China shifts toward paid-service model for audio services

The Chinese music market improved greatly last year as the government and online music service providers helped move digital services to a paid model, according to the Global Music Report 2016.

The International Federation of the Phonographic Industry released the report on April 12. It showed digital music revenue in China rose 68.6 percent last year, helped by competing digital service providers and a determined push to move China to a paid model.

The National Copyright Administration had asked online music service providers to remove unlicensed works by July 31, 2015, and said it would seriously punish those that continued to ofer unlicensed music after that date.

Some online music providers, such as Xiami.com and Tencent's QQ music, now provide paid music services. QQ music had nearly 3 million subscribers by early 2016, according to Wu Weilin, managing director of Tencent's digital music.

Wu said, "People were worried that music fans in China would not be willing to pay for music services because of the long history of piracy and free services. But the fact is we are now migrating music to a paid model."

China shifts toward paid-service model for audio services

The report said a small number of Internet companies with a vast potential subscriber base, including Tencent and Alibaba, dominate the Chinese digital music market. The companies have recognized the value that music adds in growing and maintaining their customer base and compete for licensing rights.

This is not the first time China's labels and digital service providers have tried to convert to a paid model, it said. The push in 2015 was more successful due to a higher level of engagement from the government and the major digital music service providers.

Tencent said it sends 2,000 takedown notices each month against infringements since the national copyright administration ordered online music service providers to remove unlicensed music in July of last year.

International record companies have built up licensing partnerships with music service providers in China and thought the partnerships would have a key influence in moving China toward the paid model, the report said.

In addition to licensing music, international record companies are investing more in artists and repertoire. They are looking to extend from the traditional music development hub of Taiwan and focus more on the Chinese mainland.

Sony Music signed Cui Jian, China's "godfather of rock and roll", in 2015. "As the market evolves and with the positive development of government support, our key strategy is to invest in local repertoire and build up our artist roster", said Xu Yi, CEO of Sony Music China.

Universal Music, which has a recording studio in Beijing and artists such as Sa Dingding, said it is also stepping up investment and aims to grow its artists and repertoire budget significantly year-on-year.

Report highlights

The Global Music Report 2016 outlined the current situation of recorded music markets across the world and highlighted innovation and investment made within the industry in the digital era.

Streaming has become the industry's fastest-growing source of revenue, thanks to the spread of smartphones, more high-quality subscription services and fans migrating into licensed music services.

In 2015, it generated $2.9 billion, accounting for 19 percent of the global revenue, up from 14 percent in 2014. It now accounts for 43 percent of revenue from digital music and is close to overtaking downloads, which account for 45 percent, to become the industry's top source of income.

Paid subscription services have experienced uninterrupted growth in recent years, with an estimated 65 million people in the world now paying for music subscriptions. That figure was 41 million in 2014 and only 8 million in 2010.

Downloads remain a mainstream ofering, with their revenue accounting for 20 percent of the industry's total income. Full album downloads are still an important way for fans to experience music, and generated revenue of $1.4 billion in 2015.

The revenue from performing rights has also increased. In 2015, revenue generated through the use of recorded music by broadcasters and public venues increased by 4.4 percent to $2.1 billion, accounting for 14 percent of the industry's global revenue, up from 10 percent in 2011.

Revenues from physical formats continued to decline, but the decrease has slowed. Revenue fell by 4.5 percent in 2015, 8.5 percent in 2014 and 10.6 percent in 2013. The sector, which contributed 39 percent to global revenue last year, was still the first choice for consumers in a number of major markets including Japan, Germany and France.

The "value gap" is mainly caused by digital music service providers who have circumvented the normal rules that apply to music licensing. Upload service providers claim they do not need to negotiate licenses for the music available on their platforms, or get licenses at artificially low costs, claiming protection from so-called "safe harbor" rules that were introduced in the early days of the Internet and established in both US and European legislation.