In recent years, with the gradual standardization of the music industry and the involvement of Internet giants like Tencent and Ali, copyright authorization price keeps soaring in the past few years.On the 2017 “Sound of the Xity” forum, China Music Business News, as the exclusive strategic partner, discussed about the current domestic copyright market on the theme of War of streaming Platforms VS Business of music licensing with Mr. Ding Bo, Vice President of NetEase Cloud Music, and Mr. Pan Caijun, CEO and founder of Ultimate Music.
CMBN:How do you see the competitive situation among digital music platforms?
Ding Bo: The current competitive patterns of the digital music platforms seem not easy to answer for me, because I am afraid to offend somebody. At present, in terms of digital music, there are 4 large-enough platforms: BAT plus NetEase. Indeed, Tencent including Kugo, Kuwo and QQ music, (Ali’s) Xiami Music and (Baidu’) Baidu Music started very early.
Yesterday Mr. Ding (r.t. NetEase founder and CEO Ding Lei) made a speech and mentioned the problems on the current copyright market including the harmful exclusive copyright. I think it needs to think about your standpoint of view. Mr. Ding would see the exclusive copyright is harmful, but it might not be the case if we care more about the money. IPO depends on our own copyright resources.
From the perspective of Netease Cloud Music, we are doing music, but not a financing product, nor an IPO tool. What is the demand of music? Music needs to be heard, be appreciated, be spread, be shared and be presented the real artistic value. Of course, it is only in an open case can it run successfully (to break up the exclusive copyright), but from another side, piracy is unsolvable even when the music is totally open.
Copyright should start from the exclusiveness, but not end with it. In a special historical stage, such as the period of the H2 2014 to 2016, we were crowded in the copyright war and copyright or exclusiveness was the main battlefield. We always speak to the outside that our music library contains 15 to 20 million songs, of course there might be more. However in today’s China, I cannot make sure there is no piracy in the digital music platforms, but at least no one dares to make piracy officially. Thus, from the industrial aspect, now is the time to step into the next stage.
Everyone comes from the CD era. The exclusive copyright equals to buy a CD at that time but be limited to use only this (device) to play. Particularly strange, right? And that is what Mr. Ding Lei said yesterday.
Pan Caijun: We are more fortunate, as we started to cooperate with more copyright parties in our early days of business. What we have done is to put all the hardware in a line, so that we can create a pure space to the hardware manufacturers out of the battles of the internet platforms in the past two or three years of copyright war. Our co-operated manufacturers such as MI, Samsung, VIVO or Lenovo, have their own strengths to provide a shield within the partnership scope to the parties like Ultimate Music under the fighting flames of BAT and NetEase, and we just continue what we should do.
In the past two or three years, the music market already began to promote music payment and legitimization, no matter for the future goals or capital reasons. Netease Cloud Music or other platforms have all welcomed an increasing proportion of paid users for legitimized contents.
CMBN:Copyright battles burn out with the up-going library authorization price at the same time, especially for the big record companies. So in the end how to price the library? In the copyright negotiations, how to price more reasonably and evaluate more rationally?
Pan Caijun: All along, what we usually do in negotiations is that we do not accept any prepaid guarantee, but will only provide dividends. Record companies are our shareholders and they benefit from the dividends. Four years ago, I was an advisory for Google’s co-operation in the Asia-Pacific. Actually those large foreign platforms stopped prepaid guarantee very early.
However, China’s copyright war is full of chaos and we even don’t know whether we can get the money of copyright back. We all use the value added space to cover the investment as it may be the market share increase that leads to growing valuation.
Ding Bo: Internet platforms currently set a lot of principles to the copyright library pricing. NetEase Cloud Music would carry out data comparison according to certain standards, and design some guaranteed plan upon last year’s situation. On the contrary, many Internet music platforms do not have such principles to the copyright owners, and they believe the higher price, the better. That is a strange thinking model since the Internet era. They call it Internet thinking but I have never been clear what it really is. In my opinion, Internet thinking is to lose money in order to attract more consumers. Therefore, such an Internet thinking way will make countless companies die.
I think China’s largest bubble is not necessarily on the real estate market, but on the Internet. This would bring a particularly terrible consequence on music copyright. We can recall the development of the entire video sites, and what is the pricing method when an episode of TV drama can reach a price at 1 or 2 million? The music industry is also experiencing this stage, and I can be very responsible to say the current copyright pricing situation in China is very irrational.
CMBN:Netease cloud music announced its more than 300 million users on the press conference of their A round financing. How to achieve 300 million from only 100 million?
Ding Bo: What I just said might be too tragic, but why do people still want to jump in? The proportion of our paid users keeps climbing, and only if the paid users of the entire industry can increase till some certain degree, can the total payment environment on the Chinese music market have a big improvement. Unfortunately, nowadays no one dares to take the lead step about full payment.
In fact, Netease Cloud Music witnessed a number of new users every day with the growth ratio between 40% and 50%. We got 300 million users in the 4th year, which is not to say how good our products are. After the grand copyright war during 2014 to 2016, we just stayed along this period to pick up the lost users. The best time enables our best development. So to some extent, this kind of competition is to activate the platforms. We have become the biggest winner, thanks to the copyright war.
CMBN:How do you think about the changes brought by the platforms to the upstream players (record company, creator)?
