Asia's Digital Music Free-For-All

Demand for online and mobile music is strong in Asia, but so is piracy, and that has music executives singing the blues

by Brian Bremner

Young, urban Asian consumers are among the most tech-savvy people on the planet. In a region that boasts roughly 1 billion handsets and blisteringly fast wireless networks in richer markets such as Japan, South Korea, Taiwan, and Hong Kong, Asian teens and 20-somethings are "mashing up" music and video content from every imaginable source by integrating applications from their feature-laden mobile handsets, personal computers, and the Net.

These kids love to download everything from J-Pop acts in Tokyo to Vedic heavy-metal bands out of Mumbai and New Delhi. There's just one problem: They hate to pay for it. And what should be a dynamic market for the global music industry and all manner of online and mobile music sites is turning out to be a bedeviling one. Companies are casting about for the right business model to exploit the undeniable demand for digital music in a region where pirated CDs and illicit music and file-sharing sites are ubiquitous.

Most vulnerable by far are the major music-recording labels. Legitimate physical sales of music (LPs, cassettes, CDs, DVD audio, and so on) have been falling or remaining stagnant this decade and the $29.3 billion in worldwide sales the industry raked in last year is expected to fall 61% to $18 billion by 2009, according to estimates by Soundbuzz, a Singapore-based digital music provider.

Biggest Black Market

"It's impossible to talk about the music industry without talking about the piracy that is ravaging it," bemoaned John Kennedy, head of the IFPI recording trade group at a music industry conference in Hong Kong on May 30. "We can't compete with free."

And Asia, despite its huge mobile phone base and dynamic economies, is a big part of the problem for global record companies trying to embrace digital technologies as distribution channels for their artists. In China, about 350 million knock-off CDs are in circulation and these in turn are being ripped, burned, and transferred to PCs and MP3 music players, according to IFPI data. It is by far the biggest black market for pirated CDs, which cost the recording industry more than $400 million in lost sales per year—and the mainland is also a growing player in online fraud.

At the urging of major recording labels such as EMI, Mercury Records, Sony BMG, Universal, and Warner (WMG), IFPI has gone after regional Web sites and search engines such as Yahoo! China. The concern is that Internet service providers have allegedly maintained links to illegal music download sites, where one can gain access to tracks by international artists such as Coldplay and Gorillaz and any number of popular regional acts for no charge. On Apr. 24, a Beijing court ruled that Yahoo! China should be responsible for blocking access to such sites

On the Phone

That's not to say there aren't huge opportunities for the industry if it can make some headway in rolling back the piracy problem in Asia. About 85% of the $4.2 billion in digital music sales (online and mobile) last year in the Asia Pacific region were downloaded via music-enabled handsets. What's more, the total digital music market in Asia is expected to more than double to $9.35 billion, according to forecasts by Soundbuzz. Right now, ringtone melodies, rather than song tracks, are by far most the biggest type of digital music in demand.

In the future this could be sweet news for handset manufacturers with music phones that are easy to use, sync seamlessly with PCs and music sites, and have the kind of memory capacity that can store 1,000 or so songs.