Digital tuneup for China

Piracy curbs helps sales numbers grow to $222 mil

China’s digital music market could hit $222 million per year in sales by 2008 thanks to piracy curbs, according to new research.

Legal victories by music labels and the Intl. Federation of the Phonographic Industry (IFPI) in China against pirates are opening the way for more legitimate digital musicstores, says a report by market research firm In-Stat, which is owned by Daily Variety parent company Reed Business Information.

“The end of 2007 will be the turning point for China’s legitimate digital music market,” said Anty Zheng, an In-Stat analyst. “By then, several mega-online musicstores will have opened; the user base of portable music devices will have surpassed 100 million; a major crackdown on music piracy will have been in effect for several years; third-generation (3G) mobile communication system access will be rolled out; and consumers will be educated about legitimate digital music.”

However, this estimate may be rosy for a market where digital music and free downloading are almost synonymous, and where no legal digital music services even existed until 2005.

“The report underestimates the regulatory and commercial challenges for the digital music industry in China,” said David Wolf, CEO of Wolf Group Asia, a Beijing-based media consultancy. “Regulators have yet to take notice, and the music business in China is still in its formative phase.”

In-Stat’s own report admits that congloms can usually place their selling and pricing structures in other countries, yet “China’s extremely low (average selling prices) and lack of royalties require a totally different business model.”

Major online digital musicstores such as Apple Inc.’s iTunes and Yahoo!’s Yahoo! Music Unlimited and Musicmatch have yet to open China sites, although their main sites do contain some Chinese artists and songs.