“It’s amazing for a single to see such a good response,” famed lyricist Vincent Fang said about Jay Chou’s new track. The pop/R&B megastar’s “Won’t Cry” sold 15 million downloads within 12 hours of its release on September 16, a record for a single song on Tencent-backed QQ Music. Shortly after its debut, the sudden influx of fans crashed the music platform. Share prices of Tencent Music Entertainment Group skyrocketed overnight. Wide media coverage of the song’s success has not only boosted the reputation of QQ Music but also brought copyright disputes between Chinese music platforms into the spotlight.
Liu Xu, a researcher with Tongji Intellectual Property and Competition Law Research Center, argued that QQ Music’s release of Chou’s new song attracted new users and generated attention to other musicians signed to the platform. “If QQ Music signs a lot of exclusive content and top musicians, it would have a big impact on its competitors such as Netease Cloud Music and Xiami,” he told NewsChina.
Piracy has played a huge part in China’s modern music industry. Before China’s reform and opening-up in the late 1970s, pirated music from other countries and regions – particularly Taiwan and Hong Kong – was responsible for opening up a new cultural world for a generation of Chinese music lovers that stood in stark contrast to the legally available catalogue of patriotic and revolutionary songs. Rock music particularly struck a chord among Chinese youth as a vibrant form of personal expression.
Eventually, bootleg cassettes, CDs and pirated music online flooded the market – and drowned the paid music model. It became extremely difficult for Chinese musicians to earn a living in a market where consumers are unwilling to pay for music.
“As a leading musician and producer in China’s music industry, I have never received any royalty payments from record companies,” A-list producer Gao Xiaosong said during a public event. The emergence of the mp3 format and online platforms changed the way people consumed music. And in the late 1990s, digital music devastated physical format sales around the globe. This was particularly the case in China, where free music websites sprang up in droves. While some Chinese musicians had received meager royalties from record labels in the past, most were not paid during the early online music boom.
Xu Zhisheng, a lawyer at Beijing VLaw Law Firm with experience in the music industry, told our reporter that online music platforms rarely paid for copyright licenses before 2013.
Baidu, China’s leading search engine, for example, indirectly enabled pirated music to spread by providing links to unauthorized downloads in its search results. In 2006 alone, Baidu saw 10 billion music downloads, or 93 percent of the country’s total music downloads that year. But Baidu was not immediately held accountable because users were independently uploading the audio files. Pirated music was stunting the country’s music industry. Major streaming platforms were profiting from advertisements, but independent music labels – saddled with growing production costs – were barely surviving.
In June 2012, Xie Guomin, former vice-president of internet company Sina and head of its music department, founded Ocean Music. The company was the first to snatch up copyright licenses for entire catalogues of music. Xie signed with more than 40 music copyright agencies for minimal licensing fees. He also reached agreements with more than 100 music labels to obtain licenses for over 20 million songs.
Xie’s aggressive move caught the attention of Tencent. The company responded quickly and acquired domestic distribution rights for Universal Music Group, Warner Music Group and Sony Music Entertainment. Tencent signed agreements with Taiwan-based HIM International Music and JVR Music International, pocketing over 15 million music copyrights. Meanwhile, Tencent organized an online music alliance with other companies to further promote copyright protection.
Xu Zhisheng told our reporter that Ocean Music held a vast amount of music copyrights and has been negotiating with major music platforms for cooperation. Chinese e-commerce giant Alibaba acquired major music platforms including TTPOD and Xiami. By then, Netease Cloud Music built a brand based on its strong community of users and comment section. Lacking competitive catalogues and copyrights, however, Netease Cloud Music focused its attention to niche markets.
After Alibaba acquired TTPOD and Xiami, it cooperated with major record companies worldwide and acquired exclusive rights to catalogues of major regional labels including Rock Records and Media Asia Music. In July 2015, Gao Xiaosong was named chairman of Alibaba Music Group, while music industry veteran Song Ke joined as CEO. In February 2016, Alibaba inked exclusive agreements with SM Group, the talent machine behind pop mega groups TVXQ, Girl’s Generation and Super Junior.
Liu Xu told NewsChina the rush for music copyrights in 2015 priced out smaller platforms. Among the major players, Tencent Music achieved the strongest market status.
At one point, Netease Cloud Music owned some of Jay Chou’s copyrights. In April 2018, Chou did not extend his contract with Netease. Just before their contract expired, Netease released a package of 200 of Chou’s best songs for 400 yuan (US$56) with lifetime streaming access. The move hurt the platform’s relationship with JVR Music International, the copyright owner. Competition between online music platforms focused on exclusive rights to catalogues. In 2016, Ocean Music merged with Tencent Music after a failed IPO in the US. According to an iResearch report on China’s online music industry (2016), Tencent Music owns more than 90 percent of music copyrights in China.
In order to cool the increasingly vicious competition, China’s National Copyright Administration coordinated copyrights among major music platforms in 2017. The following year, leading platforms such as Tencent Music, Netease Cloud Music and Xiami shared 99 percent of their authorized copyrights.
Xu Zhisheng argued that major music companies are reluctant to share their last 1 percent because it is key to their competitiveness. “If 99 percent of mutually shared copyrights are a rifle, the 1 percent of exclusive copyrights are nuclear weapons,” Xu said. Tencent Music holds about 50,000 exclusive licenses of A-list musicians such as Jay Chou and Cai Xukun (aka Kun).
According to a recent report released by MLex Market Insight, Tencent Music was the center of an anti-monopoly investigation after signing exclusive copyright agreements with major record companies Universal Music, Warner Music and Sony Music Entertainment.
Li Shunde, a researcher at the Institute of Law of Chinese Academy of Social Sciences, told NewsChina that under China’s Anti-monopoly Law (2008), not all monopolies are illegal, adding that the legality of Tencent’s monopoly hinges on its operation. Liu Xu agreed, arguing that a monopoly is defined by market behavior, not market share.
According to the Anti-monopoly Law, companies must declare acquisitions that exceed a certain market share to the Anti-monopoly Bureau. In 2016, Tencent did not report its acquisition of Ocean Music, but the Anti-monopoly Bureau never launched an investigation. Liu Xu said this remains a mystery to this day.
Liu Xiaochun, director of the Internet Law Research Center under the Chinese Academy of Social Sciences, said the implementation of China’s Anti-monopoly Law requires solid empirical data analysis of market behaviors. Whether authorities will determine that China’s music streaming market is locked up by a monopoly remains to be seen, Liu said.
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