MAGAZINE

Music Licensing in Asia
// Mathew Daniel / Feb 10, 2010

As the Internet began to transform society around the world, the possibilities of access and the so-called "free flow of information" was celebrated. But this original idea was eventually hijacked by a cross-section of geeks who promoted the unconditional notion that, "information wants to be free" as if by divine right — and subversively concluding that all media consumption should be free.

Despite the intentions of those championing a "free-flow of information", it is increasingly clear that there are many barriers to the legal distribution of media/entertainment products online.

Technology has enabled this flow of information to all corners of the world, but "access" has oftentimes been just an idea and not a reality. In truth, the "free-flow" philosophy has been undermined by stakeholders trying to control and restrict access to their products — and imposing their respective wills and value systems in conflict with differing social, cultural, language and legal norms in other territories. The recent Google-China spat has only served to magnify the issues around access and the challenges that exist in bridging the divide that exist between various cultures.

The music industry (already struggling to adjust to the impacts of technology) has failed to overcome these socio-economic divides. This has been particularly evident amongst multi-national music companies attempting to develop viable consumption models in Asia, and in particular China. In this situation, the Western music industry has had difficulty grasping the opportunities even though access to a few billion potential customers is only a click away. For many people working and operating in a global capacity none of this comes as news.

But what is rarely discussed is the perspective of Asian consumers and their understandable frustration in remaining unable to conveniently obtain legal music, much less comprehend licensing complexities that inhibit the access of said music. Even ten years after the advent of file-sharing technology, exponentially increased bandwidth, storage and processing, the right-holders and digital distributors have failed these consumers in the most basic platforms for the legal delivery of music.

With the dearth of fair and convenient access, it is no wonder that Asia's music consumers have had to resort to file-sharing networks and other unlicensed platforms to obtain their music. In doing so, Asian music consumers are often arbitrarily labeled as the stewards of said piracy with the result that top-down discussions on music consumption in Asia tend to focus mainly on piracy.

A more in-depth look at the Asian music consumer's plight has been covered in a separate extensive post on the MIDEM blog here.

Western record executives that throng music conferences trying to find the "single-solution" silver bullet to conquer Asia, might do well to first "re-boot" their approach or it will be akin to trying to fit a square peg in a round hole.

While this piracy is prevalent across Asia, China, in particular, has been singled out by rights-holders in the west as a market irreverent to copyright protection. By virtue of its sheer size, potential and recent economic ascendancy, China has been an easy target on the matters of IP abuse — some of it justified, but it also has to be realized that convenient and fairly priced access to content is necessary to counter any vacuum that can only breed piracy. Of course there is no quick fix and as with many things in life, it just isn't that simple.

Asia is a complex beast that requires patience, investment and an understanding of socio-economic and, in some cases socio-political norms. It is thus imperative that labels and music retailers conduct the necessary due diligence and planning, in order to make an informed decision on licensing music in Asia as follows:

1) Asia is not just Japan… or Australia.
International artists, their agents and labels have a habit of promoting their music and playing in only Japan and/or Australia while bypassing most other Asian markets. Piracy in Asia like anywhere else is a problem worth solving. Ignoring these markets or even restricting licensed access to music is not going to solve anything. In fact it will be the primary cause for increased unlicensed activity. Without the requisite investment of resources in comprehensive market development at every level (in particular live), it is likely that the majority of Western artists will be untroubled by piracy in Asia. This is particularly the case if the plan is to eventually develop these markets.

Failing to pay appropriate attention to these markets right now is an opportunity lost. In ignoring them, rights-holders fail to contribute to and cultivate the many growing music niches in Asia in a more active manner. Instead, train-wrecks like Britney fuelled by the global gossip news networks entrench themselves in Asian markets. Combine this market reality with the advent of hundreds of domestic artists that are also competing for the attention of local audiences and it will become increasingly difficult to get a foot in the door.

2) Provide not just access to content but context
The problem of piracy in Asia should not take sole precedence over that of artist obscurity. Licensing music to an online store is not enough. Labels have to also organize promotions and social network campaigns to reach out to a relevant target audience - or at least work with a promotion partner. For example, it is basic marketing sense that if an artist wants to reach out to Chinese audiences, there should, at the very least, be an artist website in Chinese as a focal point. Anything less is gross negligence.

