Just over a year ago, the behemoth Chinese search engine Baidu announced that it would be partnering with major record labels to launch a legitimate music platform. After spending years under fire for promoting illegal file sharing, the search engine is now providing a ray of hope in China’s music market, where piracy and free downloads still dominate.

Baidu Ting is one of a handful of online platforms currently trying to establish a place for itself in China's music industry. Piracy started undercutting album sales in the country even before its music industry had gotten off the ground. While many online services still provide unlicensed downloads, others are working to change the expectations of Chinese consumers and support the growth of the country’s music industry.

"In China, users have gotten used to downloading music for free," says Kai Lukoff, founder of the China-focused technology blog TechRice. "Music is still largely free online and it has shaped the habits of music consumers."

Today, music industry followers in China estimate that 99% of digital music content is pirated, as are 90% of all physical format sales. Nathaniel Davis, the co-founder of the music promotion company Split Works can barely remember a time when album sales provided significant sources of revenue. “I have read of 1980s pop diva Zhang Qiang having sold 20 million cassