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December 14, 2007

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Alexandre Linhares

iTunes does not work on Brazil, neither Hulu, neither anything else... except of course youTube and emule and the pirate bay... so what would someone reasonably expect? That people would not pirate, since there's virtually no alternative except for waiting for physical CDs and DVDs or shows that appear 10 months after they're shown in the US?

As long as the major legal download keep listening to their lawyers, who make "special" deals for foreigners, people will just switch to where it's available. I find it a pity that so many tech companies do not understand that the www is REALLY worldwide, and if they block some of their users (iTunes, NBC, Hulu), those users will just respond by finding another way around. Basic economic behavior.

Alexandre Linhares

After all, don't Americans "unlock" their iPhones? It's just the same basic "I will go around your stupid wall" behavior. iTunes, NBC, Hulu mention "Sorry, not available in your region".. fine, The Pirate Bay is. NBC and Hulu I can understand, they are our of synch with reality, but it astonishes me how Apple would not "get" it. Doesn't Jobs love to start his announcements with the likes of "90909090 Trillion iTunes downloads!"

Dane Cao

Do you know,Mr Anderson,your book "the long tail" could be downloaded very easily from the internet here in China? it just got passed around among a lot of english-study websites.I bought and read a print copy(which costed me more than 100 RMB,a lot of money here) before it got popular and caught the pirates' eyes. well, I guess more than 60% of the chinese readers who ever read your book have obtained it basically FREE. So does this add some dimension to your next book,albeit an ironic and negative one?

Chris Anderson

Dane,

Yes, I knew that my book had been pirated, and was actually delighted to hear that that version got so much exposure. As you might imagine, I had not expected to make any significant money from book sales in China, but it was very gratifying to speak in China and find that my ideas had got such wide attention--indeed, that probably had something to do with why I was asked to speak. So, just as bands can use pirated music as marketing for concerts, I suppose I used a pirated book as marketing for my speeches. At any rate, I didn't see anything negative about it. (my Chinese publisher may feel differently!)

-c

sergej

I was also once put myself a question - who is the bigger "criminal" - people who downloading videos or music from p2p networks - or major companies which don't allow people to buy digital download for reasonable price ?

i think 2nd (majors) are more arrogant - simply cause they have choice, technology, resources and money to offer their content for download - and they are not doing it - while people don't have choice to "still" the content or to buy it.
And what makes even more nonsense - is that majors have global mktg campaigns, but don't have global digital distribution channels.

and in perfect scenario - if people will buy content legally, how much money will be saved (package, distribution, labor, air pollution cause of physical distribution etc)

we could easily calculate that people who are "stilling" their content doing good for global sustainable economy

so its come out that majors actually through they lost cause of piracy on their content, actually paying price for uneficency of business models they proposed and offered on market.

is it invisible hand in the 21st century economy ?

its prove that CSR is a right tool for managing intangible assets in the 21st century business ...

Jorge

Piracy isn't always necessarily a negative thing. It can also bring more exposure to the author.

Matt Mason

Somebody should write a book about this... :)

One of the things I think is really interesting about the music business in China is although it's far from perfect, there are more artists there making a living from touring than we have here (I think DJs should be included in this, a DJ set is after all a live experience, albeit on that requires other piece of recorded music). There is a larger "middle class" of musicians as Kevin Maney put it.

What needs to change is the ridiculously unfair way ringtone and ringback revenues are distributed (something else pirates can help out with as I'm sure they will at some stage in the future), which sounds a lot like the way the major labels here do business. Free music can work as a business model, but you have to get rid of all the distribution bottlenecks. And no one does that better than pirates.

Dave Davis

I read Ed Peto's linked article, and am a regular reader of this blog and Wired with a solid distinction between "free" and "free to user". But as someone who makes a living working with musical artists, I feel an obligation to throw some cold water on the constant pimping of "360°" deals. Far from being a panacea for the industry, they may be a deathblow to the careers of the signees!

