Music 2.0 - Exploring Chaos in Digital Music

October 2, 2009

Western Music Piracy in China - the Major Labels’ role

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

Pirate Major

In keeping with the historical flashback highlights accompanying China’s 60th anniversary celebrations, Music2.0 has decided to review recent music industry history in China and the one abiding feature that seems to have been dominant – music piracy. But more intriguingly, we examine how the major labels contributed inadvertently or otherwise to the development of Western music piracy in China by aiding and abetting via sheer ignorance and stupid application of Western business practices without a better understanding of the social, cultural, legal and technological environment at play in the host country.

In The Beginning
“And The Man said, let there be second life”

Western music first took root commercially in China  in the form of unsold and discarded saw-gashed CDs (dakou, in local lingo) from Western markets, very much like a British-empire Australian dumping ground for the dregs of music.

As the major labels themselves were inevitably helping themselves to a buck or two in the short-term by off-loading these unwanted CDs to China in bulk, this had the effect of giving rise to an undefined and random mish-mash of rejected Western music  in China unsupported by any marketing efforts.
As Ed Peto of Outdustry noted, the majors then gave the pirates a suprising headstart…

The arrival of western product in the early 90s came courtesy of ’saw-gashed’ CDs: Excess stock and deleted titles from western majors attempting to avoid taxation and disposal costs. These CDs had their cases cut to mark them as defective and were then shipped in to China through free-market economic ports like Guangzhou, only to end up on the black market. An end result that can be seen as a partial ‘shooting-in-the-foot’ for the western majors who then had to come in and fight against the pirate networks they inadvertently helped set up.

Saw-Gashed CDs

It is indeed damning that with their CD-dumping efforts, the major labels contributed to the proliferation of - and ultimately, development of - powerful and widespread pirate CD networks across China as Chinese businessmen sought to monetize their bulk of surplus CDs purchased by weight.
The existing pirate CD networks in China are now more sophisticated and dwarf the distribution networks of major labels. The major labels cry of blue murder now rings hollow and is akin to certain Western governments decrying the very same terrorists that the CIA themselves used to train whilst handing over sophisticated weapons.

Major label execs have always hidden behind the convenient excuse that piracy alone is to be primarily blamed for the difficulties of breaking Western music in China and the dearth of accompanying revenues, with the secondary charge of the difficulty of marketing Western music in China due to the lack of proper music genre cultivation in China. However, partial blame for the latter situation can be attributed back to the labels via their CD-dumping efforts in the first place.

The Third Shift
If the distribution end of the business was whacked, the start of the process on the production side had its own contribution to a more complete suicide effort by the major labels – the very same recording masters that were used to press legitimate copies were also used for pressing many more pirate copies of CDs  - and it has long been rumoured that some major label execs were either conspirators or simply did not pursue the matter vigilantly enough. It is a fact that the now fashionable digital leak of albums in the West had already been part of the landscape in China in analogue mode for years!

The Internets Phone Home
With the body blow of these actions being self-inflicted, the perfect storm of piracy was consummated in China when the labels’ ignorance of digital led to the more tech savvy but unscrupulous Service Providers and websites across the country blatantly offering ringtones and full-length tracks to consumers with no revenue remitted back to labels and artists. From 2004 to 2005, one celebrated site Kuro even charged users a fee of around US$3 for an all you can eat access from which they reportedly made millions. Eventually Kuro’s parent site in Taiwan was hauled in by the Taiwanese courts with the founders being handed jail sentences.

On the mobile front circa 2004, Chinese mobile Service Providers (SPs) were listing on NASDAQ at high valuations based on revenues from ill-gotten gains on mobile ringtones paid for by end-customers. These SPs managed to initially fleece music publishers as a result of a peculiarity of circumstance in China - with the tight regulation of any form of publishing in China, music publishing inadvertently fell under this purview and music publishers were unable to establish offices easily in China. In their absence, the Service Providers plundered and by the time the music publishers woke up and sought trusted partners or set up satellite companies in China, the Service Providers had already attained a massive user and power base upon which to negotiate labels and publishers down on their terms.

With the proliferation of MIDI ringtones from 2004 to 2005, the major labels looked on in bewilderment as unlike local labels that owned the masters, publishing rights and to a degree, the artists themselves, the major labels did not own the publishing or artist rights and could not get a piece of the MIDI ringtone action. At this point they had yet to understand the significance of the ringback tone market and its revenue potential.
(For readers unfamiliar with how this works, music publishers own the rights to the underlying music compositions i.e. lyrics and music composition. MIDI ringtones only required music publishers rights clearance. Truetones and ringback tones require both music publishing and sound recording rights clearances)

While the digital world passed by the major labels in the first phase, a new phenomena developed where Chinese Internet Artists quickly released songs of moderate production values on the internet for free – to gain fame, with the hope that this would translate into fortune via mobile ringtones. Independent labels quickly caught on and at that point major labels probably only had less than 55% of the market in China.

