The Recovery of the Global Music Industry, Await Chinese Digital Music

2013/6/27By Anne Zhang, China IP,[Copyright]

The music industry once was called “the vanishing industry.” The copyright environment has always been the biggest barrier for the industry’s development. On February 26th, 2013, the International Federation of the Phonographic Industry (IFPI) published the 2013digital music report which brought exciting news to musicians worldwide. Global recorded music industry revenues increased by an estimated 0.3% in 2012 to 16.5 billion US dollars, the first year of industry growth since 1999. Additionally, digital revenues increased by an estimated 9% to 5.6 billion US dollars in 2012, now accounting for around 34% of global industry revenues.
 
Digital Music Drive Forward the Music Industry
As smart phones and new licensed services span new and emerging markets, the digital music business is globalizing fast with most of the revenue sourced from download, subscription and advertise services. According to the report, in January 2011, the major international download and subscription services were present in 23 markets. Today, they can be found in more than 100 markets. Edgar Berger, President and CEO of International at Sony Music Entertainment, said, “We can see growth happening already from Brazil to Scandinavia, from Canada to India. We think this is the start of a global growth story for the industry.”
The number of people paying to use subscription services leapt 44% in 2012 to 20 million. Subscription revenues are expected to account for more than 10% of digital revenues for the first time in 2012. Digital channels account for the majority of record companies’ income in an increasing number of markets including India, Norway, Sweden and the US.
Licensed digital music services meet the consumers’ requirements. As shown by consumer research by Ipsos MediaCT across nine markets in four continents, two-thirds of internet users (62%) have used a licensed digital music service in the past six months. Among younger consumers (aged 16-24) this figure jumps to 81%. Consumer satisfaction with licensed music services is demonstrably high. 77% of users of licensed services rate them as excellent, very good or fairly good. Even 57% of those who use unlicensed services believe “there are good services available for legally accessing digital music.”
 
Passing on the Music Power, Breaking the Growth Barrier
The report shows that artists exert great influence on digital and social media. Research shows that 67% of social network users in 20 countries discuss music and movies, ahead of topics of conversation such as, community (46%), sports (43%) and politics (34%). Social networks have developed vast user bases, with 66% of global internet users accessing them. (Pew Research Center)
Businesses target these large audiences have set up channels, feeds and profiles to engage with customers. Music is a huge asset for them. A UK study found consumers considered music brands to be the most appealing of such services, with 65% of respondents describing artist and festival pages on Facebook as “appealing or very appealing”, a figure which rises to 71% on Twitter. (Wiggin 2012 Digital Entertainment Survey)
The significant position that artists hold in the digital and social platform has fueled the traffic. Max Hole, chairman and CEO of Universal Music Group International, stated that music is the most searched-for art form on the internet, and that doesn’t happen by accident, but is driven by investment in new music.
The report emphasizes the major obstacle that prevents the music industry from further thriving. Internet piracy is continuously impacting the industry. IFPI estimates, based on data from Nielsen and ComScore, that as many as a one-third of all internet users (32%) still regularly access unlicensed sites.
Frances Moore revealed that the market is still encumbered with illegal free music, and to solve the problem, the role of government is quite important, especially on requiring cooperation from advertisers, searching engines, ISPs and other intermediaries. Actions of enterprises in these industries are vital to the future of legal digital music service.
The report has a profound analysis on the global music market of 2012; however the huge Chinese music market is not included. This is because China’s recorded music industry virtually disappeared for a time. According to head of IFPI China Representative Office, China’s data will be included in next year’s report. This is no doubt a great acknowledgement to China’s music market.
To China, the recorded music in 1990s faced serious piracy, but the damage is not as fatal as the internet suggests, and the industry has developed fast since the transition of recorded music in 2000.
This is due to the specialized music search engines which allow users to more easily obtain access to music on the internet. Through their giant servers, the search engines present the music files, which are scattered throughout the internet, to more and more netizens. Meanwhile, the internet industry has developed quickly. The growing number of netizens and optimized bandwidth make piracy easier. The music industry is most adversely affected because music files are small in size but sought by a large number of users. Therefore, the sales of records and pirated CD declined greatly. Professional pirated music websites emerged as a result. According to statistics from China’s national anti-pornography department, there were 7,000 pirated music websites in 2005, which was not the most rampant state of affairs. These websites had a common feature: they only provided music services. Most of them were privately operated with over millions of yuan revenue for some websites owners. The revenues mostly came from advertisement and ring tones made from music. Some of the websites attempted to charge fees for music services, but failed and have been phased out of the market because of unfair competition by some illegal websites. Except for the above two main infringement forms, the other infringement forms, such as P2P, forum and blog, web hard discs, were not deemed the major threats.
In recent years, with flourishing mobile terminals such as smart phones and tablet computers, people have more accesses to pirated music, which means it has a large potential market. Most of the music provided by the music apps on IOS and Android platform are pirated music.
 
Safe-guarding the Right
Digital music brings musical entertainment to many people, but it's future faces serious threats. There are virtually no restrains on the pirating of digital music, therefore anyone can circulate and use it. In the recorded music era, finding a way to control the piracy source will resolve the entire issue once and for all; however, in the digital era, “source” becomes unclear and diverse, any individual person, website and server can be the piracy source.
Head of IFPI China Representative Office said that the ways to right-safeguard music have remained generally unchanged; by litigation and compliant. The minor difference lies in the change of defendants, i.e. from disc manufactures and publishers at first to the websites and individual persons at present.
Baidu is the most well-known search engine in China and so is its mp3 search service. But almost all of the transmitted music is unauthorized. Billions of visits everyday bring enormous losses to the recorded music industry. IFPI represents its member company and filed a lawsuit against Baidu in 2005. After 6 years of litigation, Baidu and the record company finally arrived to a cooperation agreement.
It is worth noting that in March, 2008, The Universal Music Group, Sony BMG Music Entertainment, Gold Label Entertainment Limited and Warner Music Hong Kong filed a copyright lawsuit in the Beijing No.1 Intermediate People's Court against two search engines; Beijing Sohu Internet Information Service Co.,Ltd. and Beijing Sogou Information Service Co., Ltd. The complaint insisted that the defendants’ websites, which provided the phonograms owned by the plaintiffs without authorization, had infringed the plaintiffs’ rights in various forms. After years of hearings, the plaintiffs and the defendants finally reached an agreement, according to which Sogou will not provide unauthorized music fields and deep links hosted on third-party sites; meanwhile, it will cooperate with IFPI on right safe-guarding, and set up a special fund to ensure the smooth running of the business.
With years of effort the legal digital music has grown in size. There are over 20 service providers that have signed agreements with major record companies and some of the biggest portal sites as well as specialized music websites have also obtained authorization. The deep links websites (music search engine) can only survived by getting authorization.
Head of IFPI China Representative Office emphasized that, “Among all the authorized websites, only a small number operated legally from the beginning, that is to say, they received authorization before circulation. Most of the websites did the opposite. As in the case of Baidu, Sohu and Sougou, the copyright environment of China needs great improvement. Some of the authorized websites regressed to infringing websites because of the low-cost of infringement and high-cost of right-safeguarding.
The IFPI China Representative Officer further stated that, “Everyone realized that free music is not a viable long-term strategy and begin to try paid music. Right now, users are becoming accustomed to paid movies, TV drama programs, written works and games, and the payment channels are already mature.”
(Translated by Emily Tan)

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