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China Mobile hits the right note with legit music

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By Joyce Fan

Standing by copyrighted digital music for seven years in a market where only 1% of users are willing pay for it sounds irrational, but annual revenues over CNY20 billion (USD3.21 billion) for three consecutive years proves it can be done. Zhu Hong, GM of Wireless Music Base (China Mobile), believes that the secrets to this success go beyond the operator’s unrivaled user base (having just passed 700 million). Continuous efforts in ecosystem & content integration, as well as value creation, must also be credited.

Wireless Music Base (WMB) is a branch of China Mobile that provides music services online, a field that spans telco, music, and the Internet itself. It directly cooperates with record labels and other copyright owners, and has provided legitimate music downloads since 2006, making China Mobile perhaps the most prominent commercial promoter of IPR protection and content integration in China. Supported by a robust central music platform, WMB has created an effective marketing & sales channel for upstream musicians. By leveraging its billing system, WMB charges for its music services through the user’s regular phone bill, an elegant solution to a major issue in the developing world. With a little luck, this will drive the evolution of a complete ecosystem for legit digital music in China, led by the big telcos.

Content dominates

WinWin: WMB has strong momentum, having taken in CNY22.1 billion (USD3.55 billion) in 2011. What is your revenue structure?

Zhu: China Mobile’s WMB was established in 2006 to provide music services for 650 million users (at the time) served by 31 provincial branches of China Mobile.

The majority of our revenue comes from three sources. First is our ringback tone (RBT) service. We currently serve 470 million RBT users and each of them contributes around CNY2.00 each month. Second is downloading services – via both our website and app. We had 1.3 billion downloads in 2011, which is pretty impressive and a major income source for us. Third, we also have nearly 50 million premium members who enjoy and pay for certain value-added services.

WinWin: People are accustomed to free music in China. The 1.3 billion downloads that you just mentioned are very impressive (two for each China Mobile subscriber). How did you cultivate a willingness for users to pay for music?

Zhu: You just mentioned one of the most important issues in our industry – free music. According to research, only 1% of users in China are willing to pay for digital music, yet we have insisted on providing and promoting copyrighted music for seven years, through our RBT services, for example.

Because of this insistence, we have earned a certain amount of respect in the music industry and can offer the best, newest, and most complete music lineup in China from the four largest record labels (Sony, EMI, Universal, and Warner) and more than 700 content partners. We have established the most complete authorized music library in China (1.68 million songs in total). Users can find music on our site that they simply cannot find on any free-download site. We are also the major platform for new releases in the domestic digital music market – 98% of new songs are first released through us and the users know they can come to us to get the first listen.

At the same time, we have the M-Music fan club and have also developed an artists’ fan club. There are regular member discounts, membership gifts, deals from business partners, and other benefits such as free concert tickets. All of these additional services motivate users to pay, that’s all – the better meeting of user needs in content and services, and making them happy to be part of the music scene.

Value dominates

WinWin: There are many singers, even superstars such as Jay Chou and Jolin Tsai (both Taiwanese pop icons) who prefer WMB for initial release of their music. How did you attract them?

Zhu: Well, the music industry used to sell and promote music via CDs, concerts, and ads on traditional media, but it is safe to say that the game has changed completely. According to an IFPI (International Federation of the Phonographic Industry) report, digital channels have overtaken physical formats to become the dominant revenue stream in the world’s largest market, the U.S. There is no doubt that music can be more easily sold through the Internet, helping artists to increase their exposure. Moreover, we believe that traditional music cannot be promoted effectively without the help of the Internet. We own the largest platform for digital music release in China. It takes only four hours on this platform to deliver a new song, and five million people can hear a new song on the first day of its release. Meanwhile, WMB also has strong promotion capabilities in conjunction with 31 provincial branches of China Mobile, as well other channels. Everyone sees the value.

Jolin Tsai published her album Butterfly with us in 2011, and downloads reached 26 million. Before the digital age, domestic CD sales of 100,000 were viewed as respectable and sales of 1,000,000 meant national popularity. A lot of popular stars now are willing to cooperate with us and participate in the promotional activities that we organize.