Consider these deals based on the primary characteristics of new media as defined by Lev Manovich: New media is inherently modular by nature. Plug-n-play, distributed creation, and widely dispersed operations are the business consequences of contemporary media. Companies are able to shed employees, and assemble specialist teams ad hoc. As a result modern companies tend to focus on their core business and farm out everything else, to contractors, temps or suppliers. This is the way of the world, from Wal Mart to Amazon (which now sells their core service of order taking and fulfillment to all comers, and grows increasingly less reliant on direct retail sales).

Next look at the career needs of a professional musician. These include (but aren't limited to) legal representation, business planning and management, tour booking, tour promotion, recording services, replication services, distribution services, graphic design services, album promotion, order fulfillment, financial management (including accounting, HR functions, benefits etc), awards entry coordination, awards promotion... the list goes on! While major labels can and do provide many of these services, they have absolutely no experience or expertise in many others. Furthermore, they've spent the last decade firing the best and brightest in the industry, all of whom have fled to the freelance world where they over-charge labels for the services they once provided as work-for-hire.

At this point in time there is no rational reason for an artist to trust a label with their entire career. Rick Rubin may well become the new Clive Davis, a king of 21st Century A&R, but he doesn't know squat about touring, publicity or merchendising, nor does anyone else at Columbia (they farm out those chores when they do them at all)! Does anyone seriously believe Clear Channel/Live Nation is capable of promoting Madonna's records, or even interested in maximizing her presence and career?

The truth is all of those services are commodities today, and an individual artist can negotiate better rates from other individual creatives than a multinational corporation can. No one at the label knows more about a bands fans than the band itself, so it's questionable that they will be able to target new fans as well as a specialist. The dynamics of most businesses include The Peter Principle, with people rising to their highest level of incompetence, and only getting fired when they screw up royally or the economy tanks. What are the odds that the label's publicity flaks will stay up to date with every niche and genre? Long Tail markets require long tail marketing – identifying and penetrating micromarkets, and making people aware of new products. Mass market labels are poorly suited to this task, evidenced by their nearly continuous acquisition of indie labels, which are repositories of such knowledge.

None of this even touches on the inherent conflict of interest: Can a publicly traded company be trusted to build an artists image (or "brand"), when success drives up that companies costs at the contract's conclusion? What of free concerts and publicity driven events? Will Live Nation let a performer play free shows that conflict with booked ones?

In short, 360 deals, like subscription music services, are a fatally flawed idea. It makes no sense outside the context of a failing major, desperately clinging to by-gone glory. Mass-customization and ever-easier access to music are better directions. Licensing and placement of music is equally critical. And finally, opportunities to use music to link fans with unrelated products create free-to-user downloads and virtuous circles in a non-zero sum world.

The view you present of China is scary. There's no real business model presented in your piece or the one mentioned above. Ringtones are already obsolete, and will vanish as a revenue stream by 2010. Concerts are a single, limited dimension of music that cannot finance a professional career, or sustain the recently-emerging middle class of artists. Ad based models have some potential, as does licensing, but today's artists must shepherd their work. The backside of the Long Tail for us is clear: just as e-tailers benefit by stocking millions of unique items, musicians must participate in dozens or even hundreds of unique venues that their audiences inhabit. Past distribution models rewarded labels and artists with the most connected middle-men and best publicity. Long Tail models benefit labels and artists who most widely participate in their genre/niche communities. I

So it seems that today, the artists network (including myspace etc), is worth more than the labels! 360 deals empower labels to leverage the fans of captive bands they sign to break new artists, which in turn keeps the market flooded with similar content. That keeps individual artists more manageable, with modest fan bases and no negotiating power, transferring any earned "brand appeal" back to the label. Fortunately most established artists have figured this out and want no part of 360s. But as the press keeps pimping these bad deals, it's fair to wonder what impact this will have on younger artists!

