Music 2.0 - Exploring Chaos in Digital Music

In a sudden announcement in Hong Kong yesterday, the majors revealed that it was pulling out of the IFPI in HK and they will be setting up a parallel organization to manage their rights. In a press conference yesterday attended by management representatives from Universal Music, Sony, Warner Music and EMI (or what’s left and not owned by the Typhoon group), they announced their formal withdrawal from IFPI Hong Kong and proclaimed it an appropriate time for what they call a commercial decision - a decision that our sources say had been in the making for the past 2 months.

Ariel Feng of Sony Music tried to explain it as,

“Europe and the US have different music associations representing different companies with varied directions and interests as befits different labels and this has been the general trend over the past few years. Record labels develop in many diversified areas and it is time to establish a new organization to coordinate this development. This is a purely business decision.

Certainly if this is the true rationale for pulling out of the IFPI, then surely it is time for the majors in other parts of the world to similarly question and reconsider their membership of the IFPI.
On being asked if domestic powerhouses Emperor Entertainment Group (EEG) and East Asia would join the new organization, Feng stated,

“I cannot speak on behalf of other companies, we have had many discussions, but it starts with 4 companies first. In future there will be more than 4 companies and we are adopting an open attitude on it.

He also indicated that they have yet to have a name for the new association, and will hold a meeting to decide on it.

Hong Kong has had a thriving recorded music industry in years gone by and the changes in distribution and the internet have impacted it dramatically affecting both majors and domestic labels. Membership of the IFPI in Hong Kong extends beyond just the majors to include influential domestic labels with a total of around 76 members and it is likely that friction and power play between the majors and domestic labels’ influence within the IFPI could be the reason for this breakaway organization. On June 12, EEG’s Wu Yu was selected as the IFPI HK President and there is word on the street that dissatisfaction with EEG’s appointment could be a factor in the majors’ dramatic decision. Furthermore, sources have indicated that the majors have been unhappy with the IFPI’s progress on tackling piracy issues, and failure to capitalize on their bargaining power to obtain better revenue shares.

This certainly points to a more plausible explanation than Feng’s denial that there was “definitely no dissatisfaction with IFPI”. On a more immediate impact, this will certainly throw into disarray the upcoming annual IFPI Hong Kong Top Sales Music Awards presentation, an awards ceremony based on sales figures - and casts doubt on whether the majors’ artists would attend it. Universal Music’s Duncan Wong certainly did his best to leave it hanging in the air,

It is not a good moment to answer this, if we attend the ceremony, we will report the numbers to IFPI, if we feel it is good to attend, we will report, if not then we won’t report.”

So with the record industry already in near crisis mode brought about by the many past missteps especially by the major labels in the industry, the turf war seems to have exacerbated in Hong Kong and the biggest losers are likely to be the artists. Our sources have clarified that the pull out is contained within the Hong Kong market only and the major labels’ international membership with the IFPI will continue while the IFPI’s satellite office in China will still represent the majors but in due course, it is expected that the majors will reel in China too. However, such a Georgian middle finger action will certainly have implications beyond the local market.

I’m gonna live right in your face
I’m gonna lie here while you play
Fuck you, yeah and fuck this place
Don’t think you’re chasing me away
- World Falls Apart, Gang of Four

Credits:

1. Gang of Four
2. Sing Tao Daily
3. Major Label Representatives Image from Sina

So finally, the much talked about Google MP3 Search service is here at www.google.cn/music
And it’s certainly game on as they take on Baidu’s very illegal mp3 search with legal links from its search results provided by local music service Top 100.cn for free streaming, free mp3 downloads and lyrics supported by advertising revenue, and paid Caller RingBack Tones (CRBT) via China Mobile - with rights being cleared by most major labels (with probably one major holdout), publishers and a number of domestic labels for mainly Chinese music.

Inevitably the talk is going to be about whether this is going to be a game changer or not.

But first a quick preview of the site for the benefit of international readers as Google Music Search is inaccessible outside of China

Surprisingly, Google’s famed clean page lines have been sacrificed for the music search home page, for which charts are shown with the user being able to choose charts by album, artist or song.

Downloads are in 192kbps DRM-free mp3 format:

Streams are provided via a pop-up Flash player window:

Lyrics are shown in a pop up window:

Currently, most of the CRBT links are disabled as deals with China Mobile have yet to be sorted out.

Also, for some like No.1 artist Jay Chou and international artists , it seems that Top100.cn has yet to obtain free streaming & download rights.

 

For a start, this free ad-supported mp3 download service is invariably more impressive than similar international services like We7 and Spiral Frog as it is DRM-free and users can keep the downloaded mp3s forever while being able to transfer it to portable devices without any restrictions.

But the battle lines for this service are instead drawn in China as Google squares off with Baidu who have made a fortune from illegal mp3 search which accounts for as much as 30% of its traffic. Where Baidu has been greedily keeping all of its advertising revenue with the exception of the recent knee-jerk attempt to share revenue with a few selected labels, Google will be sharing advertising revenue - traffic being tracked via watermarking - with all content providers via Top 100, and that is already a plus point in favor of Google.

