2010-12-07 06:17:07
Seeking profit in the world s toughest recorded-music market
SUPPOSE for a moment that the gloomiest predictions for the music business turn out to be correct. Efforts by governments and record companies to shut down file-sharing websites like the Pirate Bay fail. Piracy becomes so entrenched that people simply stop buying legitimate CDs. Customers drift away from Apple s iTunes store, which sells digital music tracks. They refuse to pay even trivial monthly subscriptions for music-download services like Pandora and streaming outfits like Spotify. Improbable? Not at all. In China, this worst-case scenario has already come to pass.
Chinese consumers won t pay a penny for recorded music, says Gary Chen. The music promoter turned digital entrepreneur ought to know. In 2006 he launched Top100.cn, a website which offered a choice of la carte music downloads and monthly subscriptions. Its prices were low but not low enough. Chinese music fans were raised on knockoff CDs and are now accustomed to getting hold of music for nothing on file-sharing websites. China will soon have the world s second-biggest economy, but its legitimate music market is tiny (see chart). So Mr Chen changed tack.
Last year Top100 began to offer Chinese internet users free MP3 music downloads, supported by advertisements. The website resembles a free iTunes store, or a Spotify that lets you download files rather than streaming them. It is the only such service in the world to enjoy support from leading record companies. Top100 streams about 200m tracks a month. Some 60% of its traffic comes from Google, which has invested in the website. This year Mr Chen reckons he will sell about 10m yuan ($1.5m) in advertising. That would be a trivial sum in America or Britain. In a country where sales of recorded music amounted to just $75m last year, it is not at all bad.
Yet it is not good enough. Top100.cn is profitable only on an operating basis in other words, before accounting for the money it pays to record companies for their content. Google s partial withdrawal from China earlier this year, which followed a cyber-attack on the company, reduced its share of the country s search market and cut traffic to Mr Chen s website. And Top100 faces fierce competition. Baidu, China s biggest search engine, also runs a popular MP3 search service. The record companies have sued, claiming that Baidu s service provides links to pirated songs. But so far the Chinese courts have ruled in the firm s favour. Mr Chen cites Baidu as his biggest competitor.
If it is almost impossible to sell music, and hard to make money even from running advertisements next to free music, what options are left? Mr Chen has identified two. The first is to charge not for music but for selections of music. Top100 has begun to roll out smartphone apps through China s many online stores, charging a few yuan for music reviews and recommendations by well-known musicians, together with links to download their suggestions. The hope is that fans will pay for convenient, well-presented bundles of curated music, just as people pay for newspapers and magazines even though, in many cases, they can read all the articles online free. Next year Mr Chen also hopes to roll out a subscription cloud service, which will enable consumers to access their favourite tunes from a variety of devices.
These experiments may not succeed. But Western media companies would do well to watch them. Forward-looking music executives and consultants have come to believe that, particularly for the young, value now resides not so much in recorded music but in the devices that play it, in the services that make it accessible and in the information and networks that allow it to be judged and shared between friends. In a country where other options for getting people to pay for recorded music have been exhausted, Mr Chen is putting those theories to the test. To see the future of the music business, look east.