Ed Peto

@ Dave Davis,

I just thought I would leap in here to clarify something. The purpose of my article was never to 'pimp' the 360 deal (I'm not sure if you were suggesting it was me doing this), but more to 'say it how it is' here in China. I actually totally agree with your comment and think that the 360 arrangement is a terrible direction for the industry to be moving in. The new music industry is absolutely modular by nature and if majors can't release CDs right then you sure as hell shouldn't be letting them anywhere near your other interests. Chinese acts generally do appallingly badly out of these contracts but the simple truth is that, in a lot of cases, there are no alternatives as the margins in ALL areas of music are so bad.

I actually do not attempt to suggest a business model, preferring to describe China as a 'blank canvas' in my article. The interesting thing about being here is that while the western industry is slowly and painfully dismantling in the midst of finger-pointing and regrets, every move that is made in independent music in China is a tiny step forward. There is zero expectation.

Why is China important in the conext of 'Free'? The answer to this can be distilled into three points:

1. People do not pay for music in China.
2. The rapid rise of the Chinese middle class means that entertainment is of increasing importance.
3. Every consumer brand on the planet wants to market to this middle class.

Joining the dots here might look easy but nothing is ever that simple in China. This is far from being a fully developed and nuanced consumer market, so there is still a lot to be learned as to how brands can actually reach people.

There are a few groundbreaking 'Feels like Free' initiatives going on, nonetheless. I particularly recommend you have a look at http://www.noankmedia.com and see what they are up to with the Chinese Universities. It is audacious but, if it works, I believe they really will have struck on something special.

Dave Davis

Ed,

First, you correctly guess my reference to 360s was not specifically related to your piece, but rather my own exhaustion with this terrible idea. To see it arise in an already dysfunctional market is depressing.

I don't accept your 3 points on the significance of China to the broader music marketplace. First and foremost, China's experience with commercial music is too recent and shallow to completely escape the taint of false ideological assumptions of Maoism. It seems to me many are conflating Western hacker ideas with Maoist values, and arriving at really terrible solutions across the board.

It seems as unrealistic to hope that the Chinese people adopt more progressive and benevolent values, as it is to expect the same of major labels. Therefore, it might be more productive to shun and isolate the disease, rather than infecting the West with unsustainable, phony models (again, ring tones are not our salvation - they're the walking dead already).

Make no mistake: The models you report in your article and this followup, including the Noank Media link, are unsustainable on their face. The Noank model isn't a response to the underlying problems in Asian markets, but just another (wannabe-giant) middleman located closer to the action. Monolithic rights tracking/granting organizations and non-compulsory rates are precisely the wrong direction.

For me it comes down to this: From a cultural perspective, I'm not sure China is the blank slate you suggest. They carry a lot of social baggage that is inherently anti-market, and the value of human labor (if not life) is very different across that great, vast country. Furthermore while the urban centers are rich, advanced places, much of China remains a developing country. In developing places entertainment has a radically different value than in developed ones. If you have no car, no mall, and insufficient electricity, it's likely a computer will be close by to acquire music. Would you trade a cow you can milk, and later eat for an iPod? Rice for tracks at the iTunes store? In short, none of this even matters to you!

Your descriptions are vivid and clear. China may be a blank slate, wrt business models, but they are anything but that in terms of cultural values, where they are arguably RICHER than the west! I strongly argue their cultural baggage is an impediment to developing business models that can work outside of China. People who have never paid for music, and see it as a part time avocation, are unlikely to be converted to the big-spending music fans we are. When that attitude is the product of thousands of years of civilization, even Mao had difficulty forcing change with guns and prisons. Conversely, I sincerely doubt UMG et al will ever find much common ground with the society you describe. In short I see no near-term possibility of reconciling the Chinese with Western attitudes towards intellectual property generally, especially pure entertainment products.

I don't have any answers either. I just strongly reject the view of China as a "blank slate".

Irene Grumman

Thanks for the referral. Peto's article and the comments were fascinating, as are the comments on this post. Did you see any interest in country or folk music, line dancing, square dancing in China?

maths

@Dave & Ed,

I have read the comments with interest. Maybe there is a gap in the application of the arguments that just needs a little more positioning to better frame the discussion.

I gather that Ed’s description of China as a blank slate is where a new model in the music industry taking into account the various disruptions brought about new technology can arise. I don’t think he suggested that this model should be blindly applied to Western markets.

