2017 was a big year for the music industry in China: according to the IFPI, last year it was one of the world’s 10 biggest recorded-music markets for the first time.
Excitement around the growth of the music-streaming services run by tech companies like Tencent and NetEase is palpable within the western industry, but a day’s worth of talks and panels at last week’s The Great Escape conference curated by Complete Music Update (CMU) provided more context for that enthusiasm.
The day started with the IFPI’s regional director for Asia, Ang Kwee Tiang (or KT Ang, as he’s often known – pictured above), providing an excellent overview of what’s been happening in China.
He explained that in 2017, recorded-music revenues in China grew by 35.3% to $292.3m, and that within that, streaming revenues grew by 26.5% to $204.5m.
“The growth is essentially driven by digital, and largely streaming. You can see that streaming is responsible for nearly 70% of the revenues coming out from China,” said Ang, noting that while China is the tenth biggest recorded-music market globally, it’s the seventh biggest for streaming.
Ang was careful to caveat the encouraging figures with a warning: China’s per-capita recorded-music revenues are still just $0.21, compared to $19.98 in a developed music market like the UK.
“There is great potential in China, but we have been thinking about this word ‘potential’ for a long time, in relation to China!” he said. “But we are finally getting there.”
More positive was the data from an April 2017 survey conducted by Ipsos in China, which found that the average Chinese internet user spends 19.3 hours a week listening to music. That beats the global average of 15.3 hours.
How do they listen? 5% of their music-time is spent with broadcast radio – a big difference to the global average of 29% – with another 11% from interactive radio services. 17% listen to purchased music; 15% via video-streaming services; 7% from paid audio-streaming services; 16% from free audio-streaming services; and 16% from pirate sources, with 14% listening via other (unspecified) sources.
“The crucial thing here is that 23% is from audio streaming, versus the 14% global average,” said Ang, adding that when surveyed, 90% of Chinese internet users reported that they use licensed audio-streaming services.
This is why piracy is no longer the main debate in the Chinese music industry. Ang showed a slide claiming that in 2010, 97.5% of online-music traffic in China was going to unlicensed and pirate sites, but that by 2017, 70% of traffic was to licensed audio and video sites.
“From the [record] companies’ perspective, the real question is how do we get them to switch from legal and free to legal and paid?” explained Ang. “You can see that there is really a ground-shift. The question is how to monetise that shift.”
Ang then joined a panel discussion on the recorded-music market in China with Ed Peto, from consultancy firm Outdustry, and Yu Li from the China-Britain Business Council – and previously CEO of OneStop China, the entity that (before her time there) brokered a famous licensing deal on behalf of the three global major-labels with Chinese search engine Baidu in 2011.
Until then, Baidu had essentially been the digital-music market in China: a search engine for unlicensed music so good that there was no incentive for fans to seek out legal sources (or, indeed, for companies to invest in launching such sources).
“At the time Baidu just dominated the entire music landscape as effectively a giant music search engine for downloads,” said Peto. “At that point there was no significant digital music market in China, because of the Baidu search.”
He noted that while the deal paved the way for Baidu to focus on its legal downloads and streaming service Baidu Ting, the potential of that service was never realised.
“The executive who was at Baidu at the time who did the deal came from a major-label, she did the deal and then left Baidu shortly after that,” remembered Peto. “It’s a landmark deal, but it pre-empts by some way the emergence of the digital market, which I’d say happens in 2014 or so.”
The panel also talked about a rarely-discussed moment in the summer of 2013, when there was an attempt to, at a stroke, switch the Chinese digital market from free, licensed services to paid ones.
“The revenue we got was so minimal, so small, and was not reflecting the true market potential. So we said we have to launch a paid model,” said Yu, who ran OneStop China from January 2013 until July 2014.
“There was lots of resistance,” she added. “We did attempt two times, and failed miserably! The paid services only lasted about one hour. At least one of them was not according to what they promised.”
Peto fleshed out the recollections. “It was this secret moment when the entire market was suppose to switch to paid at the same time. All DSPs at the same time were supposed to be switching into a paid model, which was fairly extraordinary as a concept,” he said.
So what went wrong? “It was like a Mexican standoff where all the DSPs were ready to do it, but no one wanted to be the [first] person… and then one person was late with it, and it just never happened,” he explained.
The panel also discussed subsequent developments, including the emergence of Tencent with its stable of music-streaming services, as well as exclusive deals with the western majors which granted it the rights to sub-license their catalogues to its rivals – with it controlling the terms, as well as tackling anti-piracy efforts in China on the labels’ behalf.
“Prior to that all these platforms were giant infringing services,” said Peto. “When they suddenly exclusively licensed to Tencent, it moved from being a wholesale infringer of copyright to being the strongest defender of those copyrights!”
“It was an extraordinary situation. It was desperate times,” he continued. “I’m on record as saying that exclusivity going in to these platforms is not necessarily a great thing, but in this case it was an extreme situation. And I can begrudgingly say that this – those deals – turned the market on its head.”
Yu pointed out that the situation is evolving now: the Chinese government has said that these exclusive deals must open up, giving Tencent less muscle in the way it sub-licenses the western catalogues to its rivals.
Tencent’s three services – QQ Music, Kugou and Kuwo – currently account for around 70% of the Chinese streaming market, according to Peto.
He also noted the growth and importance of NetEase Cloud Music, whose official stats show it has more than 400 million users – with a higher percentage of its listening devoted to Anglo-American music (30%-plus, he estimated, compared to around 20% for QQ Music).
