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UPDATED: February 13, 2012 NO. 7 FEBRUARY 16, 2012
The CD Is Dying
The resignation of a renowned producer reflects the decline of the music industry
By Bai Shi

OLD FASHION: Consumers listen to recorded music albums using earphones in a music store in Haikou, Hainan Province back in 2006 (CFP)

Unfair distribution

Song said unfair revenue distribution, a long-standing problem of China's music market, is the key factor in the collapse of so many Chinese record labels in the past few years.

"We failed to establish a fair income distribution system to sustain the sound development of Chinese music," said Song. "Content providers should receive 40 percent of the revenue from sales, otherwise, creating music won't be sustainable."

However, record companies in China only received 8-12 percent of the revenue from sales in average.

While it is now clear that digital music is the future of the music industry, the revenue distribution remains a problem.

"Today, Internet service providers have a larger share of that revenue than recorded music publishers do. The share of content providers has been squeezed to just 2 percent," he said.

"Music production is creative work and continual investment is needed to support composers and train singers. Low income can't sustain recorded companies and a lot of companies and studios have gone bankrupt," he said.

In terms of a model for the industry, Song spoke highly of Steve Jobs, former CEO of Apple Inc. About 70 percent of the revenue from music sold through Apple's market leading iTunes platform goes to content providers and 30 percent is retained by the service provider—Apple.

"This percentage shows Apple's respect for creativity and innovation. More importantly, a reasonable approach to distribution promotes the sound development of digital music and other digital content," he said.

At the beginning of his ringtone business, Song received high returns of up to 42.5 percent. Using the money, he hoped to reform the country's music distribution system and ensure a higher percentage of revenue is retained by labels. However, he soon found that service providers were grabbing a larger than fair share of the profits by concealing their real income and the real volume of their online sales.

Copyright woes

In addition to the imbalanced revenue distribution issue, China's record industry has long been plagued by another intractable problem—piracy.

Consumers in China have become accustomed to buying cheap pirated copies, instead of expensive legal albums.

The profits from sales of pirated CDs are low, but the trade scale of piracy promises enormous total revenue, attracting numerous pirates into the business every year. The government has made a considerable effort to counter piracy, but illegal copies are still easily available in the Chinese market.

Compounding the problem of CD piracy is the ease of distributing digital music, which means that downloading free online music is now the default mode of acquiring new songs for most Chinese consumers. With the click of a mouse, users can download music directly to their PCs or hand-held devices, for free.

Internet piracy is even more difficult to eliminate than physical CD piracy.

Given the depression of the recorded music market, more and more Chinese artists have become dependent on commercial performances and advertising endorsements for revenue. Rather than making albums, singers now rely on the success of just one or two songs and hope to rise to fame overnight by releasing songs online.

China's online music revenue system remains extremely underdeveloped compared to sophisticated markets and file-sharing platforms overseas in the United States, Europe and Japan. In these markets, despite the dominance of digital formats, artists and labels continue to make money due to well-developed intellectual property protection systems.

Consumers in the West are used to paying for music products.

Song began a paid music download service in 2004 and he is confident that Chinese consumers are willing to pay to download music. "The key is whether your digital product is attractive," Song said.

"Music suppliers should develop their services in the direction of paid downloads. We must foster the habit of buying music and continue to improve the quality of digital music," he said.

Song mentioned that Taihe Rye Music now focuses on two aspects: one is copyright management; the other is how to create new digital music products.

The decline of recorded music has become an indisputable fact. No matter what measures music companies take to operate the business, they must continue to promote new singers and make new songs. Otherwise, music will lose its appeal and creativity and consumers will be left with no music to enjoy.

Email us at: baishi@bjreview.com

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