Asia’s Neglected Music Consumers

Check out this in-depth article from MIDEM 2010 speaker Mathew Daniel, highlighting the plight of Asian music consumers who are not only unable to conveniently access legal music but also cannot comprehend the music industry's seemingly complex reasons for this 'music apartheid'.

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This article first appeared on the MIDEMNET blog, HERE.

In this in-depth guest post, MIDEM 2010 speaker Mathew Daniel, vice president of China-based digital music distributor R2G and online music store wawawa highlights the plight of Asian music consumers who are not only unable to conveniently access legal music but also cannot comprehend the music industry’s seemingly complex reasons for this ‘music apartheid’.

Music Apartheid
As we move into a new decade and leave the last one behind, we see yet another year of unfulfilled opportunities gone by the Asian market (references to Asia in this article will generally exclude Japan, Korea and Australia). For far too long, Asian music consumers have been neglected and not been given fair access to music. Instead, discussions on music consumption in Asia are usually in the context of piracy and Asian music consumers are often arbitrarily labeled as the stewards of said piracy.

It is inexplicable that in this digital age, legal access to music across large swathes of Asia is glaringly lacking. With the dearth of fair and convenient access, it is no wonder that Asia’s music consumers have had to resort to file-sharing networks to obtain their music.

China, despite the huge levels of piracy – in an ironic twist of circumstance and partly due to efforts to curb piracy – has recently been infused with one of the largest quantities of legal full-length music available to consumers in Asia via Google China and; with the caveat that it is still an experiment in progress with other variables at play that will influence the final outcome. In the meantime, the rest of Asia’s consumers would be justified in wondering if indulging in excessive piracy is the only route by which they too will be offered legal access to music.

Instead, Asian consumers who want to do the right thing have often been subjected to music apartheid in their futile attempts to purchase music legally. Consumers do not understand the music industry’s self-imposed borders and complex self-righteous rights controls in this digital age that they see as ultimately serving only to impede the access of legal music to their shores.

Amazon Sorry
For example, despite Apple’s stand that the iTunes Music Store is an integral part of the iPod music consumption experience, it is the lack of access to the former, but easy availability of the iPod in Asia – and duly stocked with pirated music by users – that has had Asians wondering aloud for years as to when Apple would make the iTunes Music Store available in this part of the world. Chin Wong of the Philippines Manila Standard in an open letter to Steve Jobs more than three years ago encapsulated Asian sentiments best:

“Where are Asian iPod buyers supposed to get their music? Limewire? Other file-sharing sites? We don’t blame Walmart for NOT selling us a whole bunch of stuff, but being able to buy songs on iTunes is arguably part of the iPod experience – or at least Apple sells it as such. So, if they’re going to sell us a product here that only works part of the way, they should at least level with us and say why they have to do it, don’t you think?”

Of course, the standard answer and bogeyman is piracy…and Apple might even see fit to deflect it to the major labels’ reticence and/or demands as barriers. This begets the question as to whose responsibility it is to ensure that Asian consumers have fair access to music – labels or retail providers… or both?

As we enter a new decade, the questions asked by Chin Wong on behalf of Asians are still relevant and the music industry collectively has to examine the situation and seriously review the relative state of lethargy and inertia being exhibited with regards to licensing music in Asia.

Indeed, compared to the West, Asian music consumption habits are different and involve a plethora of services and devices that labels and distributors need to familiarize themselves with before they embark on negotiations and partnerships with potential Asian online and mobile retailers.

To illustrate the diversity in consumption habits in Asia, Synovate published a survey of more than 8,000 youths (aged 8-24) in 12 countries, and the following chart illustrates channel/ device usage for listening to music.

Channels, Devices Used to Listen to Music

In general, the computer is the device used most often for listening to music

Devices Used Most Often

Overall, only 11% paid for music, and mainly via mobileEven then, the cash cow of mobile music is being eroded as more users are side-loading from their computers and from unlicensed sources.

