Music 2.0 - Exploring Chaos in Digital Music

August 25, 2008

Will the Real Apple Please Stand Up in China?

Filed under: Music Industry — maths @ 4:04 pm

Recent actions by Apple in and related to China have highlighted a conflicted approach especially with regards to the music business namely that of Apple’s retail push of its iPod, and its Songs for Tibet album promotion initiative.

Songs for Tibet on iTunes

China-based consultant, David Wolf has written an extremely incisive article entitled Apple’s Bipolar China Disorder onSeeking Alpha with a contrarian view to everything else that has been written on the subject he aptly describes as,

Apple (AAPL) starts selling an album called ‘Songs for Tibet’ on its iTunes Music Store (iTMS), and it does it right in the middle of the Beijing Olympics. Coincidence, or passive-aggressive middle finger to China?

A bit of background first.
The ‘Songs for Tibet’ album first started selling on iTunes from Aug 5th, and right from the start of the Beijing Olympics, iTunes Music Store deigned it fit to place it at the top Recommended New Release.

iTunes 20080810

As of Aug 19th, with a huge flurry of bipolar comments accompanying this album on iTunes and in China , few of which were about the music itself, and a statement from the organization behind the album, the Art of Peace Foundation that 40 athletes had downloaded the album, access to iTunes was promptly blocked in China, presumably by the authorities.

iTunes 20080819

The Associated Press reported Apple China spokeswoman, Huang Yuna explaining it as, “We are aware of the logon problems but we have no comment at the moment”. Further to that, as pointed out by Business Week, amidst the flurry of comments on iTunes Music Store, an Apple spokesperson posted the following statement,

My name is Bryan and I understand that you have not been able to connect to the iTunes store for the last couple days and that you are concerned that it would be an issue with China blocking the iTunes store. I’m sorry to hear that and I’m happy to assist you with this today.
ITunes is not being blocked in China from our end, but access to the iTunes Store IS restricted in some areas in China. This would also explain why it’s happening to your friends there as well.
I would advise that you contact your ISP about this matter. Please also note though that accessing the US iTunes Store outside of the geographic region of the United States is not supported, and that attempting to access it while in China is at your own risk.
The iTunes Store Sales and Service Policies are available for you to review

Much as the subject is volatile, multi-dimensional and nuanced, I will concur with David Wolf’s approach and look at the business issue and steer clear of getting into a debate over the politics. Here are a few observations of Apple’s recent actions.

The Internet is global, and the US iTunes Music Store has been made accessible within China for purchase of music provided the user has appropriate credit card and accounts in place. It is thus duplicitous of Apple to claim that access outside of the United States is not supported, and at the very least we do know that other users globally are able to see what is offered on the US store and comment on it, if not buy it. As such, the issue is not that iTunes’ role as a retailer of the Songs for Tibet album or timing is being questioned. But it is more its conscious decision to place the album in the most prominent position available on iTunes right at the start of the Olympics which seemed premeditated and any claims of it being based solely on musical merits seem disingenuous as has been clearly obvious to all - and as events have borne out - it has been a lightning rod for provocation and political views as manifested by comments on iTMS and elsewhere with the music now being relegated to a secondary role.

Interestingly, the iTunes Music Store access was restored in China on Saturday, with the observation that Apple has relegated the ‘Songs For Tibet’ album from its previously prominent position to deeper within the store.

iTunes 20080824

Update: We have confirmed that the whole album plus the accompanying video is available for download in China.

Songs for Tibet download 20080828

It has to be noted that the accompanying media hubris claiming that it was media pressure that has resulted in the restored access of the album in China is both disingenious and self-serving as it could also well be Apple’s act of reducing its hitherto overt promotion of the album that is the reason - but in the absence of a formal explanation by either Apple or the Chinese authorities, this remains a matter of conjecture. (David Wolf tries to present a chronological and balanced analysis of the whole issue in his long article Apple’s China Debacle: The Corporation as an Agent of Social Change)

In fact, the collateral damage as a result of the iTunes issue had also resulted in access to it on Amazon in China being blocked too, and at the time of writing, the digital album is available while access to the CD version is still blocked.

To put it into perspective, as access to the album is restricted to expatriates in China, this is very much an exercise in preaching to the converted and much of the hardheaded Western media spotlight seems to be misguided and only serves to harden and close up the locals to the issue.

The many foreigners working in China have a relatively clearer view of the issue - whether one likes the situation or not - and this has been articulated best by David Wolf,

I am sure there were valid marketing considerations behind the decision to sell ‘Songs for Tibet.’ I’ll even grant the (specious) possibility that there was a good business reason to do so during the Olympics. If not, Apple was certainly within its rights to make a political statement. But Apple - and its shareholders - must recognize that its own actions are sabotaging its efforts to build a market in China right as those efforts are showing fruit. Such a bi-polar approach to this market is not sustainable. Apple management needs to choose between developing China as a market or the freedom to engage in random acts of passive-aggressive panda-punching.
Making that choice, as much as real estate and labor expenses, is part of the cost of doing business in China.

iPods Feed on Music Piracy in China

Apple’s recent opening its first Apple store in Beijing on 19 July and its stated aim of opening more of the same throughout China reiterates its ambitions to make up for lost time and sell more of its products in China including its iPods which have yet to dominate China as it has in Western markets. As mentioned before here on Music2.0 even though Steve Jobs has spoken out against piracy by describing it as stealing and has positioned the iTunes-iPod pairing as Apple’s legal product offering, the fact is that in China, without iTunes access for local consumers, Apple is well aware that it is music piracy that is feeding the sales of iPod.

