Nice CNN video on Google's Free Music Offering China

I blogged on this crucial development here; and just found this video to share.

Why Google's free music deal in China is so important, and what it may really mean

Image via CrunchBase

I have mentioned Google's music-related activities in China a few times during the past 2 years; and just yesterday this topic seems to have heated up considerably. I think these developments are crucial and need further exploration.

As you may know, Google owns a good chunk (or all?) of the Chinese search engine Top100.cn, one of the biggest rivals of the Chinese super-portal and ruling search giant, Baidu. However, Google is still a more or less distant second in the Chinese search market (in 2008, Google had approx. 16.6% vs Baidu's 76.9%) and really needs its Top100 property to better compete with Baidu. The major issue here is - you guessed it - the availability of CONTENT- or rather, the simple displaying of links to millions of music & film files that those hungry freeloaders i.e. digital natives want to stream or download. Baidu allows this - in fact, thrives on it - while Google / Top100 does not (i.e. it filters and removes the links to the files). This is a huge handicap for Google, because the filtering of those content-links is basically driving away all of those 100s of millions of Chinese Internet users that are looking for just that.

Realizing that the real value of the users is in their participation and engagement, and then in paying-with-attention, Google has clearly pursued a strategy akin to the 'Music Like Water' model that I (and Dave Kusek, my partner-in-crime for  "The Future of Music") have also described countless times: Google will simply provide the platform where music can be turned into money, by connecting the user with the content they want right where they already are (i.e. the search page), while gradually but aggresively monetizing their presence and their clicks via 3rd party payments - and this does not mean just ads. Sounds simple but maybe this has not yet been financially feasible in the past - today, any new money for the music companies is welcome, I guess, so here we are, finally: Search with us and we'll give you Free Music. Kai Fu Lee Image via NYT.

Clearly, it is much better for Google to offer and develop a new payment logic and mechanism for the music that is being used, i.e. to somehow license and pre-pay for it (I call this 'being the lubricant of the ecosystem') until such time where the revenues from advertising, up- and cross-selling are big enough to pay for everything, and quite possibly beyond that, as well. And as far as the music licenses are concerned - otherwise a no-go minefield that few Internet companies have crossed in the past - China is clearly a very good place to start as most of these new revenues will be 'found money' for the record labels.

Total Telecom reports:  "Record companies will take roughly half of any revenue from banner ads placed on the page users see when they are downloading or streaming songs, with Top100.cn taking the remainder. Google could benefit from increased traffic on its Chinese site, and can sell its trademark search ads on the search page" The bottom-line? For all parties, it is better to deploy new kinds of ads (think mobile - that will certainly be key), sponsorships and affiliate links while the music is being used (fka consumed;) and to thereby fund the pool of music licensing costs, then not to get involved and leave the turf to all the other guys that don't play by the rules, anyway.

Now, Google has apparently licensed 350.000 tracks from all major labels (how long did that take... I am afraid to ask... *rant alert) and many leading Chinese record companies and artists, and if you are logged into Top100.cn, and based in China (sorry - no access from EU / US), apparently all the music is yours to stream and download.

So: Google pays for the music to get our attention for their ads - sure sounds like a familiar strategy. Radio and TV broadcasting, anyone?

Another interesting morsel is that apparently streaming and downloading is treated as pretty much the same thing (again, from the WSJ coverage, see link below): "Google's Lee said songs on the service are downloaded or streamed around 1.5 million times a day, and he hopes the number will eventually be many, many times that".  I believe I have mentioned this basic fact of Internet music a few times before, too: streaming & listening IS downloading, access IS ownershop, and that's that. The legal artifacts remain, I guess...?

Now, just because I won't want to agree with the major labels and their lobbyists too much;) - here are my big questions:

If this works in China, why not do this everywhere else? If this works for Google, why not for telecoms, ISPs and mobile operators?  If this works for music, why not - sooner or later - for music, TV, video, books and newspapers?

First: China does not have much of a business of 'selling units', i.e. there are no Billions of $ in selling CDs or single-track downloads. Therefore, any money that the rights-holders (i.e. the record labels and music publishers, and hopefully the artists) can actually get from anyone in China is probably very welcome; and that is exactly what the Google / Top100 deal will provide. And even though it would be a fair bet to guess that this deal is probably not coming cheap for Google China, it is probably still quite doable since the 'competition' of physical music sales is negligible and so-called 'cannibalization' of traditional music sales is not a major concern for the record industry in China. This would of course be substantially different in the UK or Germany where CD sales and the omni-present iTunes still generate Billions of Euros per year. But this is the lesson: someone had to put some money down. Congrats to Google / Top100. Next: the telecoms - within 6-9 months, imho.

