Foreign recording label will use HK arm to gain pioneering 70pc control
Warner Music will become the first foreign recording label to establish a majority-owned distribution company on the mainland, taking advantage of the closer economic partnership arrangement.
The new venture, Warner Music Shanghai (WMS), will give the United States music label full control over manufacturing and distribution of compact discs for the first time on the mainland, ending its reliance on local distribution partners. Central government approval is due soon.
'The old model was royalty licensing,' said Samuel Chou, who runs Warner's Greater China operations. 'The good thing about that was it's easier. But if you want to take the China market seriously, then it's a problem.'
From next year all Warner music discs sold in China will be distributed by WMS, which will be 70 per cent held by the label's Hong Kong arm - Warner Music China (HK). Under the Cepa framework, Hong Kong companies can own up to 70 per cent of a mainland music distributor, compared with just 49 per cent for foreign entities.
Warner will hold a 70 per cent stake in WMS, which will open next month with a staff of 20. A local music distribution company will take a minority stake.
Warner now licenses local distributors on an album-by-album basis. The distributor manufactures the disc and jacket and sells them to local retail outlets with Warner receiving a percentage of the wholesale price. This process is fraught with risks including under-reporting by distributors in an effort to reduce royalty payments.