HARNESSING THE WILD, WILD EAST THE MAKING OF A MUSIC INDUSTRY IN CHINA

Unlike the U.S., where copyright conundrums abound, China has a chance to create a music industry with a completely fresh approach to copyright consumption.
I was recently invited to join the American delegation attending the International Creative Industries Summit in Shanghai, China.  The intensive two-day summit, which occurred April 21-22, 2009, was   poised to be a historic event to witness.  For me, it was rife with irony and provided a fascinating contrast to the “established” western music industry.
For perspective, one only needs to study the rise of the Shanghai skyline to understand the marked difference between its humble past and burgeoning future.  As recent as the ‘90s, the Huang Po River, which dissects downtown Shanghai, wasn’t much more than the embankment of a shantytown; whereas today, Shanghai boasts skyscrapers that rival anything Manhattan has to offer.
Similarly, the would-be music industry we were there to help shape, could have the same kind of meteoric rise.  In fact, it could quickly become the largest music market in the world.  After all, it has nowhere to go but up, and China itself is the world’s largest start up.
I was among a handful of digital media and traditional music industry experts who came to listen to, and help steer, the first steps of a Chinese music industry where, despite infrastructure and a booming population, no music industry exists to date.  Massive piracy, however, is readily rampant.
This point was driven home by Mr. Xiaofeng Xu, Researcher, Peking University, Institute of Culture Industry, who made a forthright presentation entitled “The New Money-making Model within the Culture Industry.”  Poignantly, as his presentation began, he commented, “I am supposed to come here and speak with you about the new business models in the music industry here – but I am not even aware of an existing, old model.”
Having attended more conferences, summits, courtroom show downs, and symposiums on copyright in the digital realm than I could ever recount, it sometimes felt like a déjà vu hearing the same issues addressed repeatedly. I kept thinking, “Whatever you do here, don’t replicate the mess created in the western world” where copyright conglomerates have stymied innovation since digital music came onto the scene with the launch of MP3.com in 1998.
In an earlier column this year, I explored how at MIDEM in January there were many examples of how this is finally beginning to change – after a decade lost to mindless litigation and DRM dogma.
Moreover, as Jingming Qu, General Director of the Music Copyright Society of China pontificated, “Innovation is being driven here by a developing economy.” He illustrated the primary challenges to their agenda to build a music industry include piracy, a perceived lack of value for music despite mass consumption of it, and the potential for monopolies to be created that would ultimately be unfair to artists.
Mr. Qu argued that — without music — everything from discos and radio stations to search engines, wouldn’t exist, or would have significantly less value.
Thomas Reemer, CEO of CUGate, explored this point during his presentation where he demonstrated that Google’s recent digital music foray in China, in partnership with the major labels, is supposed to include a revenue share from the MP3 search activity at its search engine. One only needs to go experience it to realize his point that the experience is completely absent of any potential revenue sharing and, furthermore, there are no ads to click or albums to buy.  Google’s partnership with the major labels in China was widely dismissed as a misstep by most attendees, though some argued it was better than nothing.
Mr. Reemer added that studies show P2P users actually possess a high level of respect for copyrights, but not for the business models in place to date.
CUGate’s offering, he asserted, affords the “feels free” experience but still monetizes the frenetic energy associated with file sharing. CUGate shares the Chinese government’s inclination towards an ISP based solution to monetize the feel free model, which is finally gathering momentum in the Western world, if only philosophically.
At the recent hopping, San Fran Music Tech Summit, this topic was hotly debated on a panel aptly titled “Monetization - Idealism in Practice” where long time advocate Jim Griffin was pimping Choruss, a major label backed approach aimed at the college market initially and  - potentially - to ISPs, if successful.
Regardless of the rhetoric, what’s clear is that nearly 40% of Asian youth are listening to even more music than they were a year ago, according to Synovate Music Matters Survey, and there are more than 300 million broadband internet users in China – a 42% increase in only two years, as cited by China Internet Network Info Center.
In 2008, China Mobile reported US$2.4 billion in revenue from mobile music downloads and ringtones alone, according to JLM Pacific Epoch.
Hopefully, China will embrace the unique opportunity that it is faced with in a timelier and more progressive manner than the Western world did, especially since our futures seem inextricably tied.
The International Creative Industries Summit will occur again next year and this month, Music Matters will host a unique Asian forum for uniting the world’s creative and technology industries.
Just as the music industry in the West begins to intelligently grapple with digital in a meaningful way, the East is recognizing that the potential for an industry even exists.  It’s an astounding paradox and an amazing opportunity that I look forward to being actively involved in for years to come.

