When I was in Secondary School, I
was once offered a contract by a music publisher, but when I told Mum about my
interest to join the music industry, her immediate reaction was, "玩音乐是没有前途的 (There's no prospect in joining the music industry) That was it.
I never got to sign that contract but fortunately I didn't think too much about
it then. Fifteen years later, as I recall her declaration, I can't help but
reluctantly agree that Mum was probably right. Looking at the state of the
record industry today, it's the record executives themselves who are calling it
quits. During a recent Lifeweek interview with
Song Ke (宋柯),
the ex-AGM of Warner Music (China Region) painted a bleak picture of the
Chinese record industry and shared his views for its demise.
1. Lack of a strong and cohesive
ecosystem amongst the major players in the industry.
Song Ke feels that for the
industry to sustain healthily, each content provider, including those from film
and television, has to be able to maintain a 40% margin. In the '90s, record
companies were at least able to obtain 8-12%. But today, they are struggling
with less than 2%. Also, labels face the problem of a lack of negotiation power
when approaching downstream e-distributors, and this problem is aggravated due
to a lack of cohesiveness amongst labels themselves, resulting in a lack of
standard rates to ensure the sustainability of all industry players. Song Ke
himself had been lobbying for the past few years to create a united voice
amongst labels to form a coalition and fight for better rates, but his repeated
requests had been falling on the deaf ears of executives who merely see him as
their competitor.
2. Lack of strong support from
the government
Unlike film, television or the
internet content industry which are multifaceted or interactive, the music
industry does not seem to be able to generate the same level of buzz and media
excitement, and hence there is little incentive for the Chinese government to
support the industry in terms of infrastructure development or pushing for
changes in legislation.
3. Lack of transparency/
dishonesty in trade dealing
In the Chinese mobile industry,
Song Ke explains that the ideal business model for ringtones ("1585"
service) is to have telco operators (e.g. China Mobile) receive a margin of
15%, while the remaining 85% is taken by the service provider enabler, which is
to be shared equally between the enabler and the content provider (42.5% each).
This model will be more equitable and sustaining. However, the common grievance
from music labels is that almost all enablers are dishonest and have squeezed
the share of the music labels to as low as 10%.
4. Even pirates know it better.
Song Ke laments it's ironic that
even the pirate industry knows the importance of keeping a healthy 40% margin
for sustainability. The cost of creating a pirate CD is about ten cents, and
the typical mother who carries her child on the street to hawk pirated CDs is
able to earn about $2 from the price of $5 per disc. With such an attractive
margin, who would not resist?
5. Lack of innovation in the
music industry
Song Ke has an interesting point
of view about the lack of innovation in the music industry which has
contributed to its demise. He compares this with the evolution of other media
industries. In gaming, the industry has evolved from console to online; in
film, movies have turned from 3D to IMAX. Such innovation has prevented pirates
from keeping up. However, in the music industry, the MP3 has become accepted as
the norm in place of the CD, and Song Ke considers it as a regressive and
inferior format that does not improve the consumer experience. The MP3 has
destroyed the need to read the lyrics. The MP3 does not allow the consumer to
find joy in collecting album art. So why would the consumer want to pay a
premium for an MP3? Furthermore, the MP3 format does not allow an equitable and
robust business model to develop around it.
Since this blog is about the
future of the music industry in Singapore and Asia, I thought it would be
interesting to start off with Song Ke's pessimistic view of the music industry
in China. Do you agree with his views? Is there any hope at all? Do send in
your comments.
