Described as “arguably the most exciting starting point for an industry…of any in the world”, this vast land mass boasts twice as many internet users as the US has people. Ben Gilbert assesses the present and future of its comparatively untapped entertainment sector.
Like the title of her BRIT and Grammy-winning second album, Dua Lipa could be forgiven for rushes of future nostalgia at the point of its release in March 2020. This, should anyone have forgotten, was the near exact moment that COVID-19’s blackened cloud began to scud into view across the skies of global society. With the entire world battening down its hatches in recognition of a truly frightening, uncharted present, the singer’s upcoming promotional roadmap suddenly started to look rather different.
“We still thought we’d be playing Glastonbury! As the reality dawned, the temptation to put it back was massive,” Joe Kentish, head of A&R at Warner Records UK said in an interview published in 2021’s IFPI Global Music Report. Rather than retreat, however, the 25-year-old performer’s team redrew plans for a now cancelled world tour into a variety of marketing initiatives, centred around November’s Studio 2054 livestream show. It was an outrageous success, grossing approximately $20m and pulling in more than five million views, including almost two million unique logins from China.
Warner’s ambitious intent to use “massive amounts of promotion in every significant territory” paid off. With a population of 1.4 billion, the Chinese audience was like a stationary target. The latest CISAC Global Collections Report recently found that during the first half of 2020, box office revenues in the region fell 98.3% year-on-year. What were the lockdown masses doing instead of going to the cinema? Well, clearly some of them were watching the Dua Lipa concert.
There are a range of formidable numbers that make this vast but comparatively untapped land mass distinctly attractive for Western audiences, including consumers and industry figures. In a blog for Harris Bricken, the Beijing-based attorney Mathew Alderson, who specialises in the entertainment, technology and creative industries, described China as “arguably the most exciting starting point for an industry – and we are just at the start – of any in the world.”
China has approximately 630 million mobile digital music consumers
With pinpoint clarity, he commented: “China is digital. Its music market is almost entirely digital. Physical sales here comprise only about 20% of the total market. China has more than twice as many internet users as the US has people. There are about 900 million mobile internet users here, 70% of whom consume music online. That means there are around 630 million mobile digital music consumers.
“With mobile payment penetration at about 85%, there are around 540 million consumers in China who can easily buy music on their phones. They may only be spending ¥10 ($1.45) a month for a premium service, or to download an album, but Chinese audiences are being conditioned to pay for their digital music and that is a big development that has taken a long time,” explained Alderson.
Equally, this also amplifies the excitement that greeted news of New York-based independent music company Reservoir’s deal with Outdustry, headquartered in China, to take a minority share in the company. As part of the agreement, which cements an ongoing business relationship inked in June 2020, they have also formed a joint venture to sign and develop Chinese artists and songwriters, including the acquisition of local music catalogues.
“Reservoir’s investment in Outdustry will enable the companies to capture more value from high-growth territories by building on Outdustry’s capabilities in directly monetising music markets as well as its A&R and marketing work. It has direct deals at all major Chinese music services as well as relationships with the local talent industry, and the infrastructure to administer rights themselves,” explained a piece in Music Week.
Reservoir’s investment in Outdustry is “a huge moment”
In an interview with Synchtank, Outdustry’s Head of International Alex Taggart described the expansion of their collaboration as “a huge moment”. He continued: “We’ve been close partners with Reservoir for a few years now, so deepening our partnership with them feels like a very natural thing to do. We’re so excited about the next chapter.” Meanwhile, Spek, EVP of International and Emerging Markets at Reservoir, was equally enthusiastic about establishing a firmer foothold in China, citing the Music in the Air report from Goldman Sachs, which projects a $130 billion valuation of the domestic streaming market by 2030.
“Outdustry have built their business by on the one hand, focusing on addressing obstacles to monetisation of music rights in the eco-system, whilst on the other hand providing services like A&R and marketing to artists and labels to create domestic hits. With our support and resources behind them, we recognize the opportunity for our artists and songwriters to have boots on the ground to navigate these markets, while there is also a tremendous opportunity in investing in local content as streaming takes hold in the region,” he told Synchtank.
“I would say to take your time and assess your options very carefully before diving in. Especially now, with the world’s attention on the Chinese music industry, there’s a perception that it’s a bit of a gold rush.”
– Alex Taggart, Outdustry
Tempering expectations, Taggart was also keen to point out that, as a market in its infancy, caution remains essential for Western companies seeking to hack into this momentum. “I would say to take your time and assess your options very carefully before diving in. Especially now, with the world’s attention on the Chinese music industry, there’s a perception that it’s a bit of a gold rush. But being locked into a bad deal can mean that you’re unable to maximise your potential in the market – we’ve seen a lot of companies who have taken what seemed like big-money no-brainer deals, only to find themselves regretting it very soon after when they can’t get anyone to respond,” he commented.
Indeed, there is considerable local market complexity to consider here. As Alderson points out, the domestic music industry is “beset by systemic royalty accounting problems”. He suggests these are founded upon inadequate metadata, unreliable copyright collections and a reliance on exclusive deals and big advances, whereby “minimum guarantees have been paid instead of royalty income based on actual transactions”. This is a fundamental issue that Taggart has a clear sight on.
