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China, Piracy and the Monopoly of Music Streaming


Len

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Despite the immense size of China’s music streaming market, Chinese recorded music revenues are minimal. The country made the Top 20 in the IFPI’s ranking for global recorded music revenue for the first time in 2014, just below Switzerland. These low incomes are due to many factors including the low fees paid to rights holders, a low adoption rate of subscription models and, perhaps most importantly, the historically weak copyright environment in China’s modern era. All of these aspects aid the widespread dilemma of music piracy in China and are intensified by the disparity between the law and actual enforcement.

China’s lenient copyright system has reduced the obstacles for non-music affiliated companies to enter the digital music sector. The Chinese search engine, Baidu, obtained its enormous audience partially by offering search returns with links to unlicensed mp3 files, legal due to unprincipled legislation. Other technology companies use the ambiguous copyright laws to create large audiences in non-music affiliated industries. For example, Internet company Tencent began to offer music as a way to entice customers to stay within their social messaging and gaming platform. As the competition for market share intensifies, music becomes a vital player to these businesses as well as other large tech companies competing for capital.

Since the dawn of digital music and streaming, there has been a large increase in efforts by both the Chinese government and various stakeholders in China’s music industry to establish and enforce stricter legislation and to increase collection of digital royalties. Organizations like The Music Copyright Society of China and The China Audio Visual Copyright Association have been created to collect and distribute royalties.

Tencent

China is now beginning to establish a music market where people are willing to pay for music. Over the past five years, digital music revenues for the recording industry have nearly quadrupled, amassing to roughly $195m. Primarily derived from online music streaming, this sum still only represents a small segment of the global total around $7.8 billion. Even so, streaming has accrued a momentous impact alone, driving positive revenue for the Chinese marketplace.

Streaming’s new sovereignty is due to multiple factors, the most prominent being smartphones, which have made it easier than ever to access and subscribe to streaming services. According to the IFPI 2017 Global Music Report, 86% of China’s Internet users listen to music via smartphone; however, the streaming market is dominated by one single corporation. Tencent, the most prevalent of China’s Internet giants and also creator of popular messaging service, WeChat, owns the top two Chinese music streaming brands, QQ and Kugou Music, each with hundreds of millions of users.

Kugou music has over 450 million active users and is China’s largest online music service. QQ Music, named after Tencent’s QQ messaging service, is the second largest, accumulating roughly 211 million monthly users. Finally, Kuwo Music, China’s third largest platform, has over 100 million active monthly listeners and was acquired by Tencent in 2016. These three companies combined represent over 70% of the music streaming market in China, showing Tencent’s explicit monopoly.

Their domination results from many acquisitions executed over the last few years; most importantly, it purchased three international record label catalogues from Warner Music Group, Sony Music, and Universal Music Group. This large purchase enabled Tencent the exclusive right to stream major label music in China. This means that Tencent has the power to choose which songs competitors are allowed to play.

Tencent claims that such exclusivity is required for them to ensure the legitimacy of online music streaming services in China and also to help reduce piracy, but such a monopoly is concerning. Competitor service Xiami, owned by Alibaba, has been rather unsuccessful in incorporating music streaming into their platform mostly because it has failed to strike a deal with Tencent. Nevertheless, with China’s booming market, it is possible the major labels will reconsider their deals with Tencent when time for renewal approaches.

Artists

Tencent’s market monopoly may also be concerning for artists. Many of these services established their businesses on pirated music before they began to license it. Still to this day, unlicensed “indie” music is prevalent. Independent labels and artists generally get paid little in royalties, if anything at all, because of their weak leverage in negotiations with these giant streaming services.

Compared to Western music services, monthly fees for Chinese streaming platforms are quite low. QQ’s Green Diamond service is roughly ten yuan per month, which converts to approximately $1.47 per month. Other services have similar rates and typically offer packages with features such as free downloads, high quality streaming, and artist engagement opportunities. These low monthly fees yield very small royalty revenues and per-stream rate payouts to recording owners are extremely low; however, these rates may rise if and when copyright laws give increased leverage to rights holders.

Closing Thoughts

There is still a great distance to go toward building an affluent music industry in China. Revenues are comparatively low for such a large market. Copyright laws regarding online music are out-dated and effectively enforcing them is currently ambivalent. Collecting digital royalties is problematic as well, but there still remains potential for greater copyright enforcement and further growth. Although illegal downloads still dominate music consumption in China, streaming service subscriptions are growing vastly with abundant mobile consumption. Given this, the music streaming landscape in China holds potential for the global music industry.

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