Pound of Flesh
By the time the major labels in China got their act together, they were demanding huge advances and foolishly insisted on DRM to be implemented for online music, whilst mp3s were de rigueur in China.
To their credit, some major label executives in China quietly ignored head office DRM directives in allowing local websites to distribute Chinese music in mp3 format but held back their blessings on Western music as they were afraid to upset Western artist managers. In those early days, digital rights were not always automatically granted to the major labels by Western artists and their managers, so major label execs decided to take the easy route and not carry much Western music. With Service Providers being staffed by less than music savvy technologists whose only familiarity was with low common denominator and mainstream Chinese music, there was really no effort by major labels to market Western music anyway.

The Great Leveler
But with the internet comes easy access and more Chinese youths became exposed to more Western music as a result of their own individual efforts. In due course, in the absence of legal access to Western music, Chinese sites run by individuals moved into the vacuum in providing free - and illegal – Western music based on random users’ tastes.

If the first wave of Western music CD piracy and the development of the piracy distribution network was partly contributed by the major labels, the second wave in Western music piracy was characterized by the their lack of digital know-how, not to mention their lack of marketing of Western music. Both of these actions not only exacerbated Western music piracy in China, but damningly, the lack of marketing led to a deficient infrastructure and development of Western artists in China.

Granted that the cultural, social, musical and language differences are also a contributory factor for the slow take-up of Western music, with the China-specific situation of the Cultural Revolution and its after-effects creating a huge vacuum in the assimilation of Western music but the commonly cited bogeyman has always been piracy.

God’s Playing Field
Yes, certainly piracy is now affecting the music industry dramatically in China but it is hypocritical for the IFPI to solely blame the Chinese for it as the major labels have to take some responsibility for its development too. Their strategy in China has been too narrowly focused on just legal and governmental actions. It’s all too easy to invoke WTO policies to beat China up, but one has to note that the WTO players can be likened to giants playing chess and trading bits of human livelihood like livestock as part of a gaming strategy for the greater good of their respective nations. WTO debates about morality and intellectual property are simply smoke screens for the preservation of profits of powerful lobby interest groups – see Antigua 1 vs USA 0.

Greed is indeed agnostic and colour blind and it’s too easy to point the finger solely at China - as behind every major online music piracy service in China there lurks opportunist American institutional investors. Baidu is supported by some pretty powerful US institutional investors and both The Register and Seeking Alpha have brought up the question of fraud and lack of due diligence by American investors in their dealings with Baidu.
If the major labels had any shred of moral responsibility left, they would certainly put the brakes on any moves by Qtrax to potentially partner with Baidu in China as recent rumours have been suggesting could be on the cards.

Baidu is probably the world’s biggest large-scale music pirate and even outdoes The Pirate Bay in terms of brazenness as they have been exposed in numerous reports as hosting illegal music files on their server farms. And yet the IFPI and major labels were for so long negligent in being unaware of this aspect of their business. It is thus bewildering to comprehend how the major labels have spent so much futile effort and resources going after grandmothers and teenagers in the US while action against a major pirate like Baidu has been erratic - and they even contrived to lose their legal case against Baidu in 2007, which only served to embolden more pirates in China. Not surprising when one realizes that well-paid global heads of anti-piracy of the major labels sit comfortably in their head offices far away blissfully unaware of the virulent forms of piracy that permeate developing countries.

Baby, Bathwater
As a result of some of their previous mismanagement in China, the major labels have now concluded that piracy is solely to blame and that they have no hope of collecting any payment from individual customers. They have decided that they will give all their music away for free via Google China for a nice little advance payment. Going by their past miscalculations and their poor track record in China, one can only wonder if they are throwing the baby out with the bath water.

If you are a Western artist signed to a major label, you certainly have to ask the question – what good will giving away all that music bring you if Western music is not being marketed by the major labels in China in the first place? It will only serve to devalue music as a whole with no direct benefit to many Western artists. An examination of Western music consumption in China indicates that only a handful of major label Western artists, namely the usual low common denominator suspects like Backstreet Boys and Michael Learns To Rock are benefiting while the rest of Western major label artists languish in obscurity. Western artists should stop buying the party line about piracy and question their major labels on what kind of marketing they have been afforded in China. For many Western artists, obscurity in China has been a greater threat than piracy.

