Digital Asset Media Management: How can music content providers in china generate profit in the face of music piracy?

Digital Asset Media Management: How can music content providers in china generate profit in the face of music piracy?

Digital Asset Media Management: How can Music Content Providers in China generate

Profit in the Face of Music Piracy?

Literature Review chapter

The progress and advancement of digital music has proved to be instrumental in leaving an effect on and transforming the manner in which users and producers approach the music industry. Further, the rise of piracy has transformed the conditions surrounding the entertainment arena and raised several questions and concerns regarding its negative effects on different entertainment industries of the world including those of Chinese music and film industries among others. Internet piracy is one of the two classifications of media piracy and pertains to the unlawful viewing, downloading or copying of “music, software, video game, or film” via the Internet (Ballano, 2016, p. 24). Digital piracy leads to a loss of billions of dollars to music, film and software industries (Rigoglioso, 2006). According to relevant literature sources, music piracy and unlawful sharing of such content falls into the category of the most heated and controversial matters surrounding the industry because of negative impacts in the context of the “music value chain” (Murillo, 2013, p. 116).

Music files available online go through the procedure of digital compression and it makes these files available to everyone for a limited amount of payment or even unlawfully downloadable for free (Stafford, 2010, p. 112). Studies indicate that some of the problems related to piracy arise because consumers do not consider unlawful music downloading to be an ethical issue (Burley, 2012). In the year 2008, the number of files shared unlawfully in 16 countries was larger than “40 billion” (Murillo, 2013, p. 116). Piracy also affects the music industry negatively by decreasing record revenues.

How online music, even when it is legal, leads to the unlawful distribution of music files to harm the industry is evident from analyzing the cycle of online sharing. An example is that even legal services such as iTunes may be later utilized to harm the music industry. A buyer of online music can distribute a music file in the form of a flash drive, a “burned CD”, on an iPod, etc. and this theft of music causes the artist to fall short of their profit (Stafford, 2010, p. 113). Those who download music files are further known as “free-riders”, who capitalize on the use of a “public good” minus making payment, which can leave a harmful impact on market efficiency (Stafford, 2010, p. 113). Pirated CD buyers in several cases do not even acknowledge that what they are doing is wrong and blame music industries for elevated prices (Chiou, Huang and Lee, 2005, p. 161). According to a study conducted to compare the conditions surrounding Chinese and Swedish music industries, Chinese consumers demonstrate a higher level of acceptance toward piracy and a lesser will to pay to hear music (Nordmark, 2015).

Napster, which is no longer functional, laid the path of music file sharing in the 1990s (CBC News, 2013). The 10 years after Napster have witnessed a considerable decrease in profits and revenues to the recorded music arena as an outcome of online piracy (Waldfogel, 2012, p. 91). Owing to piracy, revenues from physical recorded music decreased from a value of “$37 billion” in the year 1999 to “$25 billion” in the year 2007 (Waldfogel, 2012, p. 91). Piracy and the lessening of the power of copyright protection further lead to a lesser quantity of music entering the market (Waldfogel, 2012, p. 91).

Challenges faced by Chinese Music Industry Including Piracy

China has been chosen as a case study for this review because its music industry faces a core number of problems and issues including extremely high piracy rates. Some factors that have contributed to the high prevalence rates of music piracy in China and restricted the lawful music business include “market access” limitations, higher censorship needs for music from abroad and challenges related to “online distribution licenses” from the government of China (U.S. International Trade Commission, 2011, p. 2-15). “Deep linking” has further contributed significantly to piracy in China. Baidu and other Chinese search engines have also played their role in elevating music piracy in China.

The conditions and situation surrounding digital piracy in China are so severe because China has faced almost a rate of “99%” digital piracy in recent history (Burley, 2012, p. 29). This indicates that the proper music arena has only been able to function at a small “fraction” of its potential (Burley, 2012, p. 29). According to Bonne and O’Higgins (2010), when an individual stays on the Internet for elongated time spans, their possibility or inclination to download content unlawfully may be of a considerably huge amount (p. 29). Since China has a huge number of Internet users i.e. almost “300 million”, its piracy rates are higher than numbers surrounding any other nation on the planet (Bonne and O’Higgins, 2010, p. 29).