By claiming the higher moral ground and invoking the theories of karma against piracy and merits of the iTMS as an important complementary platform for the iPod, it is disconcerting to note that Apple then proceeded to market and distribute it in China based on the Winona Ryder-esque advertising platform of having a “1000 songs in your pocket” when the source of the music is clearly dubious - especially in the absence of iTMS. Even though there are other device manufacturers that operate similarly in this environment, Apple is held to a higher standard of their own choosing and thus seem to be courting bad karma in China.

Even if we were to give Apple some Brownie points and cut them some slack for trying, it is only in 21 countries where it has launched the iTunes Music Store as opposed to the many more countries where it has seen it fit to expend energy and resources to distribute the iPod. In huge swathes of the world where the iPod is distributed, there are no iTunes Music Stores or in the case of China, barely any viable legal music stores currently.

Will the Real Apple Stand Up?

Part of the conflict in Apple’s approach with regards to China could possibly be best explained as another example of parochial head office-centric policies handed down by supposed global companies that are inimical or incongruent to its satellite markets in which it also has interests in.
In fact, a prime example of this was best illustrated coincidentally by the actions of Apple’s global agency TBWA via a couple of unrelated ad campaigns. While TBWA China was preparing an Adidas ad expressing support for China’s Olympic success, TBWA France contrived to run an ad critical of China’s human rights purportedly for Amnesty France. The furor generated in China by the latter ads, possibly to the horror of the unsuspecting TBWA China team led to TBWA Worldwide hastily disowning the contentious ads and blaming a lone rogue person as the fall guy though conveniently, no mention of returning the Cannes bronze Lion award it won was ever mentioned. (Update: The Cannes committee has since seen it fit to withdraw the award)

But yet as shown by Apple’s willingness to sell iPods in countries with no iTMS or sources for legal music and with it a tacit acknowledgement that its iPods are repositories for pirated music, Apple has shown that it is flexible enough to suspend its policies and philosophies for profit outside its home market.

As Apple now embarks on its negotiations with China’s mobile carriers for its much vaunted iPhone to conquer the lucrative Chinese mobile market, both it and other holier-than-thou self-styled “don’t do evil” type companies have to realize that the Internet exposes inconsistencies in policies and with the world being far from a homogenous market not just in terms of buyer profiles but also socially and politically, as David Wolf summarized it,

“Apple has just learned that the choices you make across your business can affect your prospects in China. Success in China does not mean avoiding such conflicts, but in dealing with them intelligently and proactively.”

And these hard choices will ultimately end up as the cost of doing business in China – or not.


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  5. People who go around worrying about appeasing China in the name of business or capitalism have a fundamental misunderstanding of the free market and capitalism itself. We in the West don’t need China. It’s nice to buy their low-priced products, but we could do without them. After all, we did without them for decades following the Communist rise to power.

    Now, can China do without us? Only if they don’t mind starving to death.

    Did the world have to change because China hosted the olympics? I’d say that China did all the changing, and for the better too.

    Comment by Mike van Lammeren — August 26, 2008 @ 11:59 pm

  6. @Mike, you may not realize that the major world economies (including Canada) are now symbiotically linked with the relationship between the US and China being more complicated than meets the eye. However, whichever school of thought one adopts in trying to understand the economics at play, your superiority complex tone was uncalled for.
    I will simply quote from the respected Atlantic Monthly and recommend a full reading of the article “The $1.4 Trillion Question””
    “Through the quarter-century in which China has been opening to world trade, Chinese leaders have deliberately held down living standards for their own people and propped them up in the United States. This is the real meaning of the vast trade surplus—$1.4 trillion and counting, going up by about $1 billion per day—that the Chinese government has mostly parked in U.S. Treasury notes. In effect, every person in the (rich) United States has over the past 10 years or so borrowed about $4,000 from someone in the (poor) People’s Republic of China. Like so many imbalances in economics, this one can’t go on indefinitely, and therefore won’t. But the way it ends—suddenly versus gradually, for predictable reasons versus during a panic—will make an enormous difference to the U.S. and Chinese economies over the next few years, to say nothing of bystanders in Europe and elsewhere.”

    Comment by maths — August 27, 2008 @ 9:03 am

  7. Maths, thanks for a superb post. Your words put flesh on my uncharacteristically skeletal post.

    A few thoughts.

    The politics around this issue are a fraught minefield, but in the context of the issue are irrelevant. The real issue is that, whether we like it or not, the government and party in China has the wherewithal and the right to set the conditions of doing business in China within the scope of international treaties. While hardly transparent, those conditions are apparent if not obvious to anyone conducting business here.

    If those conditions are too uncomfortable, too onerous, or set too high a cost for a company to bear, the best approach is not to ignore them and dive in anyway, but to address them proactively and perhaps decide not to do business here at all.

    On the other hand, if a company wants to do business here, it needs to be prepared to address all of the challenges - including the moral issues - with care and wisdom.

    Google, Yahoo!, and Microsoft all but deny there is a moral issue, or suggest that there is a choice between being in China and being moral. That is so much nonsense. Their failing was in lacking sufficient imagination to see a road that would allow them to make money AND be agents of positive change here.

    Mind you, that is no simple task, and the approach is different for every company. And a company like Apple - or any company in the entertainment business - must find that middle ground, or risk alienating their customers AND their artists.

    Comment by David — August 27, 2008 @ 12:02 pm

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  12. Through the quarter-century in which China has been opening to world trade, Chinese leaders have deliberately held down living standards for their own people and propped them up in the United States. This is the real meaning of the vast trade surplus—$1.4 trillion and counting, going up by about $1 billion per day—that the Chinese government has mostly parked in U.S.

    Comment by ugg — November 18, 2011 @ 2:49 pm

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