But let’s just look at music consumption globally – everyone all over the world consumes music with the biggest absolute consumptions probably occurring in huge swathes of South-east Asia, China, Indian sub-continent, Eastern Europe, South America, parts of Africa via music distribution structures vastly different from that in Western markets. By my very rough estimates, 70% of global music consumption is either probably free to user or else consumed via pirated means. With digital technology playing a greater role in disrupting not just established record label models but also the traditional pirate distribution model, in the mentioned regions, but much more magnified in China with its faster adoption rates and development of newer music distribution models and consumption patterns, there is a fair chance that some of these new models in China (along with Brazil etc) could be mirrored and adopted in the rest of the other markets. There is money in music consumption and the arising disruptions are creating opportunities for various players – it is up to those related directly to music production to seize these opportunities accordingly or someone else will inevitably profit from it.

Dave, the cow or iPod analogy is too extreme a situation that you have brought up – the farmer will still get his music no doubt, but via his cheap cell phone or cheap local mp4 player or some other device. Probably the cell phone or mp4 player manufacturer or other enterprising companies would facilitate the access of music to these consumers. In India, the film music is also used to draw more people to the Bollywood films and increase their box office collections. There are many enterprising Steve Jobs all over the developing world who don’t need to keep up the pretense of propping up an iTunes while they use music as 'free'or loss leaders for other services and products.

And that is how the free to user model is going to spread around the world as music is consumed globally ...but I also have to add a caveat that there is a possibility that not all music will eventually be free to users. Just as there are free magazines and there are paid magazines, some Long Tail music will have enough value in it for end-consumers to pay for it eg. classical music – but proper revenue collection models have to be put in place or someone other than the music producer is more likely to benefit say, an aggregator who makes money ON the Long Tail.

To put it into perspective, the global heads of music labels actually only oversee small villages of music consumption on the global map and at some point in the near future, the models they cling on to are going to be anomalies to what is happening in the rest of the world. Already, the Japanese music industry model is so alien to almost all of Asia that it could well be on a different planet – in comparison, China with its huge population base on the one hand and through its consumption practice which has much more in common with a greater part of the world might well be a “blank slate” worth observing closely.

Dave Davis

Maths,

You raise a lot of great points, and to accept your framing, the common challenge we all see as fundamental is monetizing "the last mile" in free-to-user models. Certainly in that sense I can agree with Ed and you that China is a useful, and indeed critical "blank slate" to reckon with.

Unfortunately, there are some structural impediments and predictable unintended consequences. For instance, a country that already censors Google and Yahoo might be very accommodating or even solicitous towards the very worst ideas major labels and studios can come up with! And it's not easy to incentivize legitimate and open licensing schemes in ungoverned or open environments.

In the long run, some form of embedded micropayments that actually ENCOURAGE recombination and mashups of code, art, and literature as well as music are necessary. Historic copyrights are a good reference, but we shouldn't blind ourselves to the benefits of compulsory licensing in the 20th century (arguably this free-friendly concept created the industries of radio, tv and ultimately music). While content-investors see this as a nightmare scenario, little better than Napster, I suspect artists can be convinced it's not only fair, but in their personal and collective best interests in an interconnected, networked world.

I don't see such a system easily arising in China, but to pick up Maths theme, maybe the nature of the farmer's connection provides a constructive clue: it may be safe to assume a persistent and large market for dumb, low-capacity networked appliances like cell phones. Programmed music like radio is great here, especially in downloadable form. Microtargeted ads are simple and natural in this space too. So, rolling content into service provision, that age old subscriptionesque dream, seems possible.