Moreover, literature sheds light on the important detail that the number of China’s Internet users is double that of such users in the United States but an alarming issue underlines that digital music revenues on a per user basis in China have been only 1% of those in the U.S. (Burley, 2012, p. 29). The conditions surrounding piracy are globally severe and evident from the detail that in the year 2004, a number of “1.2 billion illegal music discs” were sold, which was “34%” of all disc sales over the globe (Sharma, Tan and Pereira, 2011, p. 374). In addition, pirate music sales surpassed those of the law-abiding market in 31 countries in the year 2004, which also included China where “85%” of sales consisted of pirated versions (Sharma, Tan and Pereira, 2011, p. 374).  The problem of piracy is so serious that “Asian Chinese societies such as Hong Kong, Singapore and Taiwan all have serious music piracy problems” (Chiou, Huang and Lee, 2005, p. 162).

Additionally, patterns underlined by IFPI’s report shed light on the detail that China sustains its position as a music market of huge unmet possibilities, an online user base consisting of 650 million individuals and an increasing number of “licensed digital services” (IFPI, 2015, p. 29). Some significant problems facing China’s music industry include a lack of people paying to hear music and the prevalence of piracy (IFPI, 2015, p. 29). It also becomes significant to note that the quick advancement and popularity of advanced mobile phone technology (3G) and the utilization of mobile phone Internet in increasing numbers has caused the attempts of several record companies to fight piracy to focus toward the mobile music arena (Meyer-Clement, 2016, p. 123). However, piracy in this arena is almost “nonexistent” (Meyer-Clement, 2016, p. 123).

With the formation of the mobile music arena, music content providers have suffered and the music industry has been severely affected (Li, 2013, p. 81). This is evident from the unjust profit sharing between music service providers and music content providers (Li, 2013, p. 81). The overall revenue encompassing the digital music industry of China reached a figure of “30 billion Yuan” or “4.76 billion US dollars” in the year 2009 but “94%” of the profit was enjoyed by “telecommunication operators (TOs)”, “4-5%” by “service providers (SPs)” and only “1%” by “music content providers (CPs) “, which sheds light on a core issue (Li, 2013, p. 82).

Recent Developments in the Chinese Music Industry

Some positive developments in relation to the Chinese music industry that have been promising include the example of the year 2011 when the primary recording companies in China engaged in the act of licensing the music offering by Baidu through subsidiary One-Stop-China (IFPI, 2015, p. 29). Baidu is China’s hugest search engine online (IFPI, 2015, p. 29). Prior to the deal between Baidu and the three prominent record companies, Baidu was the primary source of links to unlawful downloads (Elena Meyer-Clement, 2016, p. 123). The deal demonstrated a core swing in the music copyright approach of Baidu (Dong and Jayakar, 2013). Also, before this, the sole channel of licensed digital income for the holders of rights was ringtones since the digital market was governed by unlicensed entities.

Statistics from the year 2007 indicate that ringback tones were behind “61%” of all sales of digital music (Meyer-Clement, 2016, p. 123). Similarly, master ringtones were accountable for “13%” of such sales while just 8% involved downloads (Meyer-Clement, 2016, p. 123). This Baidu development modified the main conditions surrounding intellectual property rights in China. In addition, developments including streaming revenues have led to the development of the Chinese music industry in recent times and the value of Chinese music market went through a boost of “5.6%” in the year 2014 (IFPI, 2015, p. 29). The digital Chinese music industry has shown growth in recent times and this is evident from 75% of sales in music being made digitally in 2011(Richard, 2013).

Baidu, Alibaba and Tencent govern the Internet market in China and are seen as aggressive entities (Yuan, 2015).   Also, the three prominent Internet entities in China including Alibaba, CMC and Tencent have taken a number of initiatives and acquired different entities to enjoy power over the digital distribution of music (IFPI, 2015, p. 29). Alibaba carried out the operation of “the Xiami and TTPod Internet portals” while and CMC has gained the acquisition of the “Kuwo and Kugou music services” (IFPI, 2015, p. 29).