About the Author: Hal Bringman, founder of NVPR, is a communications strategist and digital media expert. Long before Steve Jobs ever figured out what an MP3 file was, the firm has been guiding the digital music revolution since launching MP3.com, Napster, and many other major digital media brands. The company has launched and built many of the biggest or most talked about brands in mobile entertainment and digital media. Based in Los Angeles and Buenos Aires, the team is actively dedicated to launch global PR/marketing campaigns, accelerate business development and revamp websites.  Reach Hal Bringman at hal@nvpr.com, or follow on Twitter @halbringman.

MIDEM 2009: Setting Music Free

The annual music industry happening, MIDEM, is a must attend event for global players in the music business.  This year’s MIDEM attendees were welcomed by moody skies over Cannes, which were symbolic of the state of the industry overall.  Along La Croisette, rain pelted delegates darting from the Palais de Festivals to the deal making hubs of the Majestic and Carlton hotel bars. 

             The gloom, however, wasn’t reserved for the weather outside, but made its presence known throughout MIDEM and MIDEMNet, whose combined attendance was down 12% hovering around 8,000 delegates, due largely to global economic woes, and perhaps more poignantly, to empirical evidence of a fundamental and permanent shift in the music business.

             For instance, attendance by physical distribution companies, CD manufacturers and record labels was down, according to MIDEM director Dominique Leguern who added, “It’s not a music industry crisis, it’s a CD crisis.”

             Leguern said they would consider amalgamating MIDEM with its digital music sister event MIDEMNet at future conferences as the industry evolves into a fully digital domain.  Leguern was quick to assert the many positives from the conference, however, which also saw 300 artists play live and attracted delegates from more than 80 countries.

           

 ”The industry as a whole has turned a page,” said Leguern. “It accepts the CD era is decreasing fast and new revenues will come from other business models. Some of the old issues like DRM are over so we can move into a new era.”

             Indeed, much of the mind-numbing rhetoric and head-in-the-sand anti-digital posturing was absent this year as companies exchanged optimistic ideas about how to move the industry forward from a product-based business to a service-oriented one.

             “One thing I would change in the music business is a mindset. It’s about being optimistic about the opportunities we have in front of us. We have to accept the principle that a product-based model is under severe stress. There are two primary sets of people in this business that matter–artists and fans–and we should all focus on them. And the Internet gives us a real opportunity to develop long-term careers between artists and fans. That’s a huge challenge but a huge opportunity for us all,” said Brian Message, co-manager of Radiohead. 

Message spearheaded the successful experiment of selling Radiohead’s In Rainbows by allowing fans to pay what they deemed fair for a digital copy before CDs were made available at retail. 

Reggae singer/songwriter, producer and promoter Bohbi FM added, “If I could change something in the music industry, it would be to invest in new acts. Put the money in unknown artists. Because for the last 20 years, we are hearing the same acts all the time. We need a change.”

The increasing impact of brands, advertising and technology companies at this year’s conference were signs of things to come as these sectors shape both the future of MIDEM, specifically, and the music business overall.

Announced at Cannes was a pact between U.K. dance act Groove Armada and global drinks brand Bacardi in an online mechanism that will harness the power of social network sites to distribute the band’s new EP.

 

In addition to being available on traditional download stores on March 2, the new EP will be launched via an online sharing service, www.bliveshare.com. Users who are over the legal drinking age sign up and get to download the first track in MP3 format for free; then, to get track two, they have to share track one with 20 people, either by emailing directly or using a Facebook app or widget embedded on other social networks.

Andy Cato from Groove Armada explained: “Over the last few years, a lot of music has become free, and while there will be an on-going market in recorded music for a while, the wave of free music is overwhelming.  We wanted to find a way of embracing the fact there is free music out there–but giving it value again.”

Rapper Kanye West’s blog was a hot topic at MIDEM.  Embracing the 1:1 relationship possible between fans and an artist, he was described as one of the most effective communicators with his fans, during a panel discussion at the MIDEMNet conference.  The “Serving Artists, Serving Fans” discussion focused on generating value and revenue streams from the relationship between fans and artists.

Bryan Calhoun, VP of new media and external affairs at Sound Exchange, is a consultant to Kanye West and says the rapper is “very active with communicating with his fans” on his blog and sometime posts seven or eight times a day. His music recommendations on the site have made him something of a tastemaker, or “curator for what is cool,” Calhoun commented.

“It’s definitely him,” Calhoun added, referring to the entries at www.kanyeuniversecity.com/blog. “It’s totally authentic. You can’t pay to put things on there–people have tried.”  The “significant amount of traffic” to the blog also means it makes money from advertising, Calhoun added.