Tweak that further and you might have a solution that beats piracy: Monetize micropayments for ALL content (via compulsory streaming licenses) alongside network access at the provider level. This would make cell-providing a mom-and-pop or brand market, like web hosting services. The providers would buy content in bulk at compulsory rates that would be allow a profit even for clients who use the network 24/7, marking up consumption. They would be incentivized to hold down consumption by creating unique content, and aggregating other services that occupy user time, including shopping! Further, ad-supported deals could flourish. What distinguishes this from the current "subscription" plans: compulsory rates would apply to network access (cell, broadband, cable etc) as well as content. By making both modular commodities, new enterprises and applications could spring up around the bundling and service delivery to the "last mile". Virtually any consumer "brand" would find this an attractive space to participate in. And many entirely new companies with new ideas would spring up alongside.

Piracy would be easily discouraged by direct constant access to "the real deal", that already appears free to user. No one has any incentive to waste storage or buy bandwidth to deliver someone elses goods any longer, so it will be easy to account for all sales. No need to estimate, or guess who sold what when.

Current media creation conglomerates like labels and studios would enjoy huge, steady revenue streams, with accounting data built into the payments. Current cable and networking companies will continue supplying the wires and servers that run these miracles: who really wants to build and maintain a server or switch farm?

There are solutions, and as you both note, value in considering China when weighing them.

-d-

maths

@Dave,
A couple of areas that I need to highlight to you though:
1) You stated "For instance, a country that already censors Google and Yahoo might be very accommodating or even solicitous towards the very worst ideas major labels and studios can come up with! And it's not easy to incentivize legitimate and open licensing schemes in ungoverned or open environments."
You express the outsiders' obsession with censorship with a stereotypical view of China, when in fact, it is much more capitalist than one would expect as long as one keeps out of the designated sensitive areas of politics, porn etc. You have to be here in China to observe first hand how much trouble the major labels via IFPI have been having trying to gain any semblance of control in digital music distribution. Just a few days ago, their struggles against Yahoo and Baidu reached a conclusion with less than favourable results for them despite them trying to put on a brave face - read my view of the situation here: http://www.music2dot0.com/archives/95

2) Everything else you have described is strangely similar to the Noank model suggested by Ed, which in an earlier post you rejected as follows: "The models you report in your article and this followup, including the Noank Media link, are unsustainable on their face. The Noank model isn't a response to the underlying problems in Asian markets, but just another (wannabe-giant) middleman located closer to the action."
Also, there are a couple more innovative "feels like free" and paid digital music distribution models that will certainly push the envelope further which will be introduced in China in 2008 but I am not at liberty to disclose further details just yet. But I do have to agree with you on this point of yours "I don't see such a system easily arising in China" as the collisions of commerce, culture, technology and intellectual property are played out at breathtaking speeds in China.

Dave Davis

Maths,

I take your first point as stated.

The distinction I would draw between the Noank model and what I describe is positional and philosophical. Specifically:
- I'm advocating a model that mashes "free to user" streams (initially, downloads later) via automated micropayments at bulk, compulsory rates while Noank seems more of a clearinghouse and negoitator.
- I see piracy beaten back by convenience, not commerce; monetizing music on a unit-basis has already failed because distribution is invisible on peer-peer networks. An always-on client-server model that uses tcp/ip addressing for billing (essentially the ISP or service provider is charged for consumption, and sales are accounted for upon access). The hook for users: no worries about being sued or tracked, no need for giant local storage drives, faster downloads, better "lockers" etc. Again, small storage devices like phones would HELP this take hold - why hoard when you can just "touch" what you want to hear?
- This model also solves problems for streaming programmers and others who wish to use music in their message, but currently have too many hurdles to clear the music they want.
- It doesn't rely on the ISP or labels for accounting!
- It requires no "middleman" at all, so Noank would be obsolete unless they move into server-side services...

Compulsory rates can vary by application (e.g. using music for ads wouldn't cost the same as a fan's listening to a "radio"-like program, and applications could be monitored by machines. The main goal of such an approach is to sell MORE music, and create fresh applications that don't yet exist by expanding access, and making it more convenient and CHEAPER to use legitimate music, and spread the costs across the entire value chain.

