In a move that may be a hopeful harbinger for the future Warner Music Group and Tencent have entered into a “groundbreaking” strategic partnership in China. The companies said a joint announcement that the deal marks the music industry’s “first ever master distribution partnership between a major music company and a leading Internet provider in mainland China.” Warner also recently acquired Gold Typhoon’s catalog, one of the largest and best-known sources of pop and rock music from China, Hong Kong, and Taiwan.
The announcement does not discuss how the companies will make money or share revenue, which could pose a problem as the predominant business model depends on free music and advertising revenue. Yahoo Music for China and Google’s music streaming service for the country had previously both shut down in 2012 in China (see: http://techcrunch.com/2014/11/13/warner-music-group-and-tencent/).
While improvements in the protection of online copyright are no doubt contributing to the value of content on line, China remains a high-piracy environment. The International Federation of Phonographic Industries estimates music revenue per capita at 0.10 USD per capita, compared to 34.7 USD in Japan (http://www.ifpi.org/China.php) .
Tencent will distribute Chinese artists owned by WMG as well as such popular foreign artists in China as Michael Buble. Prof. Eric Priest has described a prior “licensing bubble” from 2009-2012 when advertisers in China insisted that ICP’s develop business models that depend on legitimate content, During this bubble, the market price for online licenses of popular Chinese television series experienced as much as a one hundred and eighty fold increase in just two years. Is additional change imminent? If transactions like these inspire the Chinese government to address the harm caused by piracy-based services and their destructive competitive advantages, a turning point might yet be on the horizon for China’s music industry.
Tencent’s ADR’s in the United States rose to a 10 week high on the announcement (http://www.bloomberg.com/news/2014-11-13/tencent-rises-on-china-distribution-deal-with-warner.html).