Without piracy, is digital music a profitable business in China?

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‍By CGTN's Ge Yunfei

- Mobile music apps have outstripped TV and radio to become the most important market channel for music labels and artists

- Offline concerts and shows are the main income source for music companies, while investments in online content support offline events

Zhang Xiaoya is a singer in a small band and also a regular paid user of several mobile music apps.

High quality music and rare albums that are hard to find in China: these are the two things driving her to spend on the mobile apps.

Like Xiaoya, a growing number of Chinese consumers are choosing to pay for better music.

The number of paid users of music apps has expanded rapidly in China. /CFP Photo

QQ music, the leading Internet music provider in China, is benefiting from this new trend. QQ now has more than 10 million paid members.

But still Andy Ng, general manager of QQ Music, says it’s not easy to make a profit. They can cover the cost of running the whole music group, but it’s not a profitable business.

Now there are two main ways for music apps to charge their customers.

The average monthly subscription fee for a music app in China is 18 yuan (2.62 US dollars). /CGTN Photo

For a fee of 18 yuan (2.62 US dollars) per month, users can get access to unlimited music streaming and download up to 300 songs. Or they can buy digital albums at an average price of 5-20 yuan (0.7 to 2.9 US dollars).

Users can buy digital albums at an average price of 5 to10 yuan (0.7 to 2.9 US dollars). / CGTN Photo

There is a reason for the low prices.

“At the moment, the industry treats us not only as a music portal but more like a media channel. Of course the artists care about more revenue, but at the same time they also care about marketing promotions,” Ng told CGTN.

For the global music labels like Warner Music, music apps have already outstripped TV and radio as the most efficient marketing channel.

According to Andy Ma, chief commercial officer of Warner Music in China, the online music service is where people both explore and consume music. The recording companies also cooperate with the Internet firms on big data analysis, studying consumer behavior, and judging their preferences.

In fact, the small mobile music apps are redefining how the music industry operates.

Migu Music is a subsidiary of China’s biggest telecom operator. Its ringtone service used to be the most profitable business in China’s music industry.

Migu Music's ringtone service used to be the most profitable business in China's music industry. /CFP Photo

Liao Yu, CEO of Migu Music, said: “In the past decade, we contributed 150 billion yuan (21.8 billion US dollars) to China’s music industry and we offer dividends of over 10 billion yuan (150 million US dollars) to all the partners in the industry.”

But with the rise of smartphones, the ringtone service withered and Migu had to find another money-making machine.

Moving from online to offline has never been so important. Migu also had its own music app but online revenue is not the priority.

Liao said: “Digital music is only one piece of the whole market. Income from concerts is a much bigger source of income.”

Now Migu holds over 300 offline entertainment shows and a series of university music competitions.

Sony Music agrees with Migu’s strategy. Its China CEO Zhou Jianhui told CGTN that the music industry should use the online-to-offline model. A better offline system must be built to collect the investments that music companies spend on online music.