Illegal music market in China worth $400mn: IFPI

MUMBAI: The International Federation of the Phonographic Industry (IFPI) CEO John Kennedy delivered an address at the recently concluded China International Forum on the Audio Visual Industry, Shanghai.

He said that IFPI was not asking the Chinese government for subsidies or special treatment. "All we want is a fair framework of intellectual property laws properly enforced so that people cannot steal music. I believe that if we can achieve that then we will all benefit: government, industry and ultimately consumers."Illegal sales of music are China is valued by IFPI at around $400 million, with around 90 per cent of all recordings being illegal. He warned that no creative or knowledge-based industry can hope to survive in such an environment. There have been misplaced suggestions that record companies should tackle piracy by lowering their prices. It is true that, faced with the dramatic impact on their business, some companies have experimented with lower prices. But this is only a reflection of desperation at such prolific piracy rates and is not he stressed a sustainable strategy.

The music industry after all puts in an investment in developing new talent and bring it to market. Pirates never have to worry about incurring those costs and will always be able to charge their product for close to free. And that makes fair competition by legitimate producers impossible.

In this scenario a major priority for IFPI is to improve the legal environment for music industry in China. Since the WIPO Treaties were concluded in 1996, countries around the world have been modernising their copyright laws. These safeguard the rights of copyright owners and ensure the use of measures to protect their repertoire. "We understand that China plans to ratify and implement the WIPO treaties in the current year, and we hope that the law and implementing regulations will help establish a fair framework for intellectual property rights."

He also stressed on the need for China to introduce public performance rights creating the incentive for record companies to license their music for broadcasting and public performance. Public performance of recordings and videos, in bars and restaurants, could amount to tens of million of dollars a year.

It is of course well known that international record companies face particular obstacles in investing in the Chinese market which they do not face elsewhere. Market access in China he said is an issue which needs to be resolved if China's market potential is to be genuinely unlocked. "Record companies need to be able to operate across the whole spectrum of activity involved in our industry - from artist and repertoire to distribution. They are currently prohibited from owning and running a single company in China to develop, produce, market and distribute recordings."

These obstacles need to addressed and removed if China is to develop a successful music sector with its international partners. In addition, while the IFPI fully understands China's sensitivities and the consequent desire to maintain censorship regulations, it is important to streamline the process and to make the process as transparent as possible. At present, censorship provisions only serve to delay legitimate distribution as the distribution of pirate products is not hindered. This additional commercial advantage unwittingly granted to pirates must be addressed.

Kennedy also feels that education has a critical role to play in the development of a legitimate music business in China. One of the most important areas the government can work with industry on is changing public attitudes through education programmes. Unfortunately the pirate market in physical music has conditioned people to devalue the creative process and believe they should get their music for free online.

On a more positive note Kennedy believes that in China today there is a far greater awareness of the need to tackle piracy than there was some years ago. "Actions by the authorities against CD plants in recent months, and announcements from the China government indicating that the problem must be seriously addressed give me hope for the future, but it remains to be seen whether the vision articulated in recent public statements will be implemented in practice and realised in the marketplace. Specifically there needs to be a sustained programme of enforcement which has a meaningful impact of the level of piracy in China.

"Criminal penalties need to be enforced that act as an effective deterrent against pirate traders - this requires considerable political will from the local authorities. I believe there will be political will, once the message is clearly received that China is the biggest victim of piracy and that China will be the greatest beneficiary of proper enforcement."

Online Theft: He touched on the crucial issue of Internet piracy which he says is rapidly-growing problem in China and now in fact threatens to strangle the fledgling legitimate digital music market before it has hardly evolved. "While I am hopeful about the prospects for the music industry of China leapfrogging CDs to digital delivery, it is worrying that the entrenched culture of physical piracy has also shaped people's mindsets at the start of the digital era."

What disturbs Kennedy is the fact that China has seen an alarming increase in websites, streaming sites and illegal file-sharing and this urgently needs addressing. "Our industry is stepping up its attempts to remove infringing websites from the networks. In 2005 we send over 1,000 warnings requesting ISPs to take sites down. The process is far too cumbersome and slow. Long-awaited proposed new internet regulations are currently in the process of being introduced to provide incentives for ISPs to fight piracy and shift the burden of responsibility for tackling infringement towards ISPs.

"Up until now the music industry's fight against internet piracy has relied heavily on litigation against pirate operators, against infringing p2p networks and against many thousands of illegal uploaders. These strategies have all been effective - but to keep piracy in check on a long-term basis we need far greater support from our partners. The telecommunications industry, in China and elsewhere, is already doing very well out of revenues from digital music. We look to ISPs to set the example and take on responsibility for fighting internet piracy. It is in their long term commercial interests to do so."

Kennedy was visibly disappointed at the lack of support from ISPs. "I have been very disappointed in recent months to see some well-known brand names among the internet companies blatantly infringing our members' rights. Baidu has already been found guilty of copyright infringement in the Chinese courts; China-Yahoo is now in a similar position, choosing to turn a blind eye to the infringements taking place on its service instead of setting the example of responsible practice which we would expect from them. We are watching China-Yahoo closely and will have no hesitating in acting to protect our members' rights if we should have to," he warned.

China can be a leader in digital music: Despite all these problems, China he says is uniquely placed to become the world's showcase digital music market. "China accounts for nearly half of all the broadband lines in the whole of Asia. Only the US has more broadband lines installed. And it has the region's largest mobile phone market, with nearly 400 million subscriptions. Mobile music is already far advanced. For the international record companies operating in China, sales of music via mobile phones already accounts for about 15 per cent of industry revenues.

"This is a very small sum in total, but as a proportion of total sales compares impressively with the global average for digital sales in 2005, which was just over five per cent. Worldwide, only Korea shows a larger percentage for digital sales. There are five legitimate digital music services in China and we forecast there will be many more setting up in the next few years. In the past two years the volume of music made available online has increased more than six-fold to more than two million songs. "China's transition to digital is of course being mirrored across the world. Record companies have rapidly transformed themselves in years from a business dominated by two revenue streams - physical retail sales and radio - to one of countless different licensing channels, from ringtones to subscription services, from mobile downloads to music videos.

"Even today, I am asked sometimes if digital delivery is a long-term destination for our industry or the cherry on the cake of our physical markets. The answer is emphatically that digital music is key to the industry's future. In 2005 worldwide revenues from digital music surpassed $1 billion. In 2010 most in our industry think digital will have risen from five to 25 per cent of our revenues."

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