While the cannibalization prevention is, of course, entirely reasonable (if you still sell units), it does beg the question: why do those lucky Chinese Internet users - many of whom may never had to worry much about potential copyright issues, 3 Strikes+Out ideas or MP3-server raids - now get a de-facto feels like free music service, while we - the  more or less faithful and compliant residents of 'The West' - still need to pay 1 Euro / 1 $ for each single download on iTunes, $3 / month for Last.fm (ouch) or run off to the record store, or order on Amazon.

This clearly does not make sense: it  feels a bit like we are being penalized for having actually paid for our music until now. So, some will surely argue, does this mean we should stop paying for music until such deal is being offered in Europe as well? You tell me - but it's sure worth a discussion, I think. It seems to me that this model is workable around the world now - and not just for / with / via Google - and that it should be pursued in Europe and the US, as well. Give us a licensed platform provides 'feels like free' music to the users, based on collective and public blanket licenses that can enable anyone that wants to offer music with what they do, while paying for the licenses with the traffic that those offerings, the added values, the platforms, will generate.

Here is another interesting quote from the WSJ: "I can't overstate how important the new Google service is, said Lachie Rutherford, president of Warner Music Asia Pacific, which is making its entire global catalogue available in China as part of the deal: until now, the online market in China has been completely un-monetized by the music business" 

This strikes me as a very interesting way of putting this: Lachie / WMG: isn't the entire Internet music-sharing economy (i.e. P2P, stream-sharing, drive-sharing etc) un-monetized, as well? And why is that? If WMG can do this in China because their is no previous unit-sales income worth mentioning, why not do it for the Internet, period? Why not license Google - and Facebook et al - and the ISPs in much the same way? Or will you just do this in places where nobody paid anything to begin with?

Techdirt has a very fitting comment, on this (see the link below):  "The fact that the labels are moving forward with this plan in China, given its reputation as the wild west of copyright infringement, undermine their contention that they can solve the supposed piracy problem with legal or technological means elsewhere. Furthermore, it exposes the reality that what's staring them in the face is a tremendous opportunity, not a problem" 

Not much to add here, except for my usual Lessig-esque mantra "Compensation not Control". Google + Telecoms - will you do that for / with us, please? This year?

Related articles by Zemanta

• So Only When Piracy Gets Really Bad Will Record Labels Change Their Act? (techdirt.com)
• Google Launches Free Music Download Service in China (mashable.com)
• Google to Offer Free Downloads in China (nytimes.com)
• Google China Signs Big Music For Free MP3 Search Engine (techcrunch.com)
• The gloves are off: now Google needs to really get involved in the new Content Economy, asap (mediafuturist.com)
• The End of Control and the Future of Content: new Video of my Authors@Google Talk in San Francisco (mediafuturist.com)

Compensation Not Control Music 2.0 Gerd Leonhard Midem Net 2009

View more presentations from Gerd Leonhard.

A new creative ecomomy - based on mutual interests not Monopolies

At my recent speech during the Ars Electronica Symposium in Linz / Austria [note, the podcast is here - in English], this (below) was one of my points. Quoting Google China's fairly brilliant Kai-Fu Lee "... mutual interest, rather than monopoly, is the key to sustainable growth". 

This statement, I think, encapsulates an essential point: if the large players in the creative industries - and in particular, the music industry's used-to-be giants, the big independents and their new organizations such as Merlin- do not let go of their desire to continue to rule as monopolies that can dominate by force, or not play at all, then we won't have a sustainable future.

This is simply because of the well established mindset that the Russian President Medvedev (and lately, this writer...) has called Economic Egoism that is quickly becoming impossible to maintain in this age of transparency and 24/7 rivers of information. Update: a good review of Medvedev quotes on this is here.

Big Media's role as the sole authority, the controlling entity, the gate-keeper, the market-owner is no longer a given.

