Several mainland companies are positioning themselves to take advantage of what is expected to be the next phase of the mobile music sector's evolution, where songs will be downloaded from the internet or over mobile phone networks. Two of the most ambitious and well backed are Shenzhen-based A8 and Rock Mobile in Guangzhou. Both buy rights from musicians and record labels, licensing those rights to mobile operators and others, but they do not always compete directly. In fact, A8 buys some rights from Rock Mobile, which started out as the digital music arm of Taiwan's Rock Music label and is majority owned by Rock Music. A fully decked-out mobile phone is a must-have accessory for trendy, under-30-year-old mainlanders, beginning with a shiny new handset and ending with the latest ring tones and ring-back tones. Starting almost from scratch three years ago, the industry supporting mobile music downloads and providing related services - such as voice recordings of favourite pop stars - is now worth billions of yuan each year. In a market where the mobile phone is an entertainment device and status symbol, it is not surprising that these services have taken off. Moving beyond ring tones and ring-back tones may see A8 and Rock Mobile staking out different parts of the mobile music business. What they do share in common is a belief that digital music can thrive in China, despite rampant piracy. Both companies are also convinced that China does not lack musical talent, just the means to bring their products to listeners and potential buyers. A hit record might reach 10 million yuan in legitimate album sales, barely covering distribution costs, according to research firm BDA China. A8 and Rock Mobile have both launched projects to reach out to unsigned artists. These include provincial radio programmes, music contests and websites that allow users to upload their self-produced material. 'What A8 should do is provide the platform for them. The platform right now is the weakness in China,' A8 founder and chief executive Alvin Liu Xiaosong said. Likewise, Rock Mobile chief executive Conor Yang Jiahong wants his company to be the destination for any music producer aiming for digital distribution. Beyond that, Mr Yang saw Rock Mobile growing into a broader entertainment and publishing firm, with artist promotion and possibly content production to be added later. 'Ultimately, our company will be a combination of digital plus physical,' Mr Yang said. A8 is stepping up its internet presence through a just-opened online music store. Up to now, one of the firm's most popular services allows aspiring and professional musicians to upload their songs to A8-hosted blogs. Mr Liu declined to give subscriber or download figures for the store, but said he was optimistic. Downloads cost between 50 fen and three yuan per song, while monthly subscriptions cost 15 yuan. Payment is handled through mobile phone billing, prepaid cards and bank transfers. Songs bought from the store come encoded with Microsoft's WMA copyright protection. Mr Liu said some tunes allowed up to three transfers to MP3 players, mobile handsets and other computers. Unlike with some 'rental' subscription models offered in the United States, A8 songs do not become inaccessible after users stop paying the monthly fees. Mr Liu's optimism is justified. After years of inaction over sites that provide pirated entertainment for download, government officials this year shut down dozens, including some offering music. The move comes just as a handful of other companies launched their own online music stores offering licensed music. A8's competitors in this area include top100.cn, which has investment backing from basketball star Yao Ming, and aigomusic.com, operated by one of China's biggest sellers of digital music devices. Also, after years of reluctance to make digital tracks available in China, the major music labels are beginning to make deals, perhaps encouraged by the success of the ring tone market. EMI, Warner and Sony BMG are among those co-operating with new stores. Mr Liu expected about 10 music labels to eventually join A8's internet download service. Rock Mobile has no immediate plans to open an online music store. Mr Yang said the company was looking at ways of getting into the space, but would not elaborate. The company is preparing to offer over-the-air downloads to mobile phones on a subscription and per-download basis. However, that is not a business any observers believe will take off until faster third-generation mobile networks are up and running. Meanwhile, Rock Mobile is pursuing a combined mobile-internet business model that will allow buyers of MP3-enabled phones to tap into Rock Mobile's services. Last year's launch of Sony Ericsson's 800i Walkman phone came bundled with software connecting the user to Rock Mobile's music content. Mr Yang expected that up to 4 million music-playing phones from several vendors would be available in China this year. Rock Mobile has been making acquisitions since it received a US$30 million venture capital infusion last year. It bought wo99.com, the mainland's largest online karaoke site, and a Tianjin-based company that Mr Yang said would help Rock Mobile sell services to No2 mobile player China Unicom and No2 fixed-line player China Netcom. Rock Mobile and A8 derive most of their revenue from providing content and services through the mobile networks. Rock Mobile expects US$40 million to US$50 million this year and A8 generates a reported 20 million yuan a month. Both predict healthy growth this year. The level of activity and hype in China's mobile and digital music sector is set to rise in the coming year or two. Tom Online, a leader in mobile ring tones and entertainment, is said to be looking to open an online store. Linktone recently acquired 9sky to add to its music offerings. Online games company Shanda Interactive Entertainment has been testing the waters with deals with Universal and EMI, while Hurray Holdings has bought into several mainland record labels. As for expanding and investing in new lines of business, both A8 and Rock Mobile are likely to have the backing and capital needed. Rock Mobile's institutional investors include Siemens, Acer, Legend Capital, Walden International and Nippon Venture Capital. A8, which raised US$20 million at the end of last year, is backed by Intel Capital, IDG's venture capital arm, and TDF Capital, among others. Both firms are looking at initial public offerings, but having just raised capital, neither will admit to being in a hurry to list. Mr Liu said there were no specific plans for listing A8, nor a US$100 million target, as reported in the press. '[An initial public offering] is not a goal for our company, I think, but it is an important way of getting stronger,' he said. Rock Mobile's Mr Yang said the round raised last December would be the last private equity placement before a float, unless there was a need to bring a strategic investor in. 'Otherwise, US$30 million is not a small amount,' he said. The near-term ambitions of both companies are resting on several bets. One is that the mobile phones will continue to be seen as entertainment accessories and statements of personal style in China, with music playing a big role. Another is that legitimate digital music sales will take off, as they have in other parts of the world. The unexpected development of the world's largest mobile phone market in recent years has been the popularity of ring tones and music-related content. As Richard Robinson, vice-president at Linktone, put it at a recent conference in Beijing: 'People are really paying to pimp out their phones.' Or, as Mr Yang stated, there were young and trendy users who were embarrassed if they did not change their ring tones every few weeks. The companies which discover how to take this phenomenon even further will stand to benefit.