Music Access on Mobile Phones

In each of these surveys we can assume that the ‘Computer’ is the elephant in the room and is a euphemism for P2P, BitTorrent and illegal music search engines that are the main vehicles used to download music in Asia.

With a dearth of legal music services in Asia in general, it can be argued that music fans in Asia will inevitably seek out P2P, BitTorrent services and illegal websitesthat fulfill their needs and this will in turn embolden and strengthen these services. And when these illegal services fester and become more virulent, and with the Internet being a global marketplace despite the best efforts of labels and music publishers to artificially practice music apartheid, these same services will eventually be accessed by hitherto consumers of legal music in the West. The BPI stated that in the last 6 months there was a 47% increase amongst UK users of unlicensed overseas MP3 pay sites and 28% of illegal mp3 search engines. On the flip side, it should be noted that UK users are willing to risk their credit card information and pay for music at unlicensed MP3 sites in Russia – as proof of concept, this shows that customers ARE willing to pay for music but that pricing is an issue. Martin Lewis of popular UK site Money Saving Expert reinforces the notion by stating, “If it (music industry) promoted cheaper, legit music it’d mean fewer illegal downloads.”

This lesson can be applied to Asia and fair pricing is necessary in order to wean consumers off disorganized, metadata deficient and at times, virus and malware infested illegal music sites and services.

Detractors will claim that mobile carriers in Asian countries are already offering music to consumers via mobile but it is certainly an affront to music fans that mobile carriers’ collections from the low thousands to around 100,000 tracks barely fulfill users’ needs when access to millions of songs are available via P2P and BitTorrent in comparison. Put simply, the niche music needs of millions of Asians are not being met sufficiently in terms of choice via deficient existing mobile music catalogues and it is a throwback to the music industry of old when it was dictated to consumers that they would only be allowed to access to a finite base of mainstream music.

The last company that attempted to meet users’ needs across Asia was pan-Asian online music store, Soundbuzz. Unfortunately, with utmost respect to them, despite their best efforts over 10 years in bridging  major label parameters, lack of efficient online payment systems and piracy, the store was closed down by their new owners Motorola in July 2009 due to a change of strategy by the latter leaving a void in the Asian digital music space.

In the meantime, another mobile device manufacturer, Nokia, has attempted to move into the vacuum in Asia. Though its attempts to provide access to music are to be lauded, it has to be recognized that there is a high barrier to entry requiring customers to first purchase a phone that provides users with a passport to a library of music – their objective is not to provide music for its own sake ala a traditional music store but to sell devices. So Nokia’s Comes With Music is not a typical service for the average music consumer in Asia with its high entry price point.

Sandy Monteiro, SVP of Universal Music Group, South-East Asia and one of the more prominent digital music executives in Asia, has likened the music industry to a sleeping giant that has finally awoken:

‘We had been too entrenched in selling physical media like tapes and CDs for decades,’ he said. ‘We thought our job was to sell CDs. The truth is they were just containers for our real business – selling music”.

Indeed, CDs are still seen as the last chance saloon cash cows by retailers in Asia and in countries like Singapore and Hong Kong, they are sold at unrealistic prices of around S$16-20 and HK$100 all the way to HK$200 for imports respectively. It is no wonder that consumers are driven to illegal downloads, but laws in Singapore and Hong Kong dictate that downloaders stand to be prosecuted. So music consumers end up experiencing the classic rock/hard place syndrome with high CD prices on the one hand and theoretically facing prosecution for the downloads their passion for music drives them to.

Symptomatic of the gridlock that plagues attempts to introduce legal retail digital music services in Asia is the report of a spat between HMV Singapore and Singapore rights collection society, COMPASS in December. HMV’s attempt to introduce a digital music kiosk at its premises failed to materialize due to an impasse in its negotiations with COMPASS which provoked Emily Butt, managing director of HMV Singapore and Hong Kong to protest,

“The society is asking for a high advance and high commissions on digital tracks to be sold at the kiosk. COMPASS has not been very cooperative in terms of helping with this digital platform. They’re discouraging people from offering a digital service.