Currently, this drastic paradigm change is the main stumbling block to figuring out just how this new, open, connected and networked content ecosystem will actually work. It's not like it's a huge and unanswered question whether Attention-based income streams and overall revenue sharing scenarios can be more lucrative than the traditional copy and paid-per-unit model - the answer is a clear and resounding YES - the costs of distribution and marketing are much lower, and with an advertising market of over $750 Billion per year  (2012 estimation by EMarketer) there should be enough juice in the pipeline to pay for quite a bid of content.

The single most important issue here is CONTROL, not about money (and then, of course, closely followed by the issue of who actually who gets the money - the creators or the middlemen ;). Thus, my new book. Soon, I hope.

BRIC Countries: Mobile IS the Internet (Rising Economies and Web-enabled Phones)

EMarketer presents some good snippets on "Rising Economies and Web Phones". Some snippets

Five of the world's 10 largest cities are located in the fast-growing economies of Brazil, Russia, India and China (the so-called BRIC countries), along with four of the five top markets for new mobile subscribers. Moreover, mobile is not simply viewed as an extension of the Web in BRIC, as it is in the US, Western Europe and parts of Asia-Pacific. Mobile is the Internet for an increasingly large and attractive consumer segment.

""High mobile Internet penetration in the BRIC countries is all the more notable since none of them has yet launched third-generation (3G) mobile services, although each one has either licensed 3G services or will do so by 2009," said John du Pre Gauntt, senior analyst at eMarketer. "Once that happens, marketers can expect even higher mobile Internet penetration rates, with the commensurate ability to conduct more sophisticated and widespread mobile marketing campaigns."

Indeed - and what will they do with their web-powered mobiles?  Get, share, edit, remix, forward... CONTENT. Another huge sharing explosion coming our way - we are still at the tip of the iceberg.






















Watch my "what will happen when we are all connected" movie, here.

More details on Google's free music launch in China

Via Music2Dot0, a few more details on Google's / Top100.cn's free MP3 service in China have emerged. Of course, the site is not available outside of China, so Music2Dot0 is providing some nice screen-shots, as well.

Here are some snippets and comments:  "Also, for some like No.1 artist Jay Chou and international artists , it seems that Top100.cn has yet to obtain free streaming & download rights..."

Not surprising but this should not be insurmountable in China where unpaid use of music is the default approach - at least Google splits the advertising revenue streams.

"...as many international analysts will inevitably fall over themselves to fawn over and laud Google’s mp3 search service from a distance, it has to be recognized that it is far from being a cakewalk for Google. Their partner Top 100 still has to convince quite a few more labels and artists to join the service without which, users will consider this an incomplete service not worth switching over from Baidu..."

My comment: once again, this is that bizarre old chicken and egg syndrome that has bedeviled almost every new player in this turf (incl. my own, now defunct, startup, Sonific). While everyone else - and that means 100s of companies around the globe - is using their music without permission, without sharing revenues, without (apparently) any real regard for the law, the major (and some independent) music companies STILL make it hell for anyone that dares to come to them and request a license and offers to pay them. Unbelievable, but true.

Mostly, yes, this is about money (i.e. they want 50x what you think you can pay), getting equity in return for providing their music ('we will never again enable other people to build their business on-top of ours, like MTV did'), worries about setting precedent, and of course, the obsession with CONTROL - my favorite saying is that they like control more than money. But maybe this will be different in China - I have strong hopes for this idiocy ending when it's all about building a new market for music, from scratch.

See my other comments on Google Music in China

State of the Chinese Blogosphere (via Edelmann blog)

Good short summary here: Richard Edelman - 6 A.M.: State of the Chinese Blogosphere.

My favorite quote:  "Mr. Zhou suggested that “in a world where performance is based on the number of page views, bloggers tend not to be the best journalists.”

Chart from the excellent Morgan Stanley 2008 Internet Report (Mary Meeker)

Ed Peto on New Music Models in China (leapfrogging into Music2.0) - Music2.0 is Asian.

Ed Peto has a good post here. The article was originally written for MusicAlly

Here are some high lights and comments:

"China never fully adopted the “traditional” tools of music discovery and consumption: TV, radio and the print press are all heavily monitored by the government and relatively anodyne as a result; CDs never really gained any meaningful traction; live music events are circuses of permits and arbitrary cancellations.The bleak circumstances of China’s music business have resulted in the Chinese consumer inadvertently leapfrogging into the next generation of music consumption, even before their western counterparts."

Comment: Music2.0 is Asian.  And maybe European. Definitely not American.