Due Discredit
Though the silver lining is that the internet has enabled a level playing field for independent Western artists and labels who have managed to find a second life in China by making an impression amongst the Chinese, the past inefficiencies of the dinosaur major labels have severely devalued the market as a whole. And this has been to the detriment of most artists in terms of actual monetization while Service Providers, Portals, Search Engines and Carriers rape and pillage.
That there are probably less than 5 legitimate online full-length music download sites in China licensed by the major labels cannot be blamed on piracy only - surely the labels could have done better to create a viable alternative to pirate sites way earlier.
By no means does this review suggest that the majors are the sole authors of music piracy in China, but it is important that their complicit role in the proliferation of Western music piracy in China is documented.


  1. This is kind of a lengthy read but I am glad that someone has decided to call the majors out for their incompetence. It is shocking that it has taken them such a long time to make legal digital music available in China which frustrates the hell out of me, and forced me to be an illegal downloader as I am a music lover first

    Comment by Expat — October 3, 2009 @ 1:20 am

  2. @Expat.
    There are at least 2 sites in China that offer legal music - Google China and, though I think the major labels only licensed Google China while sells independent music.

    Comment by Label guy — October 3, 2009 @ 11:31 am

  3. Label guy,
    Exactly my point - after all these years, is that all the labels in China have to offer consumers in terms of legal music? No wonder people like me have no choice but to download from pirate sites. You ‘label guys’ are just sitting on your arse, and call us criminals.

    Comment by Expat — October 3, 2009 @ 2:13 pm

  4. You really think the majors are to blame for this? Everything seems to be pirated in China anyway. The US government should force the Chinese government to do more to close down the pirates. And then we can judge the labels.

    Comment by Paul Stanton — October 3, 2009 @ 2:45 pm

  5. You don’t need to look all the way to China to see how the majors have messed up. They are doing a fine job at messing up right here in the US. These are interesting facts about their role in the pirate CD network, though you are probably giving them too much credit for piracy - they’re too dumb to even get that done right. The Chinese, on the other hand….

    Comment by Luke — October 3, 2009 @ 3:23 pm

  6. The US government could certainly do more to curb music piracy in China by first reviewing US institutional investors’ involvement with major pirate sites in China. Companies like Fidelity, Jennisson LLC, Morgan Stanley, Thornburg Investment Management and GE Asset Management have already been fingered by The Register for their links to dubious pirate sites in China. But after all the recent fiascos and shenanigans in Wall Street, I guess we shouldn’t be surprised any more…

    Comment by maths — October 3, 2009 @ 11:43 pm

  7. Why would one ,I question, be against Baidu partnering with any legal music service (qtrax or any other legal service)where artists and copyrights holders will get paid from the revenue?

    Comment by george masterson — October 7, 2009 @ 7:34 am

  8. George,
    I assume you are referring to my comment on Qtrax and Baidu
    Certainly I can understand the logic of your question. The key assumption in your statement is “will get paid from the revenue”
    Baidu has screwed enough labels and partners out there in the market and there are lessons to be learned from others’ mistakes. Sometimes, when a child is told not to touch a hot kettle,he will still want to touch it. Adults on the other hand would wisely heed the advice.Accepting payments for the sake of expediency from dubious companies carries repercussions in the long term - haven’t we learnt anything from the Wall Street fiasco?
    Western companies who are unfamiliar with the Chinese market would do well if only they could do better research on the ground instead of making naive decisions and hastily choosing dubious partners.

    Comment by maths — October 8, 2009 @ 3:22 pm

  9. i guess this matter is fairly debatable. piracy is everywhere and its just impossible to stop it. legal music dont grow as fast as pirated ones.

    Comment by John — February 4, 2011 @ 4:01 am

  10. Western markets, very much like a British-empire Australian dumping ground for the dregs of music.

    Comment by ugg — November 18, 2011 @ 2:48 pm

  11. […] level and hitting the jackpot. Another source of offbeat music could be the first wave of incoming shipments of unwanted CDs, or dakou (打口), from Western labels in the early ’90s. But that’s just speculation. […]

    Pingback by Songs that Stick | The World of Chinese — July 29, 2012 @ 7:36 pm

RSS feed for comments on this post. TrackBack URL

Leave a comment

You must be logged in to post a comment.

Copyright © maths

Powered by WordPress