Music Business Regains Confidence In the Chinese Market

HANGZHOU, China, March 2, 2017 /PRNewswire/ -- Chinese digital music platforms are gaining more and more attention from music entertainment firms in other countries. On February 27th, leading Chinese digital music platform NetEase Cloud Music and Japan's biggest music entertainment firm Avex Group Holdings Inc. announced the signing of an agreement forming a strategic partnership that grants the Chinese platform an exclusive license in mainland China to the copyright of all the songs in the Japanese firm's massive portfolio. Many of Japan's leading artists can be found in the portfolio including Ayumi Hamasaki, Every Little Thing, Koda Kumi, Ai Otsuka, AAA and the Wagakki Band. The entire music collection in the portfolio is already available on the NetEase Cloud Music platform for any Chinese user who would like to give some of the tunes a listen.

Chinese music industry insiders said that after years of talks between the two countries' many firms involved in the music trade going nowhere, this "breakthrough" agreement between NetEase and Avex could mark the beginning of a new era for the sector and a harbinger for similar agreements, not only with other Japanese entertainment firms, but also with owners of large music portfolios in other countries, creating an environment where music, whether from Japan or elsewhere, enjoys the same legal protections in China as it does in the rest of the developed world.

Interest in music from other cultures, especially from Japan, grows in China.

NetEase Cloud Music CEO Zhu Yiwen, in his presentation accompanying the announcement, explained that the Chinese market has developed an active interest in and is witnessing a rapidly increasing demand for Japanese music. According to usage data from the music platform, there has been, what he termed, an explosive increase in the number of times that Japanese songs have been listened to, especially songs associated with Japanese animation, comics and games (ACG), with the number of music streams from Japan increasing 80% over the previous year, while ACG-related music saw its streams soar a whopping 280%. The same data also reflects a rapidly growing interest in Western music, with streams of songs by North American and European acts jumping 75% year-on-year.

The same data shows that it is mainly the youth segment, especially fans born after 1990, expressing the growing interest in Japanese and Western music, indicating a major shift in the kind of music that can be expected to be consumed in China looking forward.

Before NetEase Cloud Music and Avex announced their partnership, none of the music platforms in China had anything amounting to a sizeable Japanese album collection with proper copyright protections, limiting access for Chinese audiophiles who were developing an interest in the music. The growing interest created a need for a legal platform with a healthy inventory through which the music could be enjoyed.

Western music was also receiving more and more notice as a result of the efforts on behalf of global players, among them Universal Music Group and Warner Music, to create an audience for the genre. Yet, based on demand from Chinese audiophiles, there is still huge room for growth. According to a survey conducted by NetEase, 77% of the users of the platform expressed a preference for Western music, even going as far as displaying a like for it over homegrown talent.

The findings created a win-win opportunity for NetEase Cloud Music and Avex Group

The rapidly growing market for Japanese music and the lack of a legal framework for consumption provided a perfect opportunity from which the partnership between NetEase and Avex was born.

Released in April 2013, NetEase Cloud Music, the on-demand music-streaming service of Chinese internet technology giant NetEase, Inc., has enjoyed rapid growth coupled with a good reputation in the mainland Chinese market, while becoming one of the leading channels through which Chinese music lovers discover and enjoy new music. By July, 2016, the platform boasted a fan base of 200 million users. Backed by a sophisticated and highly customizable recommendation system, an inventory with tens of millions of songs, the full music catalogs from more than a thousand of China's leading acts, coupled with massive song lists in addition to commentary from Chinese music critics with the largest followings, NetEase Cloud Music has become one of the top music social platforms in China.

Avex Group, the holding company for a group of entertainment-related subsidiaries based in Japan, is the largest of its kind in in the country as well as one of the biggest independent record companies worldwide. Avex has dominated the market in terms of record sales in Japan for years and manages many of the country's leading acts, including Ayumi Hamasaki, Every Little Thing, Koda Kumi, Ai Otsuka, AAA and the Wagakki Band.

The exclusive distribution rights for mainland China that NetEase gains as a result of the cooperation assures the Chinese platform access to Japan's biggest music database, and, beyond the fact that it makes NetEase one of the platforms with China's largest song inventories, creates an environment that is expected to accelerate the interest in Japanese music among Chinese audiophiles. To Avex's benefit, the partnership, in large measure, smooths the way for entry into the Chinese market for its artists and their music. With a further deepening of the cooperation expected in due course, Avex and NetEase Cloud Music foresee the co-hosting of offline events including concerts and fan meet-ups with Japanese acts, creating even more opportunities for the acts to broaden their fan base in the Chinese market. As for music fans in China, by creating a legal framework through which a massive inventory of the music can be consumed, the cooperation further satisfies the increasing demand for Japanese music.

Chinese Government policies create the necessary legal framework for the importation of copyrighted music

Over the past several years, the rise of internet platforms put the majority of China's traditional record labels out of business. The ease at which music could be sampled, streamed and downloaded from the internet, via downloadable apps and on video platforms proved no match for the physical media -- vinyl, cassettes, even MP3 players -- through which music had traditionally been consumed. This disruption of the market coupled with a lack of understanding about the importance of copyright among Chinese audiences led to an environment where piracy became rampant. The Japanese record companies were keenly aware of the market situation in China, and, until this deal was struck, simply refused to consider any kind of collaboration with Chinese music platforms.

Since July 2015, China has put in place mechanisms creating stricter supervision over digital music copyright, creating an environment where music backed by such copyright could develop a market. As the room for pirated music keeps narrowing, Japanese music with proper protections, under the aegis of Avex Group, supported by government policies and the newly-signed cooperation with the NetEase Cloud Music platform, will, for the first time, have its biggest opportunity for expansion in the market. The deal between the two entities will create access to the broadest range of fans across China. Music from Japan can be expected to become a part of what audiophiles across the country sample, listen to and fall in love with on a day-to-day basis.

This change in environment, and the deal between the two players, sends the right signals to the global music entertainment industry and opens the door for them to engage with the Chinese music market that they had so long ignored. Especially for companies who seldom cooperate with mainland China on digital music, the partnership of Avex Group from Japan and Chinese music platform NetEase Cloud Music provides an excellent model for future deals.

SOURCE NetEase Cloud Music