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Once a hotbed of piracy, China’s music market has become so sought after that copyright deals are going for substantially more than a song.

But following a flurry of so-called exclusive partnerships between the country’s biggest internet groups and major international record labels, the government has called time on the practice.

The regulator’s ire — spurred by rivals griping at Tencent’s stranglehold on the sector — has thrown a spotlight on one of the world’s fastest-growing music markets as an increasingly important opportunity for western artists.

Paid online music is expected to rise 59 per cent this year to Rmb3bn ($455m), according to iResearch, the market research company. Moreover, industry body IFPI says almost all of this is down to streaming putting the country well ahead of every other major market.

“I think we’ll start to see international artists wanting to ‘break China’ just as much as they’ve always wanted to ‘break America’,” says Stu Bergen, chief executive for international and global commercial services at Warner Music.

Tencent had a 78 per cent share of the market revenues last year, according to Soochow Security, a Chinese brokerage. That clout and a fat wallet has enabled the group to outbid rivals for distribution agreements with all the major western labels, which are eager to distribute their music into China.

“They bid very high prices, way beyond what they thought they would be able to monetise, just to grab all the content for themselves,” says one investor.

China’s National Copyright Administration called for an end to exclusive deals in September, with a view to encouraging greater competition among groups. Duan Yupin, an NCAC official, reiterated that view in the state-backed People’s Daily newspaper, last month: “It’s not normal to give a whole copyright pool exclusively to a single platform.”

Music labels, however, point out that the “exclusive” tag is a misnomer. The deals, they say, are more akin to the master licensing arrangement common in some emerging markets, whereby copyright is handed to one company which then cross-licences it to other platforms.

Warner Music’s Mr Bergen says Tencent is “expected to do sub-licence deals with all potential internet digital music platforms on behalf of our catalogue of artists”, adding that it is a unique arrangement that would “not necessarily be a model that would work in any other market”.

For the Chinese group, which hopes to spin off its music arm next year, having content rights is crucial. “As Tencent Music prepares for an initial public offering, the copyright they hold is the one thing they can tell investors to back up an [expected] high valuation,” notes one industry executive.

Rivals are cautiously optimistic on the impact of the regulator’s intervention. The price of distribution rights will continue to rise, says the head of one production house, but “the premium will not be as high as it is now; there will be less of a bubble”.

Wang Jiang, a music producer and former director at Universal Music in China, says it will lead to a different model. “When label companies sign new copyright contracts in the future they will add more specific clauses, like how to distribute that copyright even if it is an ‘exclusive’ deal.”

China’s distorted market is explained in large part by its history. Piracy was rampant across media, from stores selling bootleg DVDs to illegal downloads and streaming. Government intervention through enforcement and fines changed the picture.

Speaking at a conference in Shenzhen earlier this year, Chia-Chi Li, Tencent’s director of technology transactions, described the clampdown as “probably one of the biggest changes in the market that’s allowed us to be here today”.

Listeners have largely segued from unpaid pirated content to unpaid-for, ad-funded streaming. Tencent Music claims 700m monthly active users and says 20m will be paying subscribers by the end of 2017.

“It’s a huge user base of free services,” shrugs one music analyst.

Despite Tencent’s dominance, it prompted a renaissance for China’s music industry more broadly. Alibaba, the ecommerce group, and Netease Cloud Music, the number two platform, ramped up. Tencent began acquiring and rolling music platforms and bolting them together with its own QQ music platform.

Mathew Daniel, international vice-president at Netease Cloud Music, pinpoints social media’s role in the way the music industry has evolved. “Where China is different — social media is very much a local business and international ones are not available in China so things have to come from the ground up.”

It is little surprise that the international record labels have every intention of expanding in the country. If China’s market develops and growth proves sustainable, says one player, “I think we are going to see a creative explosion like we saw in the 60s and 70s in the west.”

Listening by numbers

Just how big is China’s music market? If you believe the streaming platforms, the numbers are huge. Tencent claims 700m users and Netease 400m.

Those numbers far outstrip the official figure of 503m at the end of 2016 and demonstrate what analyst Mark Mulligan dubs “an absolutely huge amount of overlap”.

Mr Mulligan, of UK-based music research consultancy Midea Research, says using the numbers given out by platforms implies that at least three-quarters of the Chinese population are active users, even though certain regions lack the mobile data services needed to stream.

But if Tencent follows through on plans to list its music unit, it will be forced to shed some light on numbers — and specifically numbers of paying subscribers, which will be key when it comes to valuing the company.

The 15m paying subscribers claimed by Tencent puts in behind only Spotify and Apple Music but, says Mr Mulligan, that is by adding those on its various platforms: QQ Music, KuGou and KuWo. Unifying the numbers ahead of listing will significantly whittle that back, he says.

“A lot of people will just disappear because you get a lot of inertia, people who just keep paying their bills. Those are the numbers that will disappear when Tencent starts pulling [them] into a unified platform,” he says.

There are also questions over what constitutes a subscriber: just those actively streaming music on a monthly basis, or also people who are occasional users of other services, such as tipping karaoke livestreamers.

Netease, which goes for an edgier clientele with electronic dance music and hip-hop, claims the crown of fastest-growing service, with monthly active users rising 44 per cent in the year to June.

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