“There’s so much innovation in the digital music landscape in China”
“The lack of an effective performance rights organisation (PRO) does still pose a big challenge, as there are certain collections that are really difficult to capture any other way. In theory, that’s a huge pot of money. We’re hoping that gets sorted as soon as possible. Of course, there’s so much innovation in the digital music landscape in China, and that’s a great thing, but it does pose a big challenge when it comes to licensing. It takes enough time trying to sort out publishing metadata with established DSPs – so you can imagine how frustrating it can be when dealing with new platforms,” he said.
The IFPI Global Music Report identifies tangible progress in the existing legal and economic framework, with the establishment of full performance rights across the business. “For the first time, revenue for right holders will be generated for the use of recordings in public performances and broadcasts, enabling further re-investment into the music community in the country,” it outlined. The experience of Outdustry Songs, an independent music publisher launched 12 months ago and specialising in the Chinese market, also suggests that barriers to publishing revenue are collapsing.
“The lack of an effective performance rights organisation (PRO) does still pose a big challenge, as there are certain collections that are really difficult to capture any other way. In theory, that’s a huge pot of money.”
– Alex Taggart, Outdustry
“It’s been a series of huge milestones, each of which took a million little individual steps to get to. Because of the effective lack of a PRO, the digital music ecosystem looks very different to more mature markets, particularly in its handling of data. Having direct deals with the DSPs, it felt like quite an achievement to get our first streaming reports, knowing we’re getting data that nobody else is seeing. And with the very strong growth in subscriptions in the market, that revenue is hopefully just going to keep growing,” Taggart told Synchtank.
It’s also important to consider the specific creative and cultural characteristics of the Chinese market. In a number of recent features, MIDiA Research sought to closely identify how streaming has the power to infiltrate consumers and impact their behaviour in a much more dynamic fashion than physical product ever could. This means that audience reach becomes paramount, allowing such markets to ultimately “change the superstar business” in the hunt for performers from a more diverse range of backgrounds.
Chinese streaming services connect the song, story and fan
“Suddenly population size matters, and emerging markets become the world’s largest addressable music audience. The emerging markets opportunity has the Western music and investment sectors salivating, but there is another layer many have missed: this shift is going to change how Western record labels operate, not least by challenging the very notion of the global superstars which they trade in,” MIDiA explained, adding: “Globalism is becoming replaced by internationalism, homogeneity with diversity.”
Digging more deeply into the nuance of music experience and the culture of fandom which has become a recurring, pivotal theme when analysing the potent potential of audiences in this territory, they make further compelling points. “While in the West streaming only owns the song, Chinese streaming services connect the song, story and fan”, a second piece explained, further contextualising the reflections of a recent Synchtank article examining the rising power of social media and UGC.
In this feature, we highlighted the success of Chinese social entertainment giants Tencent Music (TME) in “monetising fandom”. They reportedly make more than twice as much from social entertainment as music, with micropayments to artists as donations or in exchange for exclusive items contributing enormously to the company’s profits, which hit $664m in 2019. In their analysis of this fundamental exchange between artist and consumer, MIDiA point to a comparative piece on the streaming services Xiami Music and Spotify.
Although the former platform, which was owned by Alibaba and has seen its influence decline in recent years, was shut down in January, there is genuine insight around how these different services engage music fans. “Every piece of music has its own entourage – live versions, videos (the official one and the live ones), behind-the-scenes footage, outtakes, remakes or covers, reviews etc,” explained the UX Collective post when assessing Xiami Music.
Whet Records recently signed their first “virtual idol”, Ha Jiang
Describing its former Western competitor as “individualistic” and “static”, the piece contrasts this with the realisation of a “vibrant, active and symbiotic community around music”. Despite its subsequent demise, there are clear pointers about how a more immersive and interconnected digital proposition can help to create the sort of universal spirit that currently feels very much defined by consumers from non-Western demographics.
“There’s more demand than supply. That being the case, then the most obvious opportunity is investing in more great local content.”
– Spek, Reservoir
In identifying future areas of growth that provide a foundation for further progress, Taggart agrees. “The Chinese ‘fan economy’ sector always seems to be way ahead of the rest of the world. Also we’re seeing more and more feature film and video game syncs cropping up recently, which is a great sign,” he said. Meanwhile, Spek suggested they were equally keen to address the fact that “there’s more demand than supply. That being the case, then the most obvious opportunity is investing in more great local content.”
It’s abundantly clear how much is happening in the Chinese music industry right now. It’s there in the licensing deals signed by all three major labels with streaming giant Tencent Music. It’s there in the cutting-edge futurism that saw Whet Records – Warner Music Group‘s pan-Asian dance label in China – sign their first “virtual idol”, Ha Jiang. It’s also there in the rather more prosaic entrance of legacy acts such as Pink Floyd onto the Chinese social media landspace via platforms such as Bilibili and Sina Weibo. But can China really change the pop superstar business? Dua Lipa, for one, is surely not ruling it out.