Friday July 3, 08:06 AM
Asia tested as music industry seeks to boost sales
By Francesca Ayala
HONG KONG (AFP) - Rampant piracy and a crumbling market for CDs has put the music industry in Asia under immense pressure, but experts are hoping that technology and social media will help fill the gap.
While demand for music continues to rise across the region, the global economic downturn has accelerated the Internet-fueled fall in sales of physical music.
"Consumers are enjoying more hours of music, they just ain't paying for it," said Marcel Fenez, of PricewaterhouseCoopers' entertainment and media practice.
"The recession is accelerating a migration to digital," he said. "The consumer is also migrating quicker because of the free content."
Fenez told the recent Music Matters industry conference in Hong Kong that Asia's physical distribution market fell by 9.3 percent in 2008 -- the biggest drop the industry had seen in five years.
A survey of more than 8,000 young Asians between 15 and 24 years old found only 11 percent paid for the music they obtained online.
Faced with such bleak figures, the industry is exploring how it can capitalise on new technology and get paid for music in a completely new way.
Paul Smith, from Nokia (Xetra: 870737 - news) , said the handset manufacturer was now offering music services bundled with its mobile phones.
Instead of paying per song, music lovers are allowed to download onto their phone any song they want for a 12 to 18-month period. The cost of the music is factored into the price of the handset.
This feature has been launched in several European countries, as well as in Australia and Singapore.
This all-you-can-eat approach to downloading music is not just about selling handsets, it's about putting a stop to unauthorised downloading, said Smith.
"We have to give the people what they want," he said.
The biggest testing ground for innovative approaches is China, where the lure of 1.3 billion consumers is marred by piracy, which industry experts put at more than 90 percent.
One previously-unthinkable scheme being tried out comes from Internet giant Google (NASDAQ: GOOG - news) , in partnership with record labels such as Warner (NYSE: TWX - news) , Sony (Munich: 853687 - news) and EMI (LSE: EMI.L - news) .
Working with Chinese music site Top100, the project, launched earlier this year, offers Chinese users music that can be legally downloaded for free.
It hopes to cash in by attracting more visitors, and then capitalising on that increased traffic through advertising.
The search engine market in China is currently dominated by rival Baidu (NASDAQ: BIDU - news) , which boasts strengths including an ability to help users find free music easily, although rivals say much of it is illegal.
Doubts remain about whether the venture can lead to real revenues. Google says it is important to first attract the visitors and then monetise that through advertising.
"We believe that by investing heavily in product innovation, the users will come and then the money will come," said Google China's engineering director Bin Lin at the Hong Kong conference.
Social networking, through websites such as Facebook and Twitter which connect people online, is also a potentially-lucrative tool, according to Ayrton Zhu, general manager of Tencent.
Tencent is a leading Chinese Internet firm and runs an online community, Qzone, which is one of the largest in the world in terms of members, rivaling Facebook and MySpace.
Qzone users pay a membership fee upfront and users are able to listen to background music on the site and dedicate songs they like to friends.
"Companies need a deep understanding of users' behaviour and how to use music to get them to interact with their friends," said Zhu.
M&C Saatchi (LSE: SAA.L - news) and Sunshine's managing partner Robert Campbell said advertisers need to be more sophisticated in how they use social networking sites and do more than just slap banners all over a web page.
"What they're selling is not music... it's what music represents; it's the ability to share an emotion," said Campbell.
"I absolutely, wholeheartedly believe the money is out there, but you have to give people something they're willing to pay for."
Warner Music Asia Pacific president and chairman Lachie Rutherford said the industry should take comfort from the huge public appetite for music.
"We're operating in an environment of change, but one thing doesn't change and that is the need for people to be entertained," he told the conference.
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