We adopt a “50-50 split” revenue-sharing model with content providers (CPs) to ensure mutual benefit. In China, WMB contributes 60% of the overall revenue for record companies. There is no doubt that cooperation with the traditional recording industry and performance arts industry is a situation where everybody wins.

WinWin: Speaking of the performing arts industry, The Voice of China was regarded as the most popular domestic talent show from this past summer. WMB provides the relevant RBT and download services. What is the cooperation model with entertainment programs and what is the benefit?

Zhu: The Voice of China is definitely very popular. Before the program aired, the sponsor was proactive in contacting us for close cooperation. The influence of the program is huge, but it needs a plan to turn that influence into profit. Luckily, that is what we do.

We developed the RBT box series for The Voice of China – the first time that we created an RBT box specifically for an event. This launched a whole new aspect of RBT products for us and our users. We are combining the influence of broadcast (both TV & radio) with the sales capacity of our digital platform, and we don’t even need to release any ads. It is a model of low-cost/high-benefit cooperation. Again, it’s a win-win result.

We are going to cooperate on some offline promotional activities, concerts, and other things as well. The influence of these activities, no matter what shows or TV programs are involved, is limited. Only people who actually participate are aware of it, but again the influence of the Internet is unparalleled. It is a very good opportunity for both parties. We are happy to play this role in cooperation with other entertainment programs.

WinWin: Looking back at these past seven years, what is the value of WMB and how has it contributed to the Chinese music industry, in your opinion?

Zhu: After seven years of effort, we created a relatively complete industry chain with our partners. Artists and record companies are upstream; WMB and other online channels, such as Sina, Douban, and Sohu, fall somewhere in the middle, and partners for offline activities are downstream. The value is everywhere along that chain.

First, we help the upstream players monetize their value via our marketing & sales platform, thus enhancing their creative passions. Second, of course, our channel partners gain interest during the process of making products. The ultimate benefit goes to the consumers. They can hear good music easily and conveniently.

This is our value chain. We have a lot of partners and cooperation at each link in the chain, and Huawei is one of our best partners. We all fit together to be better – to make the Chinese music industry better.

Looking ahead

WinWin: What are the trends and opportunities in the digital music market for the next two years?

Zhu: According to Analysys International, the value of the Chinese digital music industry as a whole will reach CNY40 billion (USD6.4 billion) by 2013. Based on our own analysis, we agree. This is a rapidly growing industry, and it has room for even more growth. We estimate that we will see 30% annual growth for the next several years. Second, the copyright issue is attracting greater attention from policymakers and the industry at large; efforts are being made. Third, a Tencent (a local Internet giant) report indicates that the number of mobile Internet users exceeded the number of PC users in China in 2011. Market demand for wireless digital music will grow with this user base.

WinWin: What are the challenges you have in content integration and management of these new opportunities and how will you overcome them?

Zhu: The biggest challenge, still, is free music. Music is an industry that needs creativeness and it cannot develop well without new ideas, new songs, and new artists. However, free music limits the generation of new things because content creators are not compensated. The music copyright issue is also very complicated. These issues slow us down in introducing cutting-edge music. We have done a lot of work to conquer these difficulties.

First, we are always filling our music library with diverse content. In addition to pop music, we are collecting classical and Chinese folk music, and even comedic and dramatic performances.

We are also fostering new talent by introducing independent artists. Musicians with creative ideas can directly license copyrights with us. We introduce their music to our users by making it available for download and share revenue directly, without involving the record labels. At the same time, we ease the CP review standards and make the relevant procedures more efficient.

In the music industry, copyrights for music, lyrics, and recordings are quite complicated and if you do it as a package, the process can stall. We split the music and lyric copyrights to make it faster.

At the same time, thanks to China Mobile Group’s strategy of openness, parties willing to engage in the development of the music business can obtain music from our library and resell it via our billing platform – this creates real value. Music comes in various forms and some of the biggest difficulties these parties face are copyright and billing issues. We can help with both issues to create a more profitable digital music industry.

In addition, Wireless Music Base will develop other mainstream music products, such as music players and broadcast radio. There will also be more long-tail applications for our partners to develop, and we can face the challenges together.

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