3) Understand music preferences and cultural norms
Find out what kind of music genres, languages of music consumed, types of music, local vs foreign music appetites, etc are relevant country by country in Asia. For example in non-English speaking Asian countries, it is usually local language fare that dominates but there is also the possibility that this might be due to the lack of translated material for users. In China, genres that the Western music world are familiar with do not even have proper names in Chinese, much less the expectation that labels have of realizing sales on music in these genres.

4) Understand how music is consumed
Factors to consider with regards to the target market include technology usage, existing popular services and devices, formats, online/mobile/physical/live, competing online activities, etc.

To illustrate the diversity in consumption habits in Asia, Synovate published a survey of more than 8,000 youths (aged 8-24) in 12 countries, and the following chart illustrates channel/device usage for listening to music.

Devices used to listen to music

In general, the computer is the device used most often for listening to music

Devices used most often

Overall, only 11% paid for music, and mainly via mobile. Even then, the cash cow of mobile music is being eroded as more users are side-loading from their computers and from unlicensed sources like P2P and BitTorrent.

Music access on mobile phones

5) Music pricing, payment mechanisms and revenue share rates
Cost of living and average salaries, consumer price Index, competing services' pricing and piracy are all important factors to consider when defining pricing in the respective Asian markets. Instead some labels have tended to dictate retail prices to Asian digital retailers with reference to the USD 0.99 unit rate. Artist contracts that set their standard royalty at a fixed US dollar value per unit sold are unmindful of global marketing needs and fail to accommodate currency differences and living standards around the world.

This has to be balanced with the fact that credit card take-up is low in large parts of Asia and local payment engines demand revenue shares that are much higher than that of credit card systems and can even go up to 30% of revenue.

Furthermore, in nascent markets, the retail partner has to invest an inordinate amount of resources but some foreign labels are sometimes still insistent on using the 70:30 revenue share rate that iTunes has arbitrarily decided in the US is the fairest one for them, knowing that their real revenues come from ancillary iPod sales. In Asia, with mobile carriers requiring between 15%-70% of revenue (depending on country) and mobile service providers requiring between 20%-50%, it is an irrefutable fact that the balance of power is stacked against music retailers and labels.

High delivery fees charged by some foreign music distributors are often in high US dollar or Euro values and do not take into account the inability of retail partners to recoup this high upfront cost as a result of low retail pricing per unit in the respective market — though in recent times, some more enlightened distributors have been more flexible with their pricing in Asia.

6) Due diligence on potential partners.
A standard upfront advance from a potential retail partner is always tempting for labels to seek — however, it can amount to blood money as the retail partner might not grow the market and could well be devaluing music in order to simply build traffic and increase valuation of the service provider or worse, cheating artists of their rightful royalties.

For example, EMI failed to conduct the necessary due diligence required of it and inexplicably partnered with infamous music infringer, Baidu in China. Expediency of this nature simply harms the market in the long run by emboldening illegal operators and inhibits others who are trying to build a viable market. There exists many service providers in Asia that use music to drive traffic to other more lucrative parts of their portal while others that simply build up their value in order to flip their companies or use music to sell devices.

As Charles Caldas, CEO of Merlin warned at the advent of the free music hype three years ago:

 

"If you so choose, you can be very aggressive in the early part of your career in giving away your music and making it easily accessible on the internet. The difficulty comes at the point when those copyrights maybe fall out of your direct control and start to be used to enhance other people's businesses. So monetizing is a challenge, not for everyone, but certainly for the independent sector at the moment."

 

The record industry in the US has yet to dig itself out of the hole it got itself into as a result of being beholden to one of the largest tech firms in the world which uses music to sell its devices and the lessons are still not learnt well.

Choose trusted partners Work with trusted partners instead of blindly licensing every operator in the market, which would inevitably include untrustworthy ones. This might mean that in the early development in some markets, it might be necessary to work with a single trusted partner in an exclusive manner for a finite period in order to ensure stability and the bedrock for future success. Consider it the label's investment in the market.

7) Lobby for the cessation of US/European financial institutions' support of pirate sites in Asia
Oftentimes, a lot of the piracy in Asia is funded by Western cash influx. For example, when institutions like Fidelity and Morgan Stanley are funding the likes of Baidu's illegal mp3 activities as reported by The Register, then the battleground that international labels should focus on first is their own backyard.

