From the start, it was clear that Music Matters has a distinctly different feel from most other conferences, more of what I’d call a ‘family affair’. Unlike other conferences that offer a plethora of simultaneous, often lightly attended, Music Matters sets a unified program followed by all delegates. The message is clear: If you want to understand the Asian market, here is the information you will need. And whereas the other conferences make participants available to facilitate scheduling meetings in advance, Music Matters takes a completely opposite approach. “We want a free-flowing networking event where everyone has access to everyone else in a open format,” explained Commercial Director Stan Ruza.
While I was initially skeptical that this would work, it ended up being a nice and productive change, especially for someone looking to build up a broad base of contacts in Asia. I left with as many contacts as I do from other conferences, even though it was much smaller — composed mostly of decision makers from all the major Asian markets: from Tokyo to Mumbai, Sidney to Kuala Lumpur.
While I learned a lot about the Asian market in those 2 days, the most surprising “revelation” was actually a question: when will the Japanese music market surpass the US for the #1 position? More shocking were the estimates ranging from only 5-10 years.
So what exactly is happening to justify this doomsday scenario (at least from the US perspective)? Simple: the Japanese love music, and are still more than willing to pay for it, whether old or young. Kei Ishizaka, CEO & Chairman of Universal Music LLC Japan and RIAJ (Recording Industry Association of Japan) Chairman presented some facts in his opening keynote “New Strategies & Opportunities in Japan” that might make some in the West red with envy:
* Digital sales in Japan have increased from 7.5% in 2005 to 20% in 2008
* Mobile is the driver, accounting for 89% digital sales in 2008
* Note that this is a slight drop from 94% in 2005, credited to iTunes Japan which, accounts for 50% of online sales
* Japan is the only music market where digital sales have made up for losses in physical sales – that is until 2008, when physical losses appear to be outpacing the growth of digital sales
* Japanese music consumers appear relatively price inelastic, with a willingness to pay the highest prices of any country for music: up to $4/ringtone and $30+/CD album
* The Japanese music industry is still a hit-driven one
Perhaps most importantly, the Japanese music industry has not abandoned its most profitable customers: those over 40. The dirty little secret in the US is that according to Soundscan, CD sales have fallen faster amongst those over 40, largely out of neglect by labels focused on the youth market. The Japanese music companies on the other hand, have consciously developed products for the over 40 demographic, which (i) do not download music and (ii) are willing to pay big bucks ($30+) for a high-quality CD (ie music, packaging…).
This is not to say that Japan is a complete musical nirvana: more music was acquired via illegal means (407 million tracks) than legal (329 million tracks) on mobile platforms. In 2006, the RIAJ sent over 220,000 takedown notices, and have since filed criminal charges against mobile BBS (Bulletin Board System) site operators. But despite these challenges, the Japanese market has been growing non- stop, with the exception of 2008 when it recorded a measly 3% drop in sales, which is not generally viewed as a trend for the coming years.
Get Me A Piece Of That Pie!
By this point, you’re probably trying to devise ways to grab of a piece of the Asian pie. Think again! You’re still more likely to make it in the US or Europe than earning any yens or yuans. Just like the Great Wall of China, the Asian market presents nearly insurmountable challenges for even the most savvy western artists.
First, the Asian market is completely dominated by local repertoire. Japan is actually one of the more accessible markets, with international repertoire accounting for a little over 20%; though, this has been decreasing over recent years. Look outside of Japan and the numbers are downright depressing. Take the fastest growing markets such as Malaysia, Indonesia, India and China; and their local repertoires accounts for nearly 99% of total.
Put simply, Asians want music that they are culturally/linguistically comfortable with and can relate too. Of course there is Hip Hop, Pop, and Rock throughout Asia, but it is all sung in their respective native language, with their cultural nuances. This is in complete contrast with the West where English is, for all intents and purposes, a necessity to become an international star, whether youre called Shakira, Bjork or The Scorpions.
In addition, Asia has no long-tail effect. It is still a hit-driven market, which tends to play against foreign acts. The general consensus among conference speakers and attendees appears to be that Asian consumers are just too busy working to go hunting for new music, to listen to podcasts, or to endlessly surf social media sites.
As such, Asian consumers are much more ‘captive’ to recommendations and editorial leads than say the US, where we have a proud tradition of bin-diving for that rare LP – wasn’t the old Napster and today’s MySpace simply the digital shape of this art form? The fact that mobile drives music consumption as opposed to the net, has some part to play in this as well. For the same reason, all-you-can-eat subscription services competing with iTunes are not likely to gain a sufficient subscriber base despite the markets’ sizes.
