Why China Is Not Among Top 20 Countries of Pirated Music Download?

By You Yunting

Musicmetric, a website in USA, published the top 20 countries of pirated music download, yet to most ones’ astonishment, China is not found on the tally, who is commonly accused of granting least protection on IPR. Then what contributes to the surprising result? In today’s post, you could find our answer to it.

I. Most online music services are using the copyrighted ones

Unlike chargeable music download in iTunes or through P2P in USA, most users in China tend to get their free music by search engine, or download or listen to them by music software. The most popular music service now in China is from Baidu (NASDAQ: BIDU) and Tencent (SEHK: 700), whose music library is mostly licensed by the main recorders around the world.

Like in July of 2011, Baidu announced the execution of the license agreement with UMG, SONY and WMG, namely the renowned “big three”, and pay them the royalty through the collective management organization. Before that, the Chinese Internet giant has also gained the license from EMI. With these efforts, Baidu was removed from the notorious list of USA government. On the other hand, as indicated on the website of Tencent, QQ music of the company has a tight cooperation with 100 more companies around the world, including the 4 main music companies; thus makes Tencent own the greatest resources of copyrighted music in mainland China. As to Google, though it has shut down the music services in China, Google’s local partner top100.cn is also known for its copyrighted music streaming. And all these music services, either online streaming or download, are of no charge or limitation. For this reason, Chinese users are not necessarily to download the music by P2P, and therefore China is not seen on the list.

II. Why Chinese users could enjoy copyrighted music with no fees paid?

As known to us, the production of music demands cost and not cheap at all. In USA, despite the free online radio like last.fm and Pandora, their services of music-on-demand and download is on the payment, like iTunes music download is of 0.99 dollars for each, and the audition can only cover the first 60s of the work. Then why shall Chinese users get access to the music-on-demand and download service without the fees? Our opinions are: 1) part of the music manufacture cost is recovered by value-added telecommunication service like ringtone; 2) what it more accounts for Baidu’s prevailing in the lawsuits against its MP3 search several years ago, and that makes recorders compromise to the Internet.

In 2004, Baidu launched MP3 search service right before its IPO. With that service, users could get the address of online streaming and download by typing the names of the work, yet Baidu was of no license from the recorders then. For that, IFPI started several rounds of lawsuit against Baidu MP3. But it seems that no strike could tremble Baidu who shelters itself with the safe harbor principle, and the recorders successively lost the lawsuit filed by seven music companies in 2005, 100 million compensation claim by four main recorders in 2008 and 100 million compensation claimed by entertainment base in 2009 (note: the link is in Chinese). The market share of Baidu MP3 is also boosted by its success in lawsuit, and even once occupied more than 92.8% of the whole market share.

I have been against such judicial judgment for it makes the music download legitimate, and the recorder could get no gains as they deserve. All these may damage the development of the industry. Obviously, the above decision is not considering the balance of Internet industry and the music business.

From the contract examined by us between recorders and Internet companies, big music companies would set rigorous clauses on music using, and for the profits sharing agreement, in addition to the high sum upfront payment, the costly running royalty calculated by amount of audition and download is also highlighted. Therefore, it would be difficult for Internet companies to establish the cooperation with recorders. But facing with the crucial facts that few judicial protections would be extended to online music, most music companies has to reduce their demands. Judging from the wide mostly adopted free download and streaming among big music websites, we estimate most recorders have made concessions, and their main income shall come from the upfront payment, while the following running royalty could not be very high.

III. Will the free mode last long?

The music industry nowadays seems to be in robust development, nearly all the website has been used the copyrighted work and users are thereby benefited for endless music in front of them with no charge. Yet in our opinions, that is mainly resulted by the poor protection on IPR and the last choice for the right owner for they have no other options at all. Although we have seen some profit growth point under such modes, i.e. more concerts by the singers or more ads on the online pages. Yet without the payment of the ultimate consumers, the current development is not sustainable and with various problems. The simplest deduction: the traditional margin for the industry is from the sale of records, cassettes, CDs and concerts, yet in the era of Internet, most music playing is with online streaming which is of no charge in China. As indicated by the statistics, in 2010 (note: the link is in Chinese), the most popular album sold 15 thousand, but we saw a huge sale of 500 thousand albums in 1999 (note: the link is in Chinese), the deduction of 2/3 in profits could not be covered that comes from value added telecommunication business.

The music business income of Internet companies is even less, but they shall take three royalties, respectively for the purchase of tunes and lyrics copyright, sound recorder and performer, and the absence of any could lead to the infringement. Moreover, the recorder is also facing the expensive expenditure of server and human resources. Such costs, to big websites like Baidu and Google could be covered by their propaganda revenues, but we have seen the shutting down of the music service by Google and the change on the chief of the music department of Baidu, that implies the defects and problems of their business operation. On the other side, to the small websites, their profits could be more squeezed as no income from ads.

Currently, recorders and music websites have all been fully enrolled in the market economy, and shall solely take their interests and losses. But the existing no-fees-payment model makes both industries under the threat of deficit. And to establish a new margin model is the most urgent task for them, and the charge on consumers may be the simplest way. However the question is all the music service is free of charge, and who shall dare to cress its Rubicon to risk a charging service in China? Also the industry wide charge could be blamed of Cartel of planned controlling over the market which is prohibited by Anti-monopoly Law.

Lawyer Contacts

You Yunting

86-21-52134918

youyunting@debund.com, yytbest@gmail.com

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