8) Understand the legal framework and how to best utilize it
Content owners cannot expect the government to police their content online. For example, the law in many countries takes its lead from the DMCA and the Safe Harbour provision in the US which allows the proliferation of user generated content — and this has led to potential abuses by many websites. However, the law also states that a take-down notice needs to be served and complied with before liability of the content hosting company can be established. At the very least, labels and publishers should invest in resources to protect their content.

9) Understand business models and technology adoption in respective countries in Asia
Transplanting and applying Western licensing, sales and promotion models can be at odds with the Asian market. Micro-managing Asia from headquarters in say, the US by having its head up the proverbial posterior can be a huge problem.

 

"When the core of your business is operating in mature markets with similar user habits, this strategy can work. However, applying this strategy to a rapidly developing, dynamic market with vastly different online behaviors spells disaster… and a quick market exit."
- T.R. Harrington, CEO of Darwin Marketing, an online search marketing specialist based in Shanghai as reported by AdAge.

 

Labels, publishers and distributors should not apply the same rigid licensing models and fees to potential partners without first examining their business models and their contribution to building a robust music distribution model in the long term in Asia.

Strand Consulting highlighted that dissonance in the flow of information inhibits a better understanding of differing business models and technology adoption in countries beyond the American mothership.

"A great deal of the communication in the press will derive from the USA and be written by American media, who most often do not have their finger on the pulse regarding the telco world outside the USA. The total USA market is still only 7% of the global mobile market. We believe that a great deal of the press coverage that will attract global attention will be created in large international media; thereafter a great many smaller media will uncritically quote the international media. In our opinion there is an enormous difference between the mobile market in the USA and what Strand Consulting is seeing in countries like Brazil, India, Kenya, China and large parts of Europe."

By no means is the above a guarantee of success in the Asian market but will hopefully help cut through the endless chicken or egg debates on piracy vs lack of legal options.

As TorrentFreak duly noted,

"Yet while millions flock to file-sharing networks and the knowledge on how to use them continues to spread, there is still a huge and largely untapped market out there, eager to funnel money through the official channels."

There is also the possibility that the years of neglect have already eroded the market substantially, but without competitive alternatives for Asian consumers, unless labels face up to their Hobson's choice and decide to give up the market for dead, then they are beholden to give it a proper shot. As Tim O'Reilly presciently stated in 2002:

"Services like Kazaa flourish in the absence of competitive alternatives. I confidently predict that once the music industry provides a service that provides access to all the same songs, freedom from onerous copy-restriction, more accurate metadata and other added value, there will be hundreds of millions of paying subscribers. That is, unless they wait too long, in which case, Kazaa itself will start to offer (and charge for) these advantages. (Or would, in the absence of legal challenges.)"

 

For more information on licensing music in Asia, especially China, you can refer to The Global Outpost blog

// share this article

Bookmark and Share

// join the discussion

We invite thoughtful, articulate comments and contributions on this topic. Submitting a comment below will send it to our editorial staff, added to this website pending review.











// comments

1

There is more than one illegal service in China, not just Baidu, look at search engines, P to P sites, Xunlei. Videos services sites. It is the global trend that all contents including music, books, TV programs, multimedia works, software that were pirated, it comes with the access of internet.

EMI should not be blamed for co-operation with Baidu. What are the legitimate options available in the China market? Is is under the control of the music industry to come up with legitimate alternatives to the China market ? Please stop blaming the music industry. We are struggling as much as other content /media business and we strive our best to change our business models to survive. If one day consumers does not want CDs anymore, music companies must change the way they do business, offer properties consumer will use. A new way of music consumption.

by chow () / March 1st, 2010

2

You lost me at 'hijacked by a cross-section of geeks'. Jez, show some respect already, if not for said geeks this website would not exist. I don't like your tone and have no interest in reading the rest of the article. Dinosaurs need not apply ...

by Joe Public () / March 10th, 2010

3

great article!
well, why people willing to pay on those porn site? think deep why they can make $$$$ la.


PS: http://7999.com/c/yinyue.html
Which one is legal?

Cheers,
Tommy

by Tommy chan (http://www.love-da-records.com ) / May 10th, 2010

BlackBerry