But let us say, for argument’s sake, that you do develop some recognition in an Asian market. How do you expect to generate money from it? You’ve all heard of the scourge of piracy in Asia, so I don’t want to rehash the topic. Let me just leave you with this fact from Google China’s Bin Lin: of the 7,000+ music services in China, only 0.1% of their offerings are legal downloads.
Licensing isn’t much help either. Unlike North America and Europe, where Performing Rights Organizations (PROs) have a long history, collection agencies are relatively young in Asia and have yet to get a grip on the digital market. As a consequence, there is a lot of mistrust between publishers and PROs, which significantly hampers licensing opportunities. If one takes the Indian market for example, where 70% of music consists of soundtracks (courtesy of Bollywood), music labels have been collecting all relevant rights until recently.
Even the mature Japanese market has its eccentricities, such as songs being available free of sync licensing for commercial purposes up to one year after its release. As a consequence, success in the Japanese market may well depend on a willingness to waive sync rights for commercial use, representing an important way to break a song, explained Kimitaka Kato, Universal International Managing Director.
Are You Depressed Yet?
Frankly, I’m not! My recommendation is too look at the Far East as the Wild West: full of opportunity for those with the patience and guts too tough it out. The first lesson is that you are nobody unless you are here. Thus I made the trip to Music Matters and then to Beijing, where I met a successful music pioneer, Kenny Bloom.
Bloom, who was kindly referred to me by NARIP’s (National Association of Record Industry Professionals) Tess Taylor, came to China over 20 years ago to launch Warner Music. He now runs Mogo (www.mogo.com.cn), one of the coolest video sites in China serving the young, hip (undeserved) Chinese urban youth. So why is he still in China with everything I previously mentioned?
(i) China has the largest internet population (around 300 million, ie, the entire US population)
(ii) Around 80% of Chinese internet users are music consumers (240 million)
(iii) Music was the #2 search term for the last 3 years
(iv) At $50 billion annually, China is now the 2nd largest advertising market (It just recently surpassed Japan for the #2 position)
He also has a different take on the Chinese consumer. According to Bloom, it’s not so much that the Chinese are busier or harder working, but that they are in an underdeveloped media market. Media in China (TV, radio and to some extent the internet) is directly or indirectly controlled by the Communist government.
As The Economist recently noted “the proliferation of channels for media, information and entertainment offers unbounded scope for the [Chinese Communist] party to get its message across, abetted by commercial operators.” One consequence of this is the sanitizing of media in order to appeal to a national audience that includes rural peasants as well as urban dwellers. It’s a process not unlike our over-conglomeratized radio or broadcast TV markets, which is suffering from competition by more original and niche programming on cable, satellite and the internet.
The upside is that this presents unique opportunities to serve the growing chique urban class, which the centralized media market is incapable of satisfying; a segment Bloom estimates to be 40 million and growing. By serving this high-value segment with high-quality, original video programming, Mogo is able to attract big-name brands such as Converse that place a premium on this demographic. To some extent, Mogo is trying to do for China today what MTV did for the U.S. in the 80’s.
Another Beijing-based company to watch is Yobo Music (www.yobo.com), a recommendation and discovery site for music. Its founder Allen Guo was perhaps the most eloquent at Music Matters on the need to offer Chinese consumers a variety of models and services that enhance their music experience. Only by meeting the various needs of different consumer segments — as the Japanese music market has done so successfully — will alternatives to piracy be sustainable.
Future revenues will be driven by value-added music services rather than easily pirated downloads or ringtones. And while advertising may seem a panacea to many in the U.S. and China (did I mention they are the 2 largest advertising markets), Allen noted some success by Yobo Music with other revenue models such as micro-payments and music gifting.
The Silver Lining
In the end, the Wild West was tamed and I believe the same will happen with China. America in its first 50 years was home to pirates (ie., privateers) and some of the worst copyright/patent infringers of the time. This is part of what lead to the growth of the young, scrappy republic. But as it matured, and itself became more of a creator/innovator, America began to place increasing value on protecting copyright/patents.
The same will be true for China. As Bloom noted, “How do you expect a people that had no concept of private ownership 10 years ago to understand, let alone value, something like copyright?” In other words, not only has copyright been a foreign concept, it would have been counter-productive to the country’s development. But as it begins to export more cultural goods and develop new patents, that trend will reverse as surely as it did in the US. The only question is whether it can put the genie back in the bottle when the time comes.
I happened to arrive in Beijing on the 20th anniversary of the Tiananmen Square incident. Sure enough, I could not access Twitter or YouTube, and any coverage on foreign TV channels, like BBC were blocked by a blank screen. Once the Communist Party determines that copyright is something worth putting the effort towards protecting, I wouldn’t give those 7,000+ so-called music services much of a chance.