SUE EVERYBODY

China’s major music streamers are suing the hell out of each other—and that’s a good thing

Obsession
China's Transition
Obsession
China's Transition

China’s major music streamers are entangled in a legal game of Twister, launching lawsuits against each other at a frenetic pace over copyrights. While the legal battles look ugly now, they may mark the beginning of the end for China’s widespread piracy problem, opening up a potential $5 billion market to international music labels.

The lawsuit festival began in earnest last November when Tencent, best known for its chat apps QQ and WeChat, sued rival Netease (link in Chinese) for 3 million yuan (about $450,000). Tencent claimed Netease was offering its streaming users access to 623 songs that Tencent claims it had licensed exclusively for its QQ Music service. Netease quickly counter-sued Tencent, for allegedly offering 192 songs licensed exclusively to Netease on its own streamer.

Other players quickly joined the fray. In December Kugou, which offers a streaming service popular in China’s second- and third-tier cities, sued Netease for allegedly infringing on copyright on 200 songs. Netease duly countersued. In May, Alibaba sued Kugou for infringing on its exclusive streaming rights. Kuguo countersued two weeks ago.

Piracy has long been a cornerstone of the Chinese internet. Some of the country’s tech giants built their fortune partly through offering free downloads of copyrighted content. Baidu, most notably, became China’s number one search giant in part by offering easy access to pirated MP3s.

Other tech firms including Tencent and Netease did the same, launching free MP3s and eventually free music streams as loss leaders. China’s music streaming market became highly fragmented.

But music streamers have been tip-toeing away from piracy. Their commitment came forth following a government directive issued in early July aimed at China’s long-standing reputation for not respecting intellectual property. A consortium of Chinese streamers, Chinese labels, and international major labels signed a mandate (link in Chinese) pledging to enforce protection of music copyright.

“In the beginning, platforms were competing to retain users by having more content than everyone else, so you could pretty much guarantee that any popular song would be available on every platform, illegally in almost all cases,” says Alex Taggart, of Outdustry Group, an consultancy that helps music companies enter China. “Later, licensing started happening. Basically, platforms would license catalogs that they couldn’t afford to lose.”

Since streamers are licensing catalogues gradually, any given streamer now contains a mixture of licensed and unlicensed content. In order to protect the licensed songs they paid to obtain legally, the platforms are suing each other.

Chinese listeners are streaming a wide range of music these days. In 2014, according to QQ Music (link in Chinese), Pharrell Williams and Iggy Azalia both had songs that were streamed over 10 million times in China. The theme song to the Chinese film “The Continent” was played over 460 million times.

Domestic media reports only name Chinese music as the center of the lawsuits. But Korean pop labels and western giants like Warner Music Group and BMG (links in Chinese) have also signed exclusive licensing agreements with individual streamers.

This is a markedly different path to ending piracy than what happened in the west. There, from Metallica’s assault on Napster to Universal’s smackdown of Grooveshark, artists and labels have always been the first to sue platforms for violating copyright. But in China, platforms which were once havens of piracy are doing the suing as they gradually migrate to legally-obtained music.

Revenues from licensed digital music in China hit $91 million last year, according to IFPI, a research group and digital rights agency. But that number should be much higher. IFPI cites a study from the China Music Industry Commitee estimating the market for digital music in China ought to be $4.9 billion.

What will the lawsuits mean for the future of music streaming in China? For cash-strapped labels, as long as a single company doesn’t gobble up a monopoly on users, it’s a good thing. Not only do they get an advance, record companies essentially pass on the legal headaches of enforcing copyright onto the platforms. This will come as a relief given the unpredictability of China’s court system.

One big question remains—will China’s consumers, accustomed to free music, pay up? If the music-lovers in the US and Europe are any indication, the answer is yes. Meanwhile, Tencent brought in over $3 billion selling virtual goods on games and social networks, indicating that China’s internet users aren’t averse to buying digital products.

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