On the other hand, as many international analysts will inevitably fall over themselves to fawn over and laud Google’s mp3 search service from a distance, it has to be recognized that it is far from being a cakewalk for Google. Their partner Top 100 still has to convince quite a few more labels and artists to join the service without which, users will consider this an incomplete service not worth switching over from Baidu.

Inertia and force of habit may also result in users remaining with the Baidu mp3 service. It has to be noted that there are other music search engines in China - all illegal - but none have been able to make a dent on Baidu’s lead and the manner of its offering. As one local blogger pointed out, even Google’s very naming of its service URL as www.google.cn/music might be slightly flawed as Chinese users have become conditioned to the synonymity of “mp3″ with music in the naming of the URL. Citing the example of the rival music search engine Sogou, which introduced its service as d.sogou.com it then had to beat a hasty retreat to the current mp3.sogou.com URL.

With the launch of this service, Top100.cn’s existing paid DRM enabled download service will cease and will be replaced by the service described here. It has to be noted that Top100’s service has been mainly limited to low common denominator fare and the Google MP3 Search service will likely propagate more of the same in direct competition with Baidu. Already, the Google chart service seems to be under the tyranny of major label fodder, and for the many other artists and independent labels who may possibly be simply making up the numbers by languishing in the basement of this service, it is certainly in their interests to explore other options and models.

Where this will probably be a game-changer is that the authorities and Content Providers can now point to a viable alternative to Baidu’s mp3 search and snap out of their varying degrees of apathy and do something about it. Baidu’s recalcitrant attitude and financial abuse of so-called label partners as it pirates music in broad daylight will inevitably catch up with them now, and their efforts to finally reconcile with content owners will probably be too late.

Still, there is all to do as both Top100.cn and Google have not had any prior success in music distribution but by intent, a warning shot has been fired at Baidu.

The sun rapidly sets on the EMI empire as the guy at the top hands over entire Middle Kingdom in Typhoon deal.

EMI has sold off their Greater China operations and though we don’t have the full details, it has also divested its interests in Japan too, and as seems likely they have now almost fully retreated from Asia.

Yesterday in London, EMI Music’s President and COO Chris Roling agreed to sell all existing shares they own in Greater China including those of EMI Taiwan, Shanghai Bu Sheng (Typhoon) music and Hong Kong’s Gold Label Entertainment to existing Greater China JV partner Typhoon Group. With this agreement, Typhoon will not only take over all of EMI’s existing artist contracts for the Great China region, but will also serve as the exclusive physical and digital products distributor for EMI’s international repertoire. EMI’s Chinese artists switching over to Typhoon include Jolin Tsai, Ah-mei and David Tao.

The acquisition is reported to be in the 9 figures in HK currency with EMI only retaining the right to distribute Typhoon’s recording repertoire overseas. EMI’s publishing arm which it values much more greatly than its recording assets still remains under its control, though there is every possibility that it might likewise be willing to let it go at the right price.

So as first highlighted here in Music 2.0 and OneTwo Music, EMI is abandoning various markets in Asia in rapid succession - and as the vestiges of a former powerhouse in the music industry mirror the decline of the British empire, it is fitting that just as the latter left behind a lasting cultural legacy, EMI’s final calling card has been that of Coldplay, probably the most downloaded English album in the last few months in Asia while EMI probably had little revenue to show for it. So it would be no wonder that they couldn’t wait to unload their baggage for some quick cash.

Roling stated,

We are very pleased to sign this contract with Mr. Norman Cheng, President of EMI Asia as he is one of the successful pioneers of the Asian record industry. The Chinese music market is very exciting with long term growth potential, particularly in the digital music sector but it is still challenging with regards to financial and other aspects, such as the rampant piracy problem.(translated from Chinese media reports)

Norman Cheng, who has been running EMI China, already owned 50 percent of the shares in EMI China and Hong Kong, and with this move, his Typhoon Group takes over full control.
Cheng added,

I am pleased to announce this news for Typhoon, as it is a great opportunity for us for the entire Greater China. We have a very good model of cooperation as the Chinese artists under Typhoon have developed in a familiar environment, while (at the same time) these artists can also enter the international market through EMI. The international music industry is indeed facing challenges, but with the increase in the number of consumers, the channels for music products have reached unprecedented numbers in many markets, and particularly in mainland China there will be excellent business opportunities.

Cheng said that the new company will transform the business into digital music as

the fact is we all know that the physical record business is in a slump. Although physical sales are declining, there are now more ways in which consumers can listen to music and it is diversified. Computers, MP3 players, mobile phones - different platforms, so that music can truly exist “everywhere” and that’s why I believe the potential is great.

With this acquisition, the Typhoon group edges a step closer to its aim of being an entertainment powerhouse with a focus beyond just music.

For music afficionados, it might be sad to see a historied marquee brand like EMI abandon a whole continent and run with the money, but in keeping with the cut-throat nature of the business, Typhoon and its management had already soiled the EMI name previously with a deal with the devil in the form of rogue search engine, Baidu.

Credits:

1. Original Image courtesy of Time