The panel ended with Peto citing Music Ally’s recent interview with Beggars Group about its growth in China, and its decision to avoid exclusive licensing deals in order to forge relationships with all the digital services.
“To get to that kind of business, the conversation is not really about how much money is up front, although that is part of it. It’s about how can we get metadata in place, to unlock the transactional value in the market?” he said.
“As an industry, we’re arriving at Base Camp Everest only now… It should not be about money at this point, it should be about metadata, it should be about building relationships… Still with a pretty long view on it.”
A follow-on from this panel brought in other industry bodies and figures from the publishing world, to talk about how they see China developing.
Ian Moss, director of public affairs at the BPI, talked about a softly-softly approach for the western music industry in enlisting the support of the Chinese government for a licensed music market there.
“We understand that it’s been a process really of engaging the Chinese authorities and discussing with them their own potential in China to grow their own music market,” said Moss. “The services we’ve talked about recognise there is a healthy demand for purchasing and consuming through streaming services. So it’s been working on that potential for China itself that’s got us to where we are today.”
John Mottram, head of public affairs at collecting society PRS for Music, stressed that the existence of rights is not necessarily the biggest challenge in China: it has been enforcing those rights that has been a headache. He also expressed concern about the direction of travel for China when it comes to copyright models.
“What worries me more when I look at the Chinese market is they’re following the US model of copyright… there’s a very different perception within Europe to the value of songwriting,” he said.
“The voice of the songwriter has been recognised as being a critical part of the creation of music. When you fly over to the US with the MMA [Music Modernization Act] or the DMCA [Digital Millennium Copyright Act] the songwriter still sits much lower down in the manner in which they have a voice.”
Moss agreed: “The EU is pushing one model and the US is pushing another, and we hope ours wins out,” he said, with Mottram adding that the more songwriters in China who are creating original works, the better for this push. Peto chimed in, noting that many Chinese songwriters work on a for-hire basis for labels, and may not even know what a collecting society is, let alone be part of one.
Chris Meehan, CEO at Sentric Music, was more positive. “No one has ever gone over and talked to Chinese artists, and they do write songs, and they’re really fucking good!” he said. “They’re seven minutes long, there’s a guitar solo in the middle, but they write great songs. The real force for change will probably be from within rather than us going over saying ‘you just played our song, give us some money’.”
He noted that when it comes to songwriting royalties, even a market as small as Ireland collects more than China does at the moment, but he is positive about the future. “What I was really excited about was seeing songwriters and the movement that seems to be happening there,” he said.
“It’s very early, and everyone’s attitudes seem to be good. Synchronisation is starting to become something… and there’s a lot of very talented people.”
CMU’s China summit continued with an interview with a key figure from one of the streaming services that’s sparking optimism in China: NetEase Cloud Music. Its VP of international Mathew Daniel launched the first legal independent-music store in China a decade ago, while his last company R2G was acquired by Tencent.
Daniel suggested that NetEase Cloud Music’s growth is continuing: “We have beyond 400 million users, on the way to 500 million,” he said, before talking about how the service differs from the big streaming services that Westerners are used to.
Interactivity is key: a real sense of community among NetEase’s listeners, who are posting comments about the songs and interacting with one another.
Daniel noted that NetEase is preparing to launch an English-language interface for its social network, NetEase Fan Connect, which is currently in beta, before talking about the “dysfunctional, unhealthy market” that could have been created if the culture of exclusivity and sub-licensing had continued unchecked.
He also addressed the debate about songwriter royalties and rights in China, pushing back at suggestions that DSPs are reluctant to give writers their due.
“The publishing industry makes it really difficult for us to pay the writers,” he claimed. “Instead of a black box, where the money is being collected, it’s a black hole!” But he also accepted that among digital services in China “there has to be a bigger commitment to want to pay writers properly”.
Matching metadata between recordings and songs is a challenge in China as elsewhere in the world. In fact, Daniel said that this matching is actually easier for a lot of Chinese music – because both set of rights often reside with the same label – than for international acts.
Daniel was optimistic about the development of the Chinese market in terms of accurate metadata, and thus accurate reporting of music usage back to rightsholders – talking about how NetEase delivers “line-by-line reporting on everything” for a partner like Kobalt, which signed a strategic licensing and distribution deal with NetEase in December 2017.
He also praised NetEase’s founder for his genuine passion for music, which has helped to give its streaming service real “soul”, before talking about some of the differences between NetEase’s take on streaming playlists, and those of the big western services like Spotify.
“Spotify controls a lot. They have become the new gatekeeper without a doubt. They tell you what you have to listen to: ‘This is good for you!’,” he said. “NetEase is all user-generated. We have 450m playlists, all user-generated.” And to help listeners find the right ones it has developed “an individualised algorithm, like Spotify Discover Weekly on steroids”. 60% of NetEase Cloud Music’s listening now happens through playlists.
Overall, the emphasis of the day was on positivity: that China’s potential as a music market is being energetically realised already, even if there are still some challenges being worked out.
“I’m hugely optimistic about the Chinese market now. I think it’s just about doing business there, about going over and learning lessons and working with local partners, and making a business case around copyright,” said Peto during the earlier panel.
The IFPI’s Ang agreed, although he straight-batted a question about whether China can become the biggest recorded-music market in the world in the next decade. “In 10 years to be number one? I wouldn’t bet on it,” he said. “But I would say definitely in the top five.”