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Thanks to streaming services, China’s consumers have begun paying for music

HONEST souls intent on paying full whack for the music they listen to used to have a hard time in China. In the era of compact discs, rare was the shop which did not sell counterfeits. The same held true when discs turned into downloads and online streams of songs: hardly any service charged money.

Slowly but surely, China is becoming a market where people pay for music. Over the past five years, digital-music revenues for the recording industry nearly quadrupled, to $195m; most of that amount comes from music streaming (see chart). That sum may still be a tiny fraction of the global total of $7.8bn, but streaming has clearly taken off in China.

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Not everybody is paying: of the 600m Chinese who listen to music online only 20m have a paid subscription, which costs between 8 and 12 yuan (between $1 and $2) a month. The rest tune in for nothing, but many do so on legal, advertising-supported services—Chinese equivalents of the free option on Spotify, the world’s biggest streaming service (which is not available in the country). “Piracy is collapsing,” says Ed Peto of Outdustry, a firm in Beijing offering services to the music industry.

If Chinese consumers have developed a liking for legal listening, it is for a combination of reasons. Smartphones, which have become ubiquitous in recent years, make it easy to subscribe to streaming services. Widespread use of apps such as Alipay and WeChat Pay mean that younger Chinese, in particular, are now used to making small purchases digitally. And, to take advantage of the commercial opportunities in music, China’s big internet platforms have begun to fight piracy.

Not all is rosy, however. The streaming market is dominated by one player: Tencent, the largest of China’s online giants, which is best known for its WeChat messaging service. According to some estimates, its market share in music streaming exceeds 70%. Each of the firm’s two leading streaming brands, QQ Music and KuGou, claims hundreds of millions of users.

One cause of this market concentration is acquisitions: last year Tencent bought two big competitors. More importantly, however, it has paid three international record labels—Warner Music Group, Sony Music and Universal Music Group—a big, but unknown, sum for the exclusive right to stream their music in China. This means that Tencent gets to decide which songs rivals are allowed to play.

Tencent says that it needs such exclusivity to ensure the legitimacy of streaming services and to reduce piracy further. But having one firm with so much power “is never healthy”, says an executive at a rival firm. Xiami, a service owned by Alibaba, another Chinese internet giant, has lost lots of ground largely because it has failed to strike a deal with Tencent. With the market growing quickly, the labels may reconsider their deals with Tencent when they come up for renewal.

Artists also still have gripes. Many services built their businesses on pirated music before they started licensing it. Even today unlicensed “indie” music is pervasive; independent labels and artists still get paid little in royalties, if anything at all, because of their feeble leverage in negotiations with the streaming services. In contrast, stars such as Katy Perry, whose new album “Witness” surged on its release to number one on NetEase Cloud Music, a Tencent competitor, are sure to get their fair share of revenue. Even so, the overall picture is one of progress. “We are going in the right direction,” says Mathew Daniel of NetEase Cloud Music.  

Source: economist
Thanks to streaming services, China’s consumers have begun paying for music

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