economics

June 22, 2010

Google’s China Music Service Gains Fans Closely Watched Free Download Site Has Lured Some Big Advertisers, but Little Revenue Since Launch

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BEIJING—Google Inc.’s online music service in China is now providing about five million songs a day and is starting to attract major advertisers though its revenue remains small, a top executive at the U.S. search company’s Chinese partner said.

Google’s music search, launched in March and currently available only in China, has been closely watched by the music industry because it is the only major service in the world to let users download and stream licensed songs free.

The service is a joint venture between Google and Top100.cn, a site owned by Chinese company Orca Digital.

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Google’s music service in China is providing about five million songs a day.
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Offering the first details on how the venture is performing, Gary Chen, chief executive of Orca Digital, said in an interview that five advertisers have signed on for the service so far, including Nokia Corp., Apple Inc. and Volkswagen AG, with total commitments of 2.5 million yuan ($370,000).

Orca Digital and Google expect to sign several more ad deals that could bring in $1 million each, and hope to have a total of 30 advertisers within a half year, he said.

Other music services around the world currently require users to buy individual songs or albums, or pay subscription fees. Those approaches have had limited effectiveness in combating online music piracy that has devastated the music business in recent years.
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But with CD sales sinking, music companies have become more willing to experiment with new business models.

The Google China service includes tracks from the world-wide catalogues of the world’s four biggest music labels, Warner Music Group Corp., Vivendi SA’s Universal Music, EMI Group Ltd., and Sony Corp.’s Sony Music Entertainment.

The service offers roughly 700,000 tracks now, up from 350,000 in March, and Mr. Chen said this will increase to 1.1 million tracks by the end of the year.

Under the venture’s structure, Orca Digital shares roughly half of any ad revenues with the music labels. Google benefits from increased traffic on its Chinese site, and can sell search ads on the music search pages on its site.

Google and the labels hope the service will draw users away from the U.S. search giant’s Chinese competitors, especially Baidu Inc., which had a 61% share of search revenue in China as of the second quarter compared with Google’s 29%, according to research firm Analysys International.

Baidu and other Chinese search sites have generated significant traffic through search pages that help users find and download unlicensed music tracks.

Music industry executives say they also hope Google’s music service will let them track which artists and songs are popular in China, something that has been difficult in this market because of unreliable data.

Other models have gained traction among users elsewhere, like London-based ad-supported streaming music service Spotify Ltd. has in Europe.

Spotify has more than five million users who can listen to streaming music with commercials, or pay to listen to ad-free streams, and has said it plans to launch in the U.S. and China as well.

“It seems record companies are preparing to try everything,” says Leong Mayseey, regional director for industry association International Federation of the Phonographic Industry in Asia. “If a business partner comes up with a good proposition, they are prepared to try it.”

The music business in China can be particularly risky, however, because in addition to piracy, companies have to deal with China’s unpredictable regulatory environment.

The Ministry of Culture recently announced a rule that requires digital music distributors in China to seek approval for individual songs. It remains unclear how this rule will be enforced, and how it will apply to Google. Mr. Chen said Top100.cn has already begun submitting tracks for the ministry’s approval.

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