’s in it for us?". 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.
Routing around the censors
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.
It’s actually possible to find niche audiences and interact with them effectively on bustling chat boards and blogs. While the internet is reportedly monitored by 30,000 "internet police", the sheer volume of activity means that smaller, non-threatening outfits can operate in a relatively uncensored capacity.
Main stage at Midi Festival, Haidian Park, Beijing, May 2007
The problem is that niche online audiences are very niche indeed. Genre awareness is perhaps one of the biggest spokes in the wheels of music development in China. It is possible to find all major genres – as well as a great deal of sub-genres – represented in tiny fan-groups online. However, the elaborate categorisation of music we seem to so enjoy in the west is the preserve of only a few music obsessives in China. While Converse trainers and drainpipe jeans might make your average Chinese high street hep-cat seem like an alternative cognoscenti, the chances are that understanding is lacking and there is very little consistency between any two elements of their identity, including music preference. Whilst hanging at the bar in Beijing underground live venue D-22, I noticed a Chinese girl next to me with crazy hair, blackened eyes, torn clothes and black fingernails. I got talking to her and asked her what kind of music she listened to. "Backstreet Boys," was her immediate reply.
The kind of deeper involvement with a genre that would mean a goth could never admit to liking the Backstreet Boys is noticeably absent here. This girl is just as likely (or unlikely) to go out and download an Aaron Carter track as she is a Lacrimosa one. Music online is rarely searched out or bought according to genre. In fact, not only is your average MP3 not sold as part of a genre, it is also almost certainly pirated, completely DRM-free, with no meta data attached and, in a huge number of cases, doesn’t even have a file title. You are left with a completely ‘naked’ piece of audio. China simply never went through the age where music was bought at a premium on vinyl, cassette or CD, then lovingly horded, categorised and put on display for all your dinner party guests to see, encouraging in-depth dinner discussions about prog-rock or jazz.
Today’s China sees single-track, naked MP3s being Bluetoothed, file-shared, emailed, flash-disked, hard-drive-dumped and herded around the digital sphere in complete anonymity. Targeting potential listeners for your band in this scramble of a market is incredibly difficult because, in a great deal of cases, even your potential listener doesn’t know what he or she is listening to.
Despite 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 pretty 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 downloaders actually paying (average price) 14p/download for the privilege.
Even the big boys 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, 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, 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 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".
Even the legitimate numbers don’t look too rosey at the moment. The breakdown on your average truetone (for example) looks something like this:
How revenue is split from a ringtone in China (pc)
Fifteen per cent is returned to the telco, and 10 per cent to the publisher. Of the rest, the service provider takes half, with the remaining 37.5 per cent being split between the aggregator and the sound recording rights owner, with the aggregator taking anywhere from 20 to 50 per cent for his troubles. In this example, assuming you have a 50/50 deal with the aggregator, this leaves you with a grand total of 2.6 pence for every ringtone sold.
Micro numbers like this are hard to get excited about, but if the devil is in the detail, then the angel is in the scale. Music and the booming Chinese nation are at the start of a wonderful relationship on a scale that will dwarf any other territory in the world. It's just that no one is making any money out of it - certainly not with conventional, western business models.
A green (rice) field market
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.
It is increasingly understood that DRM is not the horse to back. The pay-per-download system is also looking shaky and attention is increasingly turning to subscription models. China will be quite a way ahead of the west in turning the corner into this more fluid consumption of digital music.
So while there is no How To Make Money Out Of Music in China handbook yet, I suspect that when it is eventually written, it will be translated into a hundred different languages and ultimately be tucked under the arm of every music industry executive in the west, from London to New York.
© Ed Peto 2007. Ed Peto is a Beijing-based promoter, music consultant and journalist. His website is edpeto.com.