Announcements to fans are specifically from West, never attributed to his label, which Calhoun said is crucial in personalizing the service and making the connection. He stressed that West is “very particular” about the messaging and there is complete control over his online activity at the blog and other platforms. 

 

Other advertising exploits, aimed at making music ‘feel free’ to consumers, included Coca-Cola and Warner Music partnering on a download release as part of the brand’s new “Open Happiness” global marketing campaign. The track, titled “Open Happiness,” was announced during the “Exploring New Models For Brands and Music Partnerships” panel.  Umut Ozaydinli, music-marketing manager for Coca-Cola’s Worldwide Sports and Entertainment Marketing division, said the track would be marketed via billions of cans of Coke.

Artist Jill Sobule chronicled her fan-financed album, which aimed at raising $90,000 to cover the costs of making a new album, and was readily achieved. One fan even donated $10,000 individually, which was rewarded with a guest vocal spot on one of the recordings. 

Tom Bywater, CEO and founder of Power Amp Music, which supplies financing to artists, said, “Investments in established artists make sense in any economic climate because music is part of our cultural DNA and it will never go away, no matter how people consume it changes. The recorded music business has suffered in recent years from the decline of CD sales, but live music, merchandising, music publishing and other income streams, such as sponsorship and branding, have all grown steadily and more than offset the decline in revenue from CD sales.”

Mike Masnick from TechDirt pointed to the session on how the Chinese music model had evolved. Almost no one buys music there, but it’s still a huge moneymaker for musicians. JY Park, President and artist, JYP Entertainment, had mentioned in his presentation that his musicians make a ton of money from brand sponsorships in China. But there were numerous other examples of musicians in China making plenty of money through mobile subscription services. For example, some musicians get fans to sign up for special subscriptions that represent the only way for them to potentially get tickets to see those acts perform live.

In advance of MIDEM, Omnifone and Gracenote announced a partnership that resonates this particular approach. The combined technologies of Gracenote and Omnifone provide consumers with a personalized, holistic music experience delivering immediate and unlimited access to millions of music tracks, and the freedom to download, make playlists, get recommendations, play music wherever they are, whenever they want, on any device they choose. 

“Making the Emerging Markets accountable is the key for the future of the Global Music Industry. As the old players helped destroy the business in China and Russia by selling for too little than they could afford in order to be able to pay their artists the royalties they had agreed to, they will not be the ones that can be trusted with building New Markets. It is clear that the consumer will pay for bandwidth and amount of traffic and that this money will be handed over to the traffic drivers like artists, TV, film studios, etc. The East will be first with this as they don’t have to fight existing players who protect old models. And then the rest will follow once they have seen how much sense it all makes.” –Thomas Reemer

CEO www.cugate.com 

For example, users can create a comprehensive Beyoncé playlist at home on their PC using a combination of their own collection and the unlimited music service, and start playing it in their living rooms, then, get in their cars, and have it pick up where they left off.   Later, when they are at a club, they can search for music they are looking for, then download it and have it synched to all of their devices, and get recommendations for other music they might like based on genre or user generated recommendations.

On each device, the most appropriate file format and user interface is presented to ensure the best possible user experience for that environment.

Jupiter Research forecast says U.S. digital music sales will grow by 17 percent per year on average over the next five years to make up 41 percent of sales by 2013, while Juniper Research predicts the success of unlimited music services on mobile platforms will significantly grow digital music revenues, with subscription-based unlimited digital music services overtaking “first generation” pay-per-track services and be worth U.S. $3.3 billion by 2012. 

“Omnifone’s partnership with Gracenote will make connected unlimited music services a reality in the living room, in the car, on mobile devices, and computers; everywhere we go our music collections, playlists, and recommendations will follow seamlessly, automatically and without wires.

Historically, unlimited music service providers have focused on mobile and PC platforms, but consumers want access to music in the living room and the car, as much as the mobile and desktop computer,” said Rob Lewis, CEO of Omnifone. “This announcement means music lovers will soon have the freedom to access and consume unlimited music legally, across a wide range of device platforms, with the most appropriate user interface and file format for each device, synchronized automatically rather than having to side-load, back-up or rip compact discs.”

One thing that is constant is change.  We can only hope the optimism and experimental mindset reflected at MIDEM continues throughout the year and beyond.  Perhaps the brightest part of the entire event was sitting in the Sunset Marquis VIP room and watching Barack Obama being sworn in as the 44^th President of the United States–and celebrating with dance and music.  Yes we can!