COMPASS licensing manager Melvin Tan rebuffed the claims: “COMPASS has consulted its stakeholders who have totally declined the proposal. The allegation by HMV is both inaccurate and untrue.”

In Vietnam, another high profile legal music service, has been trying to license music for digital sale but was instructed by all the major labels with the exception of EMI that they would only license if DRM was integrated into the music offering – and yes, this is still happening in 2010!!

Of course it has to be recognized that there is also an uncontrollable amount of piracy managed by  opportunist companies and exacerbated by the loopholes and protection accorded to them by the Safe Harbor provisions of DMCA equivalent laws in these countries. And this might cause labels to err too much on the side of caution in demanding stringent upfront advances from all its potential partners, but if insufficient due diligence and unrealistic blanket conditions combined with the blind application of Western licensing models, minimum guarantees and service fees in US dollars are imposed on potential retail partners, then it can only serve to add to the barren landscape of still-born music retail services.

This is by no means a discourse on the rights and wrongs of the involved parties, but the real loser here, as it has been across Asia for years is the consumer. It has to be realized that there is a legal music access problem in Asia and it behooves labels and publishers to ensure that they seek out and provide maximum support to trusted and reliable retail partners, otherwise, it is pointless for label executives to bemoan music piracy in Asia during music industry conferences.

Indeed the collateral damage that the music industry has inflicted upon the average music consumer in Asia has to stop. However, with some due diligence and planning, labels and music retailers can make an informed decision on licensing music in Asia as follows:

Licensing Western Music in Asia

1) Asia is not just Japan… or Australia.
International artists, their agents and labels have a habit of promoting their music and playing in only Japan and/or Australia and bypassing many other Asian countries. Piracy in Asia as a problem should not take sole precedence over obscurity. Without the requisite investment of resources in promotions at every level including live, it is likely that the majority of Western artists will be untroubled by piracy in Asia. However, it is an opportunity lost that they fail to contribute to and cultivate the many growing music niches in Asia in a more active manner. Instead, train-wrecks like Britney fuelled by the global gossip news networks entrench themselves in Asian markets, not to mention the many domestic artists that are also competing for the attention of local audiences. It is thus an ironical conundrum that the ‘luckier’ Western artists’ only exposure in the neglected Asian markets is sustained by the very same pirate networks that their respective labels condemn – while the rest languish in obscurity.

2) Understand music preferences and cultural norms
Find out what kind of music genres, languages of music consumed, types of music, local vs foreign music appetites etc are relevant country by country in Asia.

3) Understand how music is consumed
Factors to consider with regards to the target market include technology usage, existing popular services and devices, formats, online/ mobile/ physical/ live, competing online activities etc

4) Music pricing, payment mechanisms and revenue share rates
Cost of living and average salaries, consumer price Index, competing services’ pricing and piracy are all important factors to consider when defining pricing in the respective Asian markets. Instead some labels have tended to dictate retail prices to Asian digital retailers with reference to the USD 0.99 unit rate. Artist contracts that set their standard royalty at a fixed US dollar value per unit sold are unmindful of global marketing needs and myopically fail to accommodate currency differences and living standards around the world.
This has to be balanced with the fact that credit card take-up is low in large parts of Asia and local payment engines demand revenue shares that are much higher than that of credit card systems and can even go up to 30% of revenue.
Furthermore, in nascent markets, the retail partner has to invest an inordinate amount of resources but some foreign labels are sometimes still insistent on using the 70:30 revenue share rate that iTunes has arbitrarily decided in the US is the fairest one for them, knowing that their real revenues come from ancillary iPod sales. In Asia, with mobile carriers requiring between 15%-70% of revenue (depending on country) and mobile service providers requiring between 20%-50%, it is an irrefutable fact that the balance of power is stacked against music retailers and labels.
High Delivery fees charged by some foreign music distributors are often in high US dollar or Euro values and do not take into account the inability of retail partners to recoup this high upfront cost as a result of low retail pricing per unit in the respective market, though in recent times, some more enlightened distributors have been more flexible in Asia.

