midem 2019

Mathew Daniel, VP international at Chinese streaming service NetEase Cloud Music, has criticised collecting societies while suggesting that direct payments to publishers could be a better model in China.

“I have an analogy. Publishing is like a tomato-ketchup bottle. We are in the 21st century, and we are all still struggling with it,” said Daniel in his Midem keynote last week, miming someone vigorously shaking a bottle to try to get ketchup out, to illustrate his point.

“Publishing is like that: how do we get the money out… Are we just trying to keep the tomato in the bottle, and make sure it doesn’t come out? So that’s my analogy: it’s like a tomato-ketchup bottle: it’s such a struggle to get that out.”

“I think the publishing industry and the collecting societies, they’ve got to get their act together. It’s not about China: I want to pay out to publishers and so on, but I’m not even sure who to pay out sometimes.”

NetEase Cloud Music has more than 600 million registered users, making it the main rival to Tencent Music’s three streaming services in China. In his keynote, for which I interviewed him on-stage at the Cannes conference, Daniel was clear in his desire for reform.

“I think a lot of work needs to be done. The whole collection-society network needs to be reexamined. Some areas of it are downright corrupt, and the ones that are actually good, they are not speaking up and saying ‘these parts are corrupt’ because there is reciprocal rights and so on,” he claimed.

“All of that needs to be cleared up properly, which gives me hope that maybe in China, we just pay direct to all the rightsholders, and we could start a brand new model.”

NetEase already works directly with publishers like Kobalt, Peermusic, Ultra Music Publishing and Warp Publishing, exploring exactly this possibility.

“Quite a number of publishers, we work direct and make sure the writers get paid. I don’t have all the solutions, but I think the industry can do better,” said Daniel, who stressed he wasn’t determined to cut collecting societies out of the picture.

“I didn’t say cut out the collecting societies! They could be in there also. Let’s see: find a way. It’s like the ketchup bottle: how do you get it [money] out and pay them? Does it have to be this way or that way? I’m trying one way, and there might be another way. Let’s explore.”

During his keynote, Daniel also warned western music companies to dig deeper than the impressive-sounding big numbers around the Chinese music market, if they want their artists to be successful there.

In its recent Global Music Report, the IFPI ranked China as the seventh biggest recorded-music market in the world, with 2018 trade revenues of $531.3m – up 79.6% year-on-year. For music-streaming specifically, it was the fourth biggest country in 2018, with $478.1m of trade revenues – up 129%.

“A lot of people are attracted by the big numbers… I don’t think there is a proper grip on where the market is. People are not really sure. I call it the tyranny of large numbers,” said Daniel.

“There are artists going there without doing any homework. Labels thinking ‘Ah, I just go to China, I can just sell a lot of stream a lot of music’. But they forget that sometimes you have to make the music relevant to the audience, and then build from that.”

He continued: “There are hundreds of millions of users, but I think it’s still a work in progress of getting to the next stage… It has progressed over the years, but we still have to monetise it in a better way.”

Daniel also warned that even in the trade-revenue figures for China published by the IFPI “a lot of it was based on advances”, although he claimed that the global body “has stated that for the next report they won’t just measure advances”.

“Some labels are being paid [advances] well above their performance in the market, so I think there has to be a bit more normalisation also in the market,” said Daniel. “Without royalty-reporting, it’s difficult to measure where it stands in terms of the true performance.”

Daniel also criticised the traditional system of labels exclusively licensing their catalogue to one Chinese streaming company (for example, Tencent Music) which then sub-licenses that music to its rivals.

“It is dysfunctional when one company can control that and sub-license… We’ve had to counter that, so NetEase also has its own war-chest of labels we’ve signed exclusive for distribution. So we are sub-licensing it back to them [Tencent] and the other way around,” he said. “Until that changes over time, I think we will see an unusual market.”

In the west, the prospect of streaming services licensing music directly from artists (or letting them upload directly) has sparked some controversy. In China, it’s not so unusual, according to Daniel.

