On-line Music in China: Harbinger or Outlier?

After a decade of efforts, the jury is still out: what are the long-term prospects for convincing consumers to pay for recorded music in an online/digital world. Sure, we have the per item model of Apple's iTunes, the subscription model a la Pandora and music streaming enterprises such as Spotify. Still, my anecdotal impression is that unauthorized accessing of musical works continues to take place in a big way alongside authorized accessing of such works. Moreover, I have not encountered any data that suggest that the various efforts to find commercially and legally workable models have led to a trend reduction in unauthorized downloading and the like. Based on these observations, the best we can say is that the glass is still half-full from the point of view of those who view compensating creators of musical works to be a desirable long-term state of affairs.

For those of you, however, who find this half empty/half full scenario an acceptable result under the circumstances, The Economist has offered sobering commentary that the situation can become a lot bleaker for music rightsholders. In particular, in the 4 December 2010 article, "Free as a Bard: Music in China", the piece describes the depressing attempts to create a commercial market for recorded music in China. Let's start from the end. Gary Chen, described as a music promoter who migrated into the world of online music, says bluntly that Chinese consumers simply "won't pay a penny" for recorded music. Based on his unhappy experiences, Mr Chen may be well suited to back up his bleak observation.

Thus, in 2006, he established the website Top100.cn, based on a mixed offfering of both a la carte items and a subscription service. Alas, it seems, the prices charged for these offerings were low, but not "low enough." The question is whether any price is low enough to induce a critical mass of Chinese consumers to pay for their recorded music. Certainly, it would seem, Mr Chen is trying. Top100 last year began to offer consumers free MP3 downloads, supported solely by advertisements. The service is supported by record companies. As well, Google has invested in the website (Google provides 60% of the traffic to the site, so it would seem).


The financial results of the advertising options are beyond disappointing, at least for the moment. Mr Chen has garnered the equivalent of about $1.5 million dollars. Before you say -- what a pittance, consider the really telling data point. In all of China, for 2009, "sales of recorded music amounted to just $75 million." In any event, Top100.cn is "profitable" only on an operating basis, i.e., before it takes into account the amounts owed to the recording companies. As well, Baidu, China's largest search engine, offers an MP3 service that offers music (presumably without cost). The record companies claim that Baidu enables links to pirated contents; however, the Chinese courts have not agreed, with the result that Baidu constitues a formidble challenger to Mr Chen's business model.

Perhaps out of desperation, perhaps out of inspiraton, Mr Chen is trying to introduce additional schemes to monetize musical contents. In the first, he is attempting to entice users to pay a sum for bundled collections of music, the provenance of which are recognized musicians and other respected figures in the musical world. The second is a subscription service for access to music in the cloud, which enables the user to download music to a variety of potential devices.
What is one to make of this story? Much depends upon how one views the Chinese market as a harbinger or an outlier (albeit a giant one). If China is a harbinger, then the future looks bleak for the music industry. In a bit of a reversal, while China has been serving as the principal engine of economic growth, here it may be serving as the engine for the potential death-knell of the commercial music world as we know it.

If China is an outlier, however, there is no material threat that the music industry will not be able to right itself in other markets, even if it encounters a hostile environment in China. Under such a view, Mr Chen's lament could be seen as not coming from an innovative entrepeneur seeking to succeed against all the odds, but from a businessman who simply has been unable to succeed in a big way in his home market.

Imagine that you are an executive in the music industry: do you opt for the Chinese situation as a harbinger or as an outlier? Much rides on your answer to the question in formulating a strategy, or set of strategies, to deal with the challenge of monetizing music in the coming decade.

Monetizing Online Contents: Is It a Qualitative or a Quantitative Matter?

I admit--I am a podcast freak. Every night I dutifully download from iTunes to my iPod the most current podcast broadcasts from a pre-selected list of sites. I then spend the better part of an hour in the morning (in conjunction with my morning walk), and a similar amount of time on the bus ride home, listening to these broadcasts. At the top of my list are the economic and business-focused podcasts offered by Bloomberg Radio, orchestrated by the dynamic force of its primary interviewer. While most of these podcasts are shortened from the full-length version of the original radio broadcast, sufficient content and elegant editing made the offerings a perfect fit for my morning and evening listening habits.

However, those days may be coming to an end. Starting at the beginning of this week, Bloomberg seems to be offering one of two choices. Either subscribe to a so-called "premium" service, which entitles the listener to access to the original, full-length broadcasts in exchange for a yearly fee, or be satisfied with only a series of short snippets, a mere fraction of not only the length of the original broadcast but the typical length of the edited item prior to the introduction of the premium service as well. (The "premium" service also promises a number of additional contents, presumably available only to podcast subscribers.)

In so doing, Bloomberg appears to betting that it has found a winning formula for that most elusive of challenges--how to monetize contents available online. Bloomberg is seeking to so by changing the behaviour of its listeners, whereby it is attempting to induce people to pay for contents that were previously available free of charge. While I can sympathize with Bloomberg's desire to find new sources of income, particularly in the online space, nevertheless, permit me to voice my reservations about this scheme.

My reservations do not derive so much from the prospect of being asked to now pay for online contents (I would prefer not to pay, but I am prepared to do so if I believe that I will receive a commensurate benefit.) Rather my puzzlement centres on the why Bloomberg believes it can attract me to sign up for contents which, in the aggregate, are less attractive for my personal use than were the contents prior to the change.

Think about it: the attraction of the contents in the old regime were not simply that they were available for free, but that they were edited in such a way that made them a perfect fit to my morning and evening schedules. In other words, I was drawn to the podcasts precisely because they were a shortened form of the original radio broadcasts. Recalling the old saying, "I did not have enough time to write you a short letter so I wrote you a long one", it was the editing function that turned these contents into a desirable user experience. Without wishing to sound trite, the fact that "less was more" was crucial.

Where Did That User Experience Go?

The new premium podcast service has turned the user experience of these broadcasts on its head. In so doing, has taken the position that monetizing contents online, by moving from a free to a subscription model, is a quantitative, rather than a qualitative, matter. Speaking for myself, I don't get the commercial logic.

After all, if I want to listen to the full-length broadcast (which, crucially, I do not), I can do so for free by listening to the original radio broadcasts. No special effort is required by Bloomberg to enable me to do store and listen to these broadcasts on my MP3 player. As I noted, the value-added experience under the previous arrangement lay in the editing of the contents. I would have thought, therefore, that Bloomberg's challenge would be to convince me to begin to pay for this user experience.It may come as a surprise, but I so much valued this user experience that I would have been willing to pay for it, even if had been previously offered for free. But I was never given this opportunity.

Instead, Bloomberg is trying to convince me to sign up simply because they offer me more contents that were previously available. If before, "less was more", as a qualitative matter, the current offer is that "more is less", as a quantitative matter. I assume that Bloomberg has done its marketing homework and that it is convinced that it will commercially succeed in this move. If so, it will may mark a major turning point in the monetizing of online contents. Perhaps--but not for me, I suspect.