Music for the Masses

Written By Daniel Allen on July 4, 2007 at 4:42 am | In consumer, 3G, user generated content, mobility, connecting, technology, China

China’s mobile music market shows promising potential.

Trend Description

According to UK-based research consultancy Ovum, revenues from text messaging, ringtones, music downloads and games in China will grow almost 50 per cent in the next three years, generating US$11.5 billion by 2010. With nearly 450 million mobile subscribers already, China is a key market for wireless value added services (WVAS).

IPR infringement is still a big headache for music labels in China - about 85 percent of recordings in China are still made illegally. Pirated music sales were worth about US$10 million in 2005, according to IFPI, a group representing the music industry. In January this year, 11 music companies, including Warner Music Group and Sony BMG, filed a lawsuit against Yahoo China for allegedly infringing copyrights by providing links to unlicensed music.

In an effort to crack down on piracy and fraudulent music providers, tighter consumer protection regulations were imposed on mobile service providers in the summer of 2006. Thousands of Chinese mobile subscribers had complained that they were being charged for services or downloads which they had not requested. The new rules immediately resulted in a dramatic drop in revenues from mobile services such as ringtones and music downloads.

According to research firm In-Stat, sales of music tracks direct to mobile phones fell to US$703.2 million last year, down more than eight per cent year-on-year. In-Stat forecasts that China’s mobile music market will bounce back this year, although further challenges lie ahead over the next three years as the proportion of iPod-style music phones is predicted to rise from 45 per cent to 85 per cent of all handsets. This will allow an increasing number of users to download pirated music directly from the net.

Case Studies

China Unicom’s “iTunes”

With the rest of the world scrambling for Apple’s iPhone, China Unicom has signed a contract with 23 companies to launch its “Xuan Qu” mobile music song download service. Unicom claims Xuan Qu will be China’s first nationwide online music download platform. Users can access the service online via Unicom’s 10155 music portal. Unicom vice president Li Gang said the aim is to make the company’s mobile network China’s biggest music publishing channel.

Among Unicom’s 23 collaborators are Warner Music, Sony BMG, Hurray, Linktone, Nokia, Motorola, and Sony Ericsson. Unicom claims it has the right to sell over 80,000 songs, which accounts for 90 percent of the domestic music market. The mobile carrier will select 16,000 songs to seed its 10155 music portal. Unicom will open the music download service to GSM and CDMA users, users can obtain music using SMS, mobile internet, IVR, and fixed-line internet. Subscribers will pay RMB 35 (US$5) a month for unlimited downloads.

Image source: China Unicom

METASwarm Inc.

METASwarm Inc., a US-based IT company focusing on message and net safety solutions, recently announced a partnership with China’s JiaYu Music Corporation to create a systems framework for the sale of mobile music through validated channels. METASwarm technology will be used to connect users and telecom networks to certify and authorize purchases.

METASwarm will develop channels of highly-rated songs for shopping and public areas in China, which currently use CDs that often contain pirated music. Advertisements would be marketed for inclusion in the music channels and performance fees would potentially be paid as a percentage of revenue to the rights holders. Delivery of channels would be managed using validated messaging systems and METASwarm expects to build more than 20,000 audio networks/sites in over 100 cities in China within three years to reach 200 million users a day.

Image source: METASwarm

Ringtones

The telecom revolution in China has brought with it a diverse array of entertainment options for young Chinese. Ringtones have become almost an identity factor for people, far more important than simple phone customization. Ringtones vary from the latest western songs abd Chinese pop to traditional Chinese chants. Chinese search engines such as baidu and emule provide fast, free, easy music downloading.

The Chinese ringtone market represents is highly lucrative with many users buying new ringtones on a weekly basis. China’s Ministry of Information Industry (MII) has reported that sales of ringtones in China are estimated to have been over US$360 million in 2006.

Over 80 percent of Chinese mobile users have downloaded more than one song to be used as their ring tone. Beijing-based CCID Consulting reports that the total sales volume of mobile handsets with polyphonic ringtones in China increased to 67.47 million units in 2004, representing over 85 percent of the market.

Image source: 6star

Trend Impact

Due to the combination of an undeveloped piracy-dominated physical market, rapidly-developing wireless environment and high mobile phone penetration rate, China’s mobile music market has great potential for growth and revenue generation. For the international record companies operating in China, sales of music via mobile phones already account for about 15 percent of industry revenues. This is a very small sum in total, but as a proportion of total sales compares impressively with the global average for digital sales in 2005, which was just over 5 percent.

Mobile music is the driving force of China’s WVAS sector today. What started with a few simple beeped-out ringtones has now blossomed into a multifaceted group of music services. “Mobile’s clearly the future of music in China,” comented Michael Nash, senior VP of digital and business development at Warner Music, recently. He also said that working with the mobile carriers to sell music securely would be vital to the future of China’s music industry.

The growing appeal of user-generated music in China shows that content is becoming increasingly important in WVAS. Chinese consumers often care more about content than the service itself – providing sufficient quantity and variety of unique, safely-downloadable and reasonably-priced content will help operators and service providers expand their subscriber base, esepcially in light of the much-anticipated introduction of 3G to the Chinese mobile market.

China Mobile Search Snapshot

Top 5 mobile phone search categories in China 2006:

1.) Dining & recreation
2.) Jokes
3.) Ringtones & images
4.) News & stock
5.) Weather

Top 5 search terms (translated):

1.) Weather
2.) Jay Chou
3.) Pretty girl
4.) Dining
5.) Jokes