Telecom Media & Technology

Mon, 07/12/2010 - 15:52

Mathew Daniel is vice president of R2G.net, a centralized music distribution platform in China promoting the consumption and monetization of legitimate digital content. Through R2G Daniel also runs Wawawa, a China-based online music store. Daniel is the main contributor to the blog Theglobaloutpost.com featuring articles on the rise of alternative forms of music consumption.

As we move into a new decade we see yet another year of unfulfilled opportunities pass by the Asian market (references to Asia in this article will generally exclude Japan, Korea and Australia).

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

In an ironic twist of circumstance, China, partly due to efforts to curb huge levels of piracy, has recently been infused with one of the largest quantities of legal full-length music available to consumers in Asia via sites like Google China. But this is still an experiment in progress.

Meanwhile, the rest of Asia's consumers who want to do the right thing have often been subjected to music apartheid in their futile attempts to purchase music legally.

For example, despite Apple's stand that the iTunes Music Store is an integral part of the iPod music consumption experience, the iPod device is much more easily available in Asia than the iTunes Music Store.

The music industry collectively has to examine the situation and seriously review the lethargy and inertia with regards to licensing music in Asia.

The last company that attempted to meet users' needs across Asia was pan-Asian online music store, Soundbuzz. Unfortunately, and with utmost respect to them, despite their best efforts over 10 years to bridge 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.

Another mobile device manufacturer, Nokia, has attempted to move into this vacuum. Though its attempts to provide access to music are to be lauded, 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 but to sell devices.

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.

However, with some due diligence and planning, labels and music retailers can make an informed decision on licensing music in Asia. The following are some highlights in how this can be done:

Understand how music is consumed

Research firm Synovate published a survey of more than 8,000 youths (aged 8-24) in 12 countries. In general, the computer is the device used most often. We can assume that it 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.

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

Music pricing, payment mechanisms and revenue share rates

Cost of living, average salaries, the local Consumer Price Index (CPI), competing services and piracy are all important factors to consider when defining prices in Asian markets. But some labels have dictated retail prices to Asian digital retailers with reference to the $0.99 unit rate.

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. 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 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.

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 and inexplicably partnered with infamous music infringer Baidu Inc. in China.

Many service providers in Asia use music to drive traffic to other more lucrative parts of their portal, while others simply use it to build up their value or use music to sell devices.

Work with trusted partners instead of blindly licensing every operator in the market. 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.

Lobby for the cessation of US/ European financial institutions' support of pirate sites in Asia
Often a lot of the piracy in Asia is funded by Western cash. 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 first battleground that international labels should focus on is their own backyard.

Understand the legal framework and how to best utilize it

Content owners cannot expect the government to police their content online. For example, the law in many countries takes its lead from the DMCA and the Safe Harbour provision in the US which allows the proliferation of user generated content - and this has led to potential abuses by many Web sites. However, the law also states that a take-down notice needs to be served and complied with before liability of the content hosting company can be established. At the very least, labels and publishers should invest in basic resources to monitor and protect their content.

Understand business models and technology adoption in Asia

Transplanting and applying Western licensing, sales and promotion models can be at odds with the Asian market. Micro-managing Asia from overseas headquarters can be a huge problem.

Labels, publishers and distributors should not apply the same rigid licensing models and fees to potential partners without first examining business models and their contribution to building a robust music distribution model in the target market in the long term.

By no means is the above a guarantee of success in the Asian market but will hopefully help cut through the endless chicken-or-egg debates on piracy vs. lack of legal options.

Mathew Daniel is vice president of R2G.net, a centralized music distribution platform in China promoting the consumption and monetization of legitimate digital content. Through R2g Daniel also runs Wawawa, a China-based online music store. Daniel is the main contributor to the blog Theglobaloutpost.com featuring articles on the rise of alternative forms of music consumption.

The edited version of this article was reproduced with permission from www.theglobaloutpost.com

Interfax does not necessarily share the views expressed in this article.