A record tailspin

In January, Song Ke, arguably the most popular music producer in China and a vocal pessimist of the industry, announced he was quitting the business to run a roast duck restaurant. Five months later, he made an equally surprising return.

Song, the former deputy general manager and producing director of Warner Music China and founder of Taihe Rye Music Co Ltd, was hired in June as the general manager of upstart Evergrande Music. But though the news about the producer's return made waves across the nation, it was his departure at the beginning of the year that revealed more.

As Song put it in January, "China's music industry is at a crossroads. We all need to think about what to do".

What his abrupt departure showed most of all is that the Chinese music industry is struggling badly. With piracy and the rise of digital media, the industry and its music producers, both domestic and foreign, are trying to find their way in the Middle Kingdom.

In 2011, China's music industry accrued $82.8 million in total sales, according to the International Federation of the Phonographic Industry. Sales of media, which include compact discs, records and cassettes, totaled $19.9 million across the country, but 76 percent of that total revenue figure came from digital sales.

Although China is the world's second-largest economy and has a population of more than 1.3 billion, its music sales ranked 22nd in the world in 2011.

The main reason? Piracy. In the age of the Internet, the advancement of technology and rise of new media, record sales are dropping globally. In China, record sales reached $55.5 million in 2006, but in 2011, sales dropped to $19.9 million, according to IFPI.

In 2010, more than 70 percent of the revenue from China's music companies came through digital music sales, although IFPI said that 99 percent of the music in China was pirated.

And in addition to piracy, there is another factor harming China's music industry: the distribution of revenue.

If a song generates 100 yuan ($15.7, 12.6 euros) in revenue, only 2 yuan goes to music producers in the form of royalties, according to industry insiders. The rest goes to telecom operators such as China Mobile as well as Internet service providers such as the search engine company Baidu and web portals Sina and Tencent.

In many other countries, music producers take a bigger share of sales. In the US, the world's largest music market, music companies can get up to 70 percent of music sales, while in Japan, the second largest market, 90 percent goes to producers, says Zhan Hua, CEO of Taihe Rye Music.

"When talking about the music market, people always say the business is very bad. But actually, it is not bad at all. Music makes enormous money. It's only we producers don't get much," Zhan says.

Music producers complain they are losing out on the ring tones business. China Mobile made more than 26 billion yuan in 2010 from ring tone sales and more than 30 billion yuan in 2011, according to China Audio-Video Association.

"They make so much money on music, but (mobile phone service companies) pay very little to us," Zhan says.

To try to make ends meet, many producers are finding other outlets to survive.

Taihe Rye Music, once the largest pop music company on the Chinese mainland, did not renew contracts for all of its singers two years ago, including popular singers such as Chris Li and Pu Shu. Now about 70 percent of its revenue comes from royalties from more than 2,000 songs the company owns.

With limited income from their records, many bands are turning to touring.

Tian Jianhua, spokesman for the punk band Reflector, says the band puts on more than 200 performances a year. Their best-selling record has sold only about 100,000 copies.

"If we made a living purely on selling albums, we would have already starved to death," Tian says.

Modern Sky has in recent years gone the way of music festivals. Each year, the company with a staff of 20 holds the Strawberry Music Festival, China's largest, in Beijing, Shanghai and Xi'an.

Similarly, 13-Month, a company famous for finding folk bands, has held an annual national tour called Folk on the Road since 2009. It is also producing short films. Only 10 percent of its more than 10-million-yuan revenue last year came from royalties.

Domestic record companies are not the only sufferers from the demise of the industry in China. The world's biggest music company, Universal Music, is finding it tough to survive in the nation.

In 2012, although the company will release more digital albums, it will slash the number of CDs and records from 200 in 2011 to 160.

"It's mainly because of piracy," says Janis Chang, general manager of Universal Music Group International China. "We cannot even recover the production costs."

US pop singer Taylor Swift, who is signed to Universal Music, has so far sold 7 million albums worldwide, but only 100,000 in China.

Starsing Records is the agent of three multinational music companies in China. When the company wanted to publish British singer Adele's album 21, they found more than 100 pirated records in the market.

For Chang, challenges for the Chinese music industry include informing people of the harm that pirated online music can do to the industry and recruiting support from the Chinese government to make protective laws and policies.

But when asked why they are still making music, many in the record business attribute their perseverance, their love of music and their hopes that the business will evolve someday.

"The current chaotic market needs regulation. And music companies need to find the rules of its development," says Chang, adding that "in the past years, industry booms like ring tones promise a very huge market potential. Once the environment gets better and we find the rules, you can imagine how many opportunities we will have".

Shen Lihui, general manager of Modern Sky, is also optimistic. "I think in three to five years, China's law on copyrights will be perfected and everything will get better."

Guo Biao, China's chief representative at IFPI, agrees and says "this industry will not stop. Once the business environment gets better, the market will boom very quickly".

The reason for their optimism partly stems from the recent efforts by the Chinese government to protect intellectual property.

Since 2005, it has been cracking down on online music piracy. Last year, the State Council, the chief administrative authority of China, established the National Leading Group for IPR Enforcement, which is headed by Vice-Premier Wang Qishan. In a three-month campaign in 2011, 17 major illegal websites that offered unauthorized services, such as free downloads of books, movies and research papers, were shuttered.

Another reason for optimism is a circulating draft that will amend the copyright law. The draft demands that commercial activities using music for commercial purposes must pay music companies or musicians a fair price. If the law is passed, restaurants, cafes, TV stations and radio stations will need to pay musicians if these venues use their music in their businesses.

In 2011, performance rights - fees that record labels charge users for commercial usage of its music - accounted for 6 percent of the labels' revenue in the world and is on the rise, according to IFPI.

Francis Moore, CEO of IFPI, commented at the China International Copyright Expo on June 22, that "here in China, there has also been important progress for music and creative industries". China continues to present an extraordinary, and to a large extent untapped, opportunity for the music industry and artists".

At the opening ceremony of the founding of Evergrande Music, Gao Xiaosong, a Chinese musician who joined the company with Song Ke, said "We want to build a big music company that will last 100 years".

"Recently we saw the government move to develop music industry. We feel that music industry's spring is coming soon. Many big investments want to try the water. We are kind of leading the trend," Gao told Beijing Daily.

Sun Yuanqing contributed to this story.

yangyangs@chinadaily.com.cn

(China Daily 06/29/2012 page10)