"The internet has not only afforded a freedom of expression and identity previously unavailable to the Chinese, it has also almost totally usurped the roll of all offline music media: portals, webzines, bulletin boards (BBS), video sites, music blogs, music streaming. In fact, so important has it become as a medium that a full 86.6% of all netizens use the web to listen to music – the highest of any usage including search and email...."

"Full track downloadable MP3s have been (illegally) free to user from the outset, partly because 86% of internet users earn less than $430 per month and partly because China’s poorly enforced copyright law is only just becoming a topic of public debate ie. too late...."

Comment: and it looks very much the same in India, Brazil, Indonesia, Russia - how else can music make money here if it's not BUNDLED into other services i.e. flat-rated, feels like free. Copyright won't help - all-you-can-eat usage rights (licenses) will.

"Leaked reports earlier this year suggest that Google China (g.cn) are planning on partnering with legal music site Top100.cn to offer free-to-user major label catalogue found through Google MP3 search. This arrangement, due to launch towards the end of 2008, would allow Google to compete with incumbent behemoth Baidu in the music search sector but would also signal a seismic change in music consumption: major labels conceding that music must be free-to-user. China is increasingly being seen as a brutal testing ground for radical new models that can survive in a “more than 99%” (IFPI) digital piracy market..."

Comment: this will be a huge shift if it happens - Asia may show the way. Music Like Water. Feels Like Free.

Via Telecom TV China's Web user-base now bigger than the US

Not surprising but good to know more: TelecomTV - TelecomTV One - News.

New figures show that at the end of February this year China's online population had hit 221 million, overtaking the US and making it the largest on the planet.

Music-Enabled Phones: Big Numbers Getting Bigger...via Digital Music News

Link: Music-Enabled Phones: Big Numbers Getting Bigger... — Digital Music News.

"Predictably, Asia powered the greatest shipments of music-enabled mobile devices at 201 million, followed by Western Europe, which contributed 159 million according to the group.  North America contributed 117 million...."

The Future is in the BRIC countries. And in Mobility, period.

BBC NEWS'Chaos' of China's music industry: Agi says music is just a "tool to sell things" in China

A good feature here: BBC NEWS | Asia-Pacific | 'Chaos' of China's music industry.

>>> Agi says music is just a "tool to sell things" in China <<<<

High-lights:
"Whereas the US and Europe are still finding ways to counter piracy, Chinese record companies have already decided it is a lost cause, finding other ways to make money which are not directly related to music sales..."

"They also find it expensive to market themselves. Huang Feng, who used to work for Warner Music China, says artists have to turn to big brands, such as Apple, Nokia and Levi's. The big firms get popular bands to promote their products, and the bands also benefit. "If they choose you, you can use their money to promote your own image to market your songs," says Huang.

A model for China only? And India? And Brasil? BRIC?

M:Metrics News on Mobile Music in China

Read: M:Metrics News.

"While Nokia commands market share in emerging Chinese mobile media market, Sony Ericsson is driving content consumption... According to M:Metrics’ December Benchmark Survey, mobile entertainment is popular among the Chinese, with an astonishing 34.8 percent reporting they listened to mobile music in the month, and 10 percent playing a downloaded mobile game..."

The Future is in the BRIC countries. The Future is Mobile. The Future is ACCESS. Flat-rated. PLUS upstream sales. Lots.

The Long Tail: China: the future of free?

A good post by Chris Anderson, on the state of the music business in China The Long Tail: China: the future of free?.

Music in China: The Inside Story | The Register UK

Good background story on China: Music in China: The Inside Story | The Register, written by China Music Expert Ed Peto

One of the high lights:

China needs to be seen as a blank canvas. While the numbers might suggest it is already going through a "boom" period, this is clearly not the case in relation to the copyright dependent industries. The boom is yet to come and the salient business models are yet to show themselves. What is certain is that the record label as you know it is dead and in its place have risen "digital entertainment companies", who only produce single-track MP3s and are just as savvy at dealing with brand partnerships, pre-loaded mobile content and online guerilla marketing as they are at making music. While all these facets are increasingly important in the west, they are essential in China.

People's Daily Online -- PwC predicts change of tune for music, video

Link: People's Daily Online -- PwC predicts change of tune for music, video.

This is where the future lies

120 Million Internet Users In China in 2005.... 320 Million cell phone users in China... the power axis is shifting east.