5) Due diligence on potential partners.
A standard upfront advance from a potential retail partner is always tempting for labels to seek – however, it can amount to blood money as the retail partner might not grow the market and could well be devaluing music in order to simply build traffic and increase valuation of the service provider or worse, cheating artists of their rightful royalties.
For example, EMI failed to conduct the necessary due diligence required of it and inexplicably partnered with infamous music infringer, Baidu in China. Expediency of this nature simply harms the market in the long run by emboldening illegal operators and inhibit others who are trying to build a viable market. There exists many Service Providers in Asia that use music to drive traffic to other more lucrative parts of their portal while others that simply build up their value in order to flip their companies or use music to sell devices. The record industry in the US has yet to dig itself out of the hole it got itself into as a result of being beholden to one of the largest tech firms in the world which uses music to sell its devices and the lessons are still not learnt well.

6) Choose trusted partners
Work with trusted partners instead of blindly licensing every operator in the market, which would inevitably include untrustworthy ones. This might mean that in the railroad track building phase in some markets, it might be necessary to work with a single trusted partner in an exclusive manner for a finite period in order to ensure stability and the bedrock for future success. Consider it the label’s investment in the market.

7) Lobby for the cessation of US/ European financial institutions’ support of pirate sites in Asia
Oftentimes, a lot of the piracy in Asia is funded by Western cash influx. For example, when institutions like Fidelity and Morgan Stanley are funding the likes of Baidu’s illegal mp3 activities as reported by The Register , then the battleground that internation labels should focus on is their own backyard first.

8) Understand business models and technology adoption in respective countries in Asia
Transplanting and applying Western licensing, sales and promotion models can be at odds with the Asian market.
Labels, publishers and distributors should not apply the same rigid licensing models and fees to potential partners without first examining their business models and their contribution to building a robust music distribution model in the long term especially in Asia where mobile is paramount.

Strand Consulting highlighted that dissonance in the flow of information inhibits a better understanding of differing business models and technology adoption in countries beyond the American mothership.
“A great deal of the communication in the press will derive from the USA and be written by American media, who most often do not have their finger on the pulse regarding the telco world outside the USA. The total USA market is still only 7% of the global mobile market. We believe that a great deal of the press coverage that will attract global attention will be created in large international media, whereafter a great many smaller media will uncritically quote the international media. In our opinion there is an enormous difference between the mobile market in the USA and what Strand Consult is seeing in countries like Brazil, India, Kenya, China and large parts of Europe.”

By no means is the above a guarantee of success in the Asian market but will hopefully help cut through the endless chicken and egg debates on piracy vs lack of legal options. As TorrentFreak duly noted,

“Yet while millions flock to file-sharing networks and the knowledge on how to use them continues to spread, there is still a huge and largely untapped market out there, eager to funnel money through the official channels.”

There is also the possibility that the years of neglect have already eroded the market substantially, but without competitive alternatives for Asian consumers, unless labels face up to their Hobson’s choice and decide to give up the market for dead, then they are beholden to give it a proper shot. As Tim O’Reilly presciently stated in 2002:

“Services like Kazaa flourish in the absence of competitive alternatives. I confidently predict that once the music industry provides a service that provides access to all the same songs, freedom from onerous copy-restriction, more accurate metadata and other added value, there will be hundreds of millions of paying subscribers. That is, unless they wait too long, in which case, Kazaa itself will start to offer (and charge for) these advantages. (Or would, in the absence of legal challenges.)

For more information on licensing music in Asia, especially China, you can refer to The Global Outpost blog

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