In addition, these entities have also begun to make a transition to secure deals of licensing with prominent recording entities. An example is Sony and Warner and some other important Taiwanese entities operating on an independent level and entering an agreement in 2014 with Tencent (IFPI, 2015, p. 29). The aim of such initiatives is to give rise to a balanced and “sustainable legitimate music ecosystem” (IFPI, 2015, p. 29). Despite the promising nature of these developments, some impediments to progress have persisted in the form of free licensed substitutes (IFPI, 2015, p. 29).

The Chinese music industry demonstrates a mix of diverse artists, with the number of mainlanders being limited and the industry demonstrating a presence of artists from “Taiwan, Hong Kong”, “Malaysia and Singapore” (Billboard, 2006, p. 23). China still has a long way to go before its intellectual property foundations have strengthened and are powerful enough to secure the rights and interests of its artists.

How Music Content Providers in China can generate Profit in the Face of Music Piracy

Chinese music content providers need to generate profits in the face of music piracy to secure their interests. To accomplish this, Chinese music entities face a requirement to give rise to a paid music model (IFPI, 2015, p. 29). Also, the IFPI have engaged in establishing lawsuits against some big Internet company names in China, including Baidu and Yahoo China in the past, which provide links to unlawful music sources (Burley, 2012, p. 29). Chinese music content providers should join efforts to protest against piracy and cause authorities in China to take similar initiative against unlawful sharing of content so that they can secure a profit.

Moreover, since digital music is available either for free or in exchange for a small amount of fee, it raises questions and concerns for music content providers all over the planet and in China as to how to make profits. The role of social media also acquires significance in this context because these platforms have stemmed a demand for musicians, composers and singers to sustain a digital connection between users and artists, which causes the Internet to acquire the status of both a promotional technique and a means for making profit (Stafford, 2010, p. 112). One way by which music content providers in China can make a profit is by the utilization of the Internet in the form of a tool to increase their profits via the method of “music sampling” because the Internet has acquired the status of the most prominent platform for music listening, downloading, purchasing, etc. (Stafford, 2010, p. 115). According to pertinent literature, music content providers in China need to realize the significance of the Internet market and its possible role in their profit making so that they can capitalize on it.

It has become a requirement for music content providers in China in the face of piracy to form a connection with a broad audience and generate a sense of loyalty deep enough in their fans to leave an effect on consumer patterns of spending (SunEagle, 2010). Sharing music files in a limited way and making users pay for music in some cases can help promotional causes and be beneficial to gain profits in many cases.  Furthermore, music content providers in China can further move toward making profits by aligning the efforts and activities of different relevant sectors in the industry chain and collaborating to formulate and apply principles and patterns (Zhao, 2015).

Music content providers in China further need to join efforts with other actors in the industry to make any portals that share music pay license fees. A complication arises in the context of portals paying license fees because a high amount of fees means that those entities adhering to the “free service model” do not find themselves to be able to make a profit (Zhao, 2015). Rules and regulations are a requirement for endorsing “paid services” and having the kind of principles in order so that those offering paid services will not lose customers to those who offer services without charge (Zhao, 2015).

Music content providers also need to utilise Creative Commons licenses in increasing numbers to share files with users on their terms while making a profit (CBC News, 2013).  . Chinese music content providers can further utilize Creative Commons (CC) licenses to their maximum potential to make a profit and allow lawful “sharing, remixing and reuse” of their compositions so that both users and creators benefit from the licenses (Wang, 2008, p. 305). iCommons can also be helpful in this context because this movement has acted as an answer to two elements regarding creativity control in today’s society. The two elements include the fact that copyright is required to ensure the “dignity” and “incentives ” of creators and the present copyright system has so many layers that it sometimes ends up leaving a negative effect on the interests of creators (Bourcier and de Rosnay, 2004). iCommons distributes the tools related to Creative Commons to provide creators with free tools so that they can mark their property with the level of independence they require their creations to demonstrate and reserving the rights they feel the need to reserve (Bourcier and de Rosnay, 2004).