Pan Caijun: Today I can be proud to announce that at this point in time Ultimate Music has realized the daily platform data open to the copyright partners, and all of the copyright investors can access to our report system with their accounts. By analyzing these reports, such as the situations of different hardware systems and different regions and cities, the copyright owners can make some adjustments in terms of social media attributes, such as whether to input more advertisement or promotion resources.
We hope that by the end of this year, we can provide the copyright party with more different data nodes. We have the advantage at co-operating with a lot of hardware manufacturers, and they already have a very clear user portrait. We finally make an integrated version for our copyright partner to adjust their own publicity and promotion strategies in every hour.
A few days ago I just chatted with a peer, and he said some time ago he brought a group of Chinese music songwriters to exchange abroad. I think an Internet platform has the responsibility to promote the music to overseas as well, even though they are not able to fully understand. We are actually very lucky that MI, Huawei and OPPO have great sales in Southeast Asia and other places in the world, which provides great chances for Chinese music to run externally.
Hopefully, through these platforms we can learn at least from the perspective of cultural exportation about foreign feedbacks on Chinese music, and then adjust in time to help domestic songwriters understand the overseas market basing on data changes and broaden their market horizons. Many foreign companies come and acquire Chinese audience’ acceptance and they demand to know our feedbacks and feelings to schedule their future steps in China. Those are what we want to provide to the upstream partners and the record companies.
Ding Bo: Well from my point of view, I think this question is entirely challenging our relationship with the upstream (laughs). We know to some extent, NetEase Cloud Music is the largest platform of most Chinese original musicians, as nearly 40,000 original musicians share their work through us. New music and contents are introduced endlessly, but why didn’t we feel anything? The reason is our attention has now been dispersed, not just from the music to the movies, games, etc., but within the music itself. In the music circle, it is hard to find a team whose promotion ideas can keep up with the changes immediately, and most of them actually did not make a transformation of the work.
The second point is about the exclusive copyright restrictions, which might limit the spread of some music. New contents should have enough space and opportunities to be showed out, no matter to the indie musicians or the record companies, which is exactly what we are considering now. We know that many songwriters have not earned much but some rich ones continue to make money. Our investment on the copyright does not have any help to the songwriters at all, which is the biggest problem.
To NetEase Cloud Music, our major promotion way is to analyze music behavior of the users basing on the algorithms, to speculate their favorite music types. The activity ratio of the NetEase Cloud Music Library stays over 70%, far more than our competitors. Then, what shall we do to screen? Before we recommend music to users, we will at first make an initial screening to remove some unsuitable contents, and then put the appropriate one into our big data system to further promote and test. We are designing a new screening model and I would keep it confidential here.
CMBN:Do you think is there a way upon data and technology innovation to resolve the earnings distribution problem with the copyright owner in the future?
Ding Bo: It might be difficult for me to clarify about the profit distribution with the copyright owners in a very simple way. In fact there are many songs on the platform you do not know whom their lyrics or melodies belong to, and how can you guarantee the interests of these composers without clear basic data?
For another example, we all know that there are Universal Music (company) and Universal Copyright Agency and may regard them corresponding (that is, Universal Copyright will take over the copyright business of Universal Music), but in fact they coincide by 10% only. So when we talk about the upstream parties, I hope each songwriters can keep in mind that not every song has a completely clear copyright agent or a paid platform. On the current case, even an extremely financial report system cannot conquer the problems of copyright owners and record companies.
Pan: In fact, I think over the past few years the lyrics copyright developed quite slowly in China. Aside of no much profit, no one is willing to spend more effort and time to do. On this point, Hong Kong’s CASH (Composers and Authors Society of Hong Kong Limited) is doing quite well. They have a system for the copyright of lyrics or melodies, which will be open for a certain period of time every day for all the copyright owners to edit relevant information. Hence, they can be very accurate to record all the copyright situations to ensure all the copyright owners getting their profit dividends. So the problem is not our lack of capacity, but the lack of profit to drive us to do.
CMBN: Could you please predict in the next three years, will the profit of online music be far greater than that of the live music?
Ding Bo: It is particularly terrible if the profit of online music is less, which means we would rather walk to the theatre, buy the tickets and consume the derivatives, but not grasp their favorite music online and enjoy anywhere or anytime conveniently. Why don’t we do live broadcasting? The reason is the current technology cannot afford the users with better experience. Nevertheless, in the next three years to five years, with the popularization of some technologies and interaction methods, the gains of live performance may find an intersection point with the online income possibly. Live music business must be getting better and better, and the first is LIVE performances, the second is the party, the third is the musical, and then the music festival.
Now the paid users of Netease Cloud Music are majorly the 90ers, who grew up with the Internet and would not reject online music payment in their minds. Hence, we keep insisting on that (paid music) even with incredibly huge investment and hope to welcome a booming growth in the next three to five years. Back to the question just now, I think live performance cannot create more benefits than the online music.
Pan Caijun: I think from the whole economic aspect, the income from live performance will continue to increase, even if there are other problems. Live show will generate more and more revenues along with the growth of people’s income and purchasing power. But I agree with Mr. Ding, it is not appropriate to say the online music revenue would stay less than that of the live performance.
We think that digital music in the future will be found in more and more different scenes. People can take advantages of more and more various devices to play music, such as using mobile phones while walking, taking car music player while driving, and listening to the smart audio while showering …so the future days will embrace more various music playing scenarios rather than before. Over this, the future development of online music is dramatically promising.
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