One big problem with ad music today is that companies must negotiate and pay for rights up front. Thus a successful campaign that touches millions cost exactly the same as a failure that no one sees. While the music may have no role in the ad's performance, it's certainly unfair to charge the same rate for winners and losers! A model that charges by the eyeball is thus inherently more fair to all parties, and incentivizes good applications. Maybe even more important is that new, speculative ideas and applications aren't discouraged, since advertisers will get a built-in break on failures. Again, it expands and encourages the monetized use of music in new venues.

Hope this clarifies...

-d-

Ed Peto

Dave,

[Just back from Christmas-ing]

You have put me in the unusual position of being the optimist in an argument about music in China. I spend the bulk of my time pouring cold water over ludicrously unrealistic western expectations with my left hand and trying to be a minuscule part of the solution with my right.

As I said in my previous comment, I agree with a lot of what you say but I think we are getting lost in translation here.

I’m not sure what you are referring to when you say that it is unrealistic to expect ‘progressive and benevolent’ values from the new Chinese music consumer. In the context of this discussion, what is progressive and benevolent about getting music for free? Whether or not digital music should be free to the consumer is a separate point, for another forum. The fact is music IS free to the consumer in China. This is not a progressive or benevolent situation to be in for music makers and distributors. It is a desperate one.

If someone finds a way to cater to this consumer and still make money for the rights owners, then should the idea be ‘shunned and isolated’ from the west? That is certainly not my view. As Maths has pointed out in his comment, China actually more closely represents the state-of-play for the majority of music markets in the world, albeit in a more severe way. I think we are all going to learn a lot of surprising solutions from the most unlikely of sources in the coming years.

I agree that ringtones are an unsustainable option. If, however, we were to start ignoring billion dollar areas of business only because they have a finite shelf-life then this industry would be in an even sorrier state than it is now. Without MVAS, China would not have a music industry (as much as it pains me to say it). At least let people ride that pony while it's got legs.

I enjoyed your idea about 'feels like free' content across the mobile platform. It actually sounds a bit utopian in the chaotic context of China but I think pursuing ideas like this one is really the only long term hope. Judging by the quality of your comments this is more your area of technical expertise than mine so I must doff my cap to you. Interesting stuff.

I will stand by the three points I made earlier regarding why China is important in the discussion of 'free' as I feel you have not really articulated any significant challenges to them. I will augment it to say that 'feels like free' models as you and Noank (which I am still watching keenly) have laid out simply follow a different path to the same goal: Free music to the consumer. My three points merely suggest a more ad driven model, which is perhaps more immediately applicable in the total shambles that is the music consumption arena in China. The mobile platform is quite some way from delivering the level of integrity and usability necessary to support your utopian, yet eminently sensible ideas.

It does seem that we have come round to agree on China being a blank slate though. No answers, just an exciting place to try out radical ideas.

Ed

bee

As long as music producers can cover their costs (including opportunity costs) those committed to stealing it will be able to continue their practices. Please do not hide behind intellectual sophistry with the cry that digital makes it free. Value was created and thus the demand. We need to respect creation of value.

Adam B

Dave,

I suggest you speak with Eric Priest and his team at Feilio.com (Noank's operating name in China) to better understand Feilio's model.

What you're suggesting "...an always-on client-server model that uses tcp/ip addressing for billing (essentially the ISP or service provider is charged for consumption, and sales are accounted for upon access)..." is in fact the service that Feilio is delivering to a number of Chinese ISPs and networks.

Thanks.

Daniel Hicks from BlackRaven

The Chinese have so much to teach and have so much to learn... To get to feel human and truly express yourself is a right for every human on this earth. Stop the control and suppression China and let your people be free! Thanks, Daniel Hicks - Flutist for BlackRaven

jeux ds

China is really a very nice place, i also love china.. Thanks for sharing your story of china with us, i really appreciate.. After read this article i also want to go China..

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Tidbits

The Long Tail by Chris Anderson

Notes and sources for the book

FREE was available in all digital forms--ebook, web book, and audiobook--for free shortly after the hardcover was published on July 7th. The ebook and web book were free for a limited time and limited to certain geographic regions as determined by each national publisher; the unabridged MP3 audiobook (get zip file here) will remain free forever, available in all regions.

Order the hardcover now!