Music content providers in China can further capitalize on the tools that are beneficial in battling digital piracy. Internet Service Providers (ISPs) in China can also assist by helping locate unlawful content and eradicating or restricting access to this content (U.S. Congressional-Executive Commission on China, 2012). Examples from the U.S. indicate the Recording Industry Association of America establishing lawsuits against consumers and asking ISPs to disclose the identities of those users of the Internet who seem to share copyrighted music files on the Internet (Condry, 2004, p. 343). Chinese music industry can learn from this example. Chinese music content providers also need to approach the issue of online piracy in a multidimensional manner and adopt a selective manner to battle the same.

Additionally, according to a study, sometimes filing a lawsuit against Internet networks sharing files and the users utilizing these to trade intellectual property can be detrimental to music content providers and producers (Rigoglioso, 2006).  The bigger threat to music industries all over the globe is “third-party commercial pirates” who distribute CD and DVD copies unlawfully (Rigoglioso, 2006). According to a study by Tunay Tunca, producers of digital goods that operate legally can gain an advantage from capitalizing on online sharers of files working on a singular basis to lessen the harm caused by commercial categories of pirates (Rigoglioso, 2006). According to an alternative perspective, piracy can be beneficial if consumers demonstrate patterns in which there is a huge “difference in their marginal utility of money” because in this case, piracy can lessen competition and increment the profits of different entities (Gu, 2005). Therefore, Chinese music content providers need to analyze the situation from all perspectives and while fighting to reduce piracy, also adopt methods which help them use piracy to their advantage and make a profit.

Chinese music industry needs the government to support it significantly to fight piracy. As far as patterns of the actions taken by the Chinese government to fight piracy are concerned, these patterns indicate eventual and calculated institutions reforms to fight piracy (Priesf, 2006, p. 844).  Music content providers in China need to launch campaigns for the government to take initiatives so that these content providers can make a profit. Another alternative that can assist Chinese music content providers to fight piracy and make a profit is by adopting an “alternative compensation system” or “ACS” (Priesf, 2006, p. 846). This ACS adheres to the one suggested by Professors William Fisher and Neil Netanel and operates on the basis of a award system that is sponsored by the government and endorses the effective and lawful distribution of intellectual property online and guarantees copyright owners receiving payment for their distributed creative works (Priesf, 2006, p. 846). This system balances the requirements of content providers and users and signifies just compensation for creators and “liberal access to creative content” for users (Priesf, 2006, p. 847).

China has demonstrated many “high profile events” over the years to display how copyright shielding is gaining significance among “nongovernmental Chinese actors” (Chynoweth, ‎2003). Lawsuits against piracy and the fight between prominent portals to establish their ownership of copyright materials are just some examples.  The music industry in China further needs to police its own goods without harming content providers and decreasing their profits (Neely, 2007, p. 42). Music content providers should be able to enjoy a certain amount of profits for their creative works.

Chinese content providers need to make profits by fighting piracy and for that, they need to take a leaf out of the books of American efforts to battle piracy. In the U.S., “convicted counterfeiters” may have to pay fines that are approximately $2 million and a decade of imprisonment for an initial offense (Rugman, 2009). Also, the fine for unlawful acts of music piracy can be as severe as $150,000 for every downloaded song (Rugman, 2009). China needs to adopt a similar model to fight piracy so that the possibility of huge fines will deter wrongdoers and enable content provider to enjoy required compensation.

Literature further suggests that China needs to strictly approach the question of intellectual property rights and conduct more operations to limit piracy. Completely eliminating piracy may not be possible in this age of the Internet and social media but there is a need for core mechanisms in the Chinese music industry to be able to fight piracy intelligently so that music content providers can benefit intellectually and monetarily. Therefore, based on a review of relevant literature sources, music content providers in China can generate profits in the face of piracy by adopting a multidimensional framework and tackling the issue from diverse angles.








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