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Outdustry China
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China digital music market profile (Music Ally)

New premium digital services bring hope in one of the world’s toughest music markets.

According to IFPI, recorded music sales in China totalled $92.4m (CNY 583.3m) in trade value in 2012 – a 35% increase from the $68.2m reported the year before, positioning the country at number 20 in the global rankings.

Digital saw a 49.8% increase to $75.5m, offsetting a 5.1% decline in physical sales to $16.9m and the market is split 82%/18% in favour of digital. Ads constitute the most significant revenue stream, accounting for 27% of overall recorded music sales, followed by mobile formats with 21%.
The following China digital music market profile - featuring a cameo from Outdustry’s Ed Peto - appeared in last week’s fortnightly Music Ally Report (highly recommended reading) and is republished here with permission. New premium digital services bring hope in one of the world’s toughest music markets. According to IFPI, recorded music sales in China totalled $92.4m (CNY 583.3m) in trade value in 2012 – a 35% increase from the $68.2m re...
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It has been said that there two internets on the planet: The internet, and the Chinese internet. Of the 2.4 billion internet users in the world, currently around 24% (570 million) of these reside within China, inside one of the most tightly controlled internet environments in the world.

Social media is perhaps the defining technological advance of our age, allowing the individual to publish globally at the touch of a button, completely revolutionising media, personal expression and, as a result, society itself in the process. 

When it comes to China, however, from a western viewpoint the Chinese internet is often characterised by what it lacks: Facebook, Youtube, Twitter, true freedom of speech. From this outside perspective censorship is the defining element of the Chinese internet experience.

What of the inside perspective though? Perhaps surprisingly, China has the most active social media population in the world, with a 2012 McKinsey study showing 91% of Chinese internet users visiting a social media site in the last 6 months, vs 70% in super connected South Korea, 67% in US and, astonishingly, only 30% in Japan.

Should this really surprise us? It is a question of degree. Coming from a recent history of tightly controlled media, the Chinese internet user has that much more to gain from social media vs their western contemporaries and are therefore expressing themselves with a fervour not seen elsewhere in the developed world.

Social media has catalysed revolutions and been the scourge of political misdoings across the globe. This sense of threat is writ large through the Chinese governments handling of what is perhaps the greatest ever challenge to it’s control. It knows it must engage with social media, but how has it managed to allow social media’s development, provide enough functionality to satisfy the people and yet still “keep a lid on it”? Or is the lid slowly, inexorably coming off?
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China Hopes To Duplicate World's Music Profits

“According to the 2012 Report on Chinese Pop Music Market released by the China Record Working Committee, “the physical market has practically disappeared, while the new digital music market has not given record companies their due shares The traditional recording industry is in great depression.”

The report says that the revenue of physical format sales in China has declined 95 percent,from 1.22 billion yuan ($196 million) in 2003 to 60 million yuan in 2010, the latest available statistics.

“The problem with the Chinese recording industry is that the cost of piracy is too low while thatof protecting copyright is too high,” says Zang Yanbin, president of China Record Working Committee. “That’s why capital is reluctant to enter the industry and no good works are coming out.”

The Chinese digital music market amounted to 1.26 billion yuan in 2011, with 280 billion units downloaded and streamed. The China Record Working Committee contends that music copyright owners should get royalty of 632 million yuan, but the actual income was only 99 million yuan due to piracy, lack of a fair system of profit distribution, and inefficiency of the collecting agencies.”
“According to the 2012 Report on Chinese Pop Music Market released by the China Record Working Committee, “the physical market has practically disappeared, while the new digital music market has not g...
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QQ Music Activate Hardware Partnership With Sonos Partnership

“Chinese Internet giant Tencent is trying out a new hardware strategy for its QQ Music service, starting with a collaboration with wireless music system Sonos.

Sina Tech has noticed a new teaser page at Faxian.51buy.com for a QQ Music-compatible Sonos setup. Late last year, Tencent’s digital music team announced its vision to expand its music service to dedicated music hardware through its QPlay standard. The company has reportedly partnered with ten audio equipment and TV manufacturers, including DENON, Marantz and TCL.

QQ music boasts an impressive 250 million active PC users and 50 million mobile users. By comparison, Spotify recently announced it has 24 million active users.”
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Majors Settle With Sogou MP3 Search

As search engine for Chinese mega portal Sohu, Sogou presents a familiar sight for Chinese internet music searchers: Instant, well ordered lists of direct “deep links” to MP3 search results, purportedly hosted on third party sites, available for free download.

Rights owners have typically been excluded from any revenue from ads sold around these search results, meaning that MP3 search represents the single greatest villain in the Chinese internet music space.

As populariser of this format - and with roughly 80% of the Chinese search market - Baidu.com played the role of public enemy number one until it’s 2011 deal with the majors saw the (then) big four’s catalogues made available legally through Baidu’s Ting streaming service (now rolled into “Baidu Music”). The deal also saw the majors drop any existing actions against the search giant.

Yesterday saw a similar - if not much smaller - result coming out of Beijing’s High People’s Court in which Universal, Warner, Sony and (China EMI international licensees) Gold Typhoon have agreed to drop existing/future actions against Sogou.com in return for a licensing arrangement and a contribution towards an IFPI anti piracy fund.

This dropping of existing/future actions in return for what will most likely be a flat advance (read: buyout) - a component common to both agreements - highlights the crude nature of dealing in this most grey of spaces. Rights owners are simply happy with the payday (smash and grab?) after years of frustration, including the failure of the fully legitimate Google Music MP3 search.

These MP3 search licensing deals are unique to the territory: Rights owners conceding that full track downloads are (at least for the moment) necessarily free to the consumer. Announcements are occasionally accompanied by an unhelpful “peace for our time” commentary, suggesting that the future has arrived already. The reality is that they should be read as reluctant interim concessions from desperate rights owners.
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Have him in circles
15 people
Benny Shaffer's profile photo
Akin Victor's profile photo
Hermy King's profile photo
Hanna Lee's profile photo
Ranee Gjesdal's profile photo
Dostav Dixit's profile photo
Wang Ge 王戈's profile photo
Quan Wu's profile photo
Dean McAdams's profile photo
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Outdustry is a Beijing based music industry consultancy, specialising in: China music market entry, Record label services, Studio production services, Market intelligence.
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