By Ren Fang | September 01, 2009
Here in the US, it’s no mystery that music and record labels have been slowly dying due since the birth of the Internet over 10 years ago. In China, it goes as far as saying that the music labels are officially dead. Just looking over the past couple decades in my life in China, it adequately explains why record labels are a thing of the past in China::
1993: I thought I bought an original copy of Michael Jackson’s "Dangerous” as my first introduction to Western pop only to find that three songs from “Thriller” were added as ‘bonus’ by music pirates.
1994: I bought a tape album of an obscure Chinese folk singer – my first purchase of a legitimate original copy of music. That was my first and it also happened to be my last.
1995~2002: I bought 500 pounds of "dakou" tapes and CDs, from artists such as Muddy Water to Prodigy, but later found out that I was the proud buyer and owner of music “trash”:
“Record labels and retailers from across the world took their surplus tapes/CDs -- the ones with the telltale notches in the cases -- and shipped them out as trash. Thousands of these ‘dakou’ or ‘saw-gash’ tapes/CDs ended up in Chinese garbage dumps. Then, through a network of scavengers and middlemen, these ‘dakou’ tapes/CDs found their way into China's alternative record stores.”
1999~2002: I was a drummer in a college band - playing cover songs at the local pubs in China. Our set would usually consist of one song Beatles, one song Metallic, and one song Joy Division in our 10 minute performance. I like to say that we were the top 1 band in the genre of 'no genre' category.
2002-present: With Baidu's free MP3 search/download and P2P sharing, I lead a happy and digital life.
I saved the time on the classic argument of the fate of record labels and am going straight to the ‘rules of no money’ for those companies throwing their bets in the music business in China.
1 - Sales of music content, whether in physical form or digital form, makes no money.
I cannot stress enough that the music business in China is very underdeveloped. 80% of revenue for the major labels is from endorsements of the artists. For the smaller labels, revenue sources are diversified but the ones bringing in the big bucks are almost always non-music related.
For example, Modern Sky, the largest indie label in China, has survived over 10 years in China by offering creative service for advertisers/agencies. If we were to break that down to defined revenue sources, these labels are talent agents, designing studios (or tea-houses / restaurants), but NEVER actually as a genuine record labels. It's more essential to know the ins-and-outs of launching a restaurant than it is to run a proper label.
2 - Sales of music genres make no money
Music is usually classified in silos of certain genres. You have country, indie, rock, rap, etc. And for advertisers, these genres help recognize their target demographics and, more importantly, how the flow of advertising dollars go.
In China, there are two genres of music: pop and non-pop. Pop takes over 95% of music fans while the ‘rest’ dwindles in the shadows. It’s not uncommon to find a girl dressed head-to-toe in all Goth black listening and singing along to her favorite band of the Backstreet Boys. The size of defined music genres is too small and the average loyalty is too low to support any genre-based revenue model.
3 - Concert makes no money
From estimates, 25% of total revenue of the major labels is generated by concerts. However, if you less cost, it may only contribute 10% to the bottom line. High performance fees, the underdeveloped nature of music industry in China (for example, the scarcity of promoters and the high cost of using imported equipments), and the cost of throwing a live event really means razor thin margins for the concert industry.
Today with limited number of capable venues and high ticket prices (one ticket could cost over 1/10 of the average monthly income for the typical fan), the concert industry is not a viable business model. For the labels, concerts are nothing more than a promotional tool to increase the advertising value of their artists.
There are always the companies pining and obsessed with the size of the China market and caring less about the realities of the industry. It’s hard to ignore that of the 380 million internet users in China, listening to online music is ranked as top third most frequent behavior. However, don’t less these figures create illusions of monetary success:
Illusion I - Talent is king. Back to 2005, Super Girl, the Chinese version of “American Idol”, grabbed 400 million viewers. The top winner was signed with the top Chinese record label, Taihe Maitian. Could this be?? A REAL talent, selected (through SMS votes) by millions of China’s youth, could be the savior of the music industry? Truth be told – sales were less than impressive with sales of 70,000. The only true winner for Super Girl was MengNiu Milk, the title sponsor, who increased their annual sales by 170%.
Illusion II - Ad-supported online music will save the world. The ad-supported music has been generating global buzz since 2007. Pioneers like InTune.fm, Mog, Last.fm, Imeem, etc. have been around for awhile and some of them have reached break-even by selling ads to music affiliates. This model seems to be a perfect match for the China market. However, the key point of such a service is that they can offer more targeted and relevant ads that will generate more leads than traditional banner ads.
While Lastfm could sell the ads to all kinds of music affiliates, from Amazon to iTunes, whom should Google sell the ads to in China? Very few of the music affiliates have the deep pockets to pay for ads on this underdeveloped value chain in China. There is no such thing as iTunes or Amazon. No, you have small shops that barely can stay afloat in this digital jungle.
Illusion III - Mobile music subscription is the future. Recent news point that Apple has penned a deal with China Unicom for the iPhone. Believers all aggregate together that this is “the time” – the time that Chinese consumers will finally realize the value of one-click-to-download service is.
And I ask – how do you value the power of convenience? What is a few dollars for hundreds of downloads per month on mobile? Not now – and, most likely, not ever. First, there are very few innovative/good-quality songs to support this huge content library due to the dying record labels. Second, the average number of new songs to download for one person is usually less than 100, while the repeat frequency is high – i.e. welcome to the beautiful world of Karaoke.
To make money out of music business in China, you should rethink of what is a good “music package”, instead of what is a good “song”.
1 – Sell the Experience. In 2008, Converse sponsored the first on-the-road tour of 2 indie bands in 5 cities in China. Converse documented the entire trip and a film was produced based on the tour that was distributed free online and conveniently sitting in all Converse stores. In 2009, Pepsi hosted a reality show, “Battle of Bands” which promoted participation of nearly 5,000 bands altogether. Truth of the matter, if you were to ask me, I am NOT a fan of the music generated by the campaigns. However, I did not care so much about the sound, but more about the cool lifestyle and fun experience it offers. No exact metrics are revealed on campaign result, but Pepsi established their own music label soon after the campaign.
2 - Who Sells. Short answer - it could be consumer brands, game companies, live event companies, anyone able to create a “sellable” experiences… but just NOT the record labels. Due to the lack of defined music genres, this is where sellers can really re-define music as they see fit. Don’t be surprised that one day there is a “Pepsi Genre“ or “Converse” in China.
3 - Whom to sell to. Go for the youth. They are the ones looking for participation, empowerment, self-expression, etc., which are all the elements that could be easily integrated with music. Most importantly, they are the ones who have high volume needs and are willing to pay for lifestyle/experiences-based products.
I genuinely and sincerely do hope that the music industry will one day evolve to a point where a viable music industry CAN exist in China. Not only will this open up channels for new business opportunities, but, more importantly, be a big step towards a more diverse and art-filled China culture. In the meanwhile, if you play by the rules and play ‘smart’, there is money to be made and that’s music to everyone’s ears.
