Why China could become one of the major global music markets

musicinchina(version française)

The Chinese music market weighs less than $85 million today, and ranks 21th in the world in 2013. But it has an enormous potential. And the prospect that it could become one of the major global music markets in the next five years is far from being totally crazy.

How long will it take for China to become the third or fourth largest recorded music market in the world ? "Our market could be ten times bigger," believes Mike Songke, the CMIC vice-president, an union of Chinese labels. As it weighs $82 million today, according to IFPI Recording Industry in Numbers 2014, multiplying this number by ten would be enough to lift China at the 6th rank in the world, just behind France, which is credited of a music market valued at $956 million in 2013.

In a country where more than 600 million people have access to the Internet, 80 % on mobile networks, this goal does not seem impossible to achieve in the short to medium term. Major record labels, the Chinese government, and the few major Internet players and mobile carriers that dominate the market behind the Great Wall, are all trying to create the right market conditions. The first ones - Universal, Sony and Warner - have launched a unique common window, One- Stop China (OSC ), to facilitate the licensing on their catalogues of recorded music in the Chinese territory.

The signing of an agreement between One-Stop China and the Baidu search engine in 2011 triggered an offensive in legal online music offers. Over the past two years, major music companies were able to sign licensing agreements with eight big Chinese online music services that were previously operated illegally. Several offers for free or paid streaming and downloading - Xiami , Tencent, Kuwo Kugou... - were also launched under license. "The agreement with Baidu acted as a trigger and led Internet players to change their approach and go in search of licenses," says Sunny Chang, président of Greater China, a Universal Music's local subsidiary.

New era

A new era more respectful of copyright has opened in China. The idea that music can be paid is going its way . The vice-minister Yan Xiaohong, who is head of the National Copyright Administration of China (NCAC), believes that the advent of paid downloads in China is "inevitable." "The time has come to pay for music in China, he said in the report IFPI Recorded Industry in Numbers 2014 - this is not just a matter of principle but also a necessity . What is important, [whatever the model] is to ensure that copyright holders are compensated. I think this is what will prevail in the future." For Sunny Chang, "All this will take time but there is real progress. We believe that within three to five years [...] China will be one of the major world markets."

Last year, the Chinese market for recorded music, which is digital at 80 % and rests on advertising revenues for half of its income, fell by 12.4 % in value, after rising more than 22% in 2012. But its potential stay enormous . According to a study of labels' union CMIC published in 2012, online music industry actually weighs $4.9 billion in China; but illegal sites abound by the hundreds, and only 3% of revenues are transferred to rights holders. The balance of power, however, could be reversed gradually. The vice-minister Yan Xiaohong has publicly acknowledged that music companies were in a weak position when in talks with telecom carriers and said that the Chinese government, without replacing the collective societies, will promote a more balanced cooperation between the different players.

Another challenge remains : how to convince the Chinese consumer, who primarily uses ad-funded free services, to switch to paid models. "I am convinced that the advertising model alone will not still provide a future within five years," said Sunny Chang. Currently, revenues from recorded music in China are 0.1 dollar per capita. Subscription and download weigh less than $10 million. Even physical sales weighs more. But with more than 500 million active smartphones in the country, the scope for growth is very large.

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