China is emerging as a key market for digital music - despite some of the highest piracy rates in the world. That is because the market in most countries (excluding Japan) is PC-based and therefore heavily affected by piracy, but in China it is 95 per cent mobile in the form of ring tones. 'We get excited about the mobile world because there is a billing relationship with the customer already in place and because there is a less rampant existing pirate market,' said John Kennedy, chairman of the International Federation of the Phonographic Industry. Leading players like Guangzhou's Rock Mobile and Shenzhen firm A8 are already generating serious revenue despite the market's relative infancy. Rock Mobile has targeted US$40million to US$50million in revenue this year, while A8 is aiming for 400 million yuan. Both companies have their sights set on initial public offerings, having received US$30 million and US$20 million respectively in venture capital last year. Rock Mobile chief executive Conor Yang said he expected the number of music mobile phone users in China to reach 25 million this year out of an overall market of 400 million. He agreed that the mobile operators' dominance could be a double-edged sword. 'Mobile operators do the policing role when it comes to demanding certificates for copyright material, and that's how you can make money from mobile music,' he said. 'But there is no room for negotiation with the operators. When 3G comes and when there are more licences for operators ... data will become more important and we may be in a better position to negotiate.' Rock Mobile is therefore developing a hybrid mobile-internet model in which music mobile phone owners are directed to the company's online store by CD-ROMs shipped with the device. A8 chief executive Alvin Liu expected the stronger intellectual property laws to create a viable market for PC-based music downloads. PC-based services would succeed only once the user experience with Digital Rights Management software improved. Songs promoted at A8.com with the software received far fewer downloads than songs promoted without it, he said. But giants like Tom Online and Shanda Interactive Entertainment are also lining up for a chunk of the market. 'Shanda fits into the music ecosystem because through online games we have built a digital content operational platform,' said Zhou Donglei, the head of business development. 'Our platform consists of a direct payment and billing relationship with the end users, a vast distribution channel to collect money . . . and direct marketing - all of that is very important to distribute digital content to Chinese users.' But A8's Mr Liu said companies like his would retain their strength by remaining pure music plays. 'The songs that generate the most revenue come from individuals . . . and the reason is because of cross media promotion. We have complete copyright ownership of these songs so we can promote heavily across many platforms.'