“I work with labels, and if an artist is good enough to replicate the services of a label, then yeah, we’ll work with them. If no other label is interested, or if they are not interested in working with a label, we do give them an opportunity,” he said.

“It’s not a dichotomy: one or the other: ‘Labels are going to be obsolete’. I think too many people have jumped on the bandwagon and said ‘This is the new direction!’. I think there’s space enough for everybody.”

Daniel talked about NetEase’s own operations. “On NetEase we have more than 70,000 independent Chinese artists signed direct to us. Some, of course, are of the GarageBand variety, but then there are others that have gone on to perform to thirty, forty thousand people in stadiums.”

“At the beginning, maybe they didn’t get label deals. There isn’t so much of a mature label environment in China. About 10 years ago, because of the piracy, a lot of the labels were giving up… so over time there were musicians doing great music but [with] nowhere to go… And we gave them a platform for promotion, and in due course started sharing the revenue with them also.”

YouTube video

Daniel also talked about one of the key differences between NetEase Cloud Music and western streaming services like Spotify: its thriving social features, which include the ability for listeners to comment publicly on albums and tracks.

“A lot of it is constructive comments: they give context about how they feel about the music. It’s not Pitchfork-level analysis… but we have a system where [if] we have 999-plus, 1,000-plus comments, we are like ‘a gold record!’” he said.

Daniel sees this user-generated context as an important sign of the opposite of playlist-based ‘lean-back’ listening.

“I saw this metal band, Sabaton, that had a great video. And they [listeners commenting] were talking about the historical accuracy of it. Every one of those comments, it was amazing… In the west you have Facebook, you have Spotify, they stand alone. On ours, it’s almost integrated.”

NetEase Cloud Music is also the most international-friendly streaming service in China, in terms of the tastes of its listeners.

“About 50% of music listened to on our service is non-Chinese music, but if you take away K-Pop and J-Pop it would still be 30% of so-called ‘western’ music. It’s a big difference [to rivals]. Our audience are from Tier 1, Tier 2 cities, they want to try to listen to more music,” said Daniel.

“There is another factor also. in the Chinese music universe, there are probably only about 300,000 commercially viable songs. even though it might reach a million due to derivatives of it, at the root there are only this much. So a lot of the expansion in music libraries would come from foreign music.”

Daniel said that western artists and labels must be prepared to dive in to Chinese social platforms – including NetEase’s own Fan Connect as well as apps like Weibo – to build their audiences and promote their music.

“International artists also need to put in the effort to make their music relevant. There’s no Facebook, no Instagram, Twitter,” he said. “One of the things I always ask labels is ‘Would you do a release without Facebook, Instagram or Twitter?’ and they say ‘Never!’. And I say ‘That’s exactly what you do in China!’.”

That’s if they don’t make the effort. “Lots of people are just sitting back: ‘Show me the formula!’. It’s never gonna happen. Just like when you want to go and break any other market, you’ve got to put in the effort and the answers will be there.”

Daniel said that the rewards for international artists can be considerable if they do put that effort in, suggesting that some – Pascal Letoublon, Lola Coca and Madilyn Bailey – might be more popular in China than in their home countries. “There’s a brand new market for some of these artists.”

There is potential for western artists to collaborate with Chinese musicians too, although Daniel warned “They have a bullshit detector: don’t patronise us! It has to be right”. US hip-hop group Far East Movement are one example of an artist that has worked with NetEase around good collaborations. “It’s organic, and it’s built from the ground up,” said Daniel.

Overall, he is optimistic for the growth of the Chinese streaming market, and the artists operating within it. But here, too, he said it’s important for the industry to not be seduced into a lack of effort by the big numbers.

“China for a long time has been ‘Oh it’s going to be big, there’s potential’. We can’t live [only] on this ‘potential’. Let’s see what can be done. There’s hope for that, but potential also has a time limit.”

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