Tech in China 2013: Digital Music Market Shuffling

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Top100.cn is one of the first legitimate digital music providers in China. Its founder Gary Chen is known for managing to convince, promising to share advertising revenues, the international and local music labels to offer free downloads through Google China music search which was launched in 2008. Top100 was found shut down in April 2013, half a year after Google China terminated the music search service. Mr. Chen disclosed that the traffic on the site decreased by 80% after the Google China’s move, and there was a big loss in advertising. After the site was shut down, Chen began re-selling music rights.

Without the help from Google, Top100 is just one of a dozen legitimate online music services in China. Many of them now have way more users than Top100.

It’s not that digi-music piracy has completely disappeared on the Chinese Web. But now legal digital music is the convenient for Chinese users as the traditional music industry have managed to have the majority of online music services in China pay for music rights. Apart from a few independent sites, music streaming and downloading offerings are also available with everyday Internet services Chinese use, such as instant messaging service by Tencent, search by Baidu, and online shopping by Alibaba.

2013 is quite a year for China’s digital music market. The biggest changes are 1) major online music services rolled out end-user-facing premium offerings, 2) a round of consolidation in digital music rights began, and 3) artists previously known to online audience only expanded offline and became recognized by the mainstream.

 Charging Users, Again

Chinese online music services dropped the idea of building iTunes-style platforms to collect money from end users after failures a few years ago. But when the market became better organized, the music industry wanted to try again charging end users. There were also reports saying that the traditional music industry urged online music services to start charging users in 2013 after they managed to collect royalty fees or receive shared advertising revenues.

This time almost all music sites adopted the model of premium subscriptions, providing high quality files, downloads, data plan or anything else.

QQ Music, now one of the biggest online music services in China, rolled out a monthly paid subscription as early as in 2006. Despite the huge user base QQ IM has had and the fact that QQ users are used to pay for a variety of paid subscriptions offered on QQ platform, QQ Music subscription alone never seemed a meaningful revenue source that its parent company Tencent thought it was worth mentioning.

We haven’t heard any one claimed a large number of subscribers by the end of 2013. Users who’d not get on board said they either couldn’t tell the difference in sound quality or could get free downloads of certain songs on other platforms.

Digital Music Rights Market

Thanks to high royalty fees and low income from sources like advertising, online music has become a business for the wealthy. Before Alibaba acquired Xiami.com, shortly after the online music site turned four in late 2012, the site, according to its CEO Wang Hao, could hardly pay royalties.

For those big Chinese Internet companies, online music is a must- have for the sake of their user base, while profit is a minor issue, at least for now. They may be meant to make good profits from digital music in the long run, but currently it by no means is quick money.

For copyright holders, however, their time is coming. 2013 felt like the time when the prices of digital video rights were about to rocket in China. After a round of consolidation, what the major Chinese online video services competed for shifted to exclusive video rights. Video rights owners made a fortune from the soaring prices back then.

It’s unknown whether Top100 will eventually benefit from the music rights sales. But more ambitious players are out there waiting for the time to time. China Music Corporation, a digital music rights vendor founded by a former Sina exec., claimed 15% of the total digi-music rights in China, the company said so in an interview in December 2013.

Online-to-Offline Artists

Chinese entrepreneurs including the founders of Xiami.com always want to build a platform for musicians to trade digital songs. Xiami and others like Douban, an interest-based social network, allow musicians to upload their works for users to listen to online or download. Some like Xiami charges downloads while the rest like Douban doesn’t. Musicians on those platforms were either indie or niche — not well known by the mainstream.

In 2013 some musicians who previously were known to online audience got famous in the offline world after being featured in TV programs. Then all the impossible to them before, concerts, awards and the like, followed. Some of the successful cases are backed by agents, veteran or new, who saw the business opportunity in “online-to-offline” music.

Online/mobile music show — everyone can upload their singing or be audience of others’ singing — has become a huge market in China. Players such as YY Music, 9158 and Changba, have been making good money from virtual gift sales. Chen Hua, founder and CEO of Changba, told us in early 2013 that TV show was still very powerful helping it promote apps and rising stars on Changba platform. During 2013, a few famous singers on Changba made a name in the mainstream too. But some other platforms said they’d keep their business online only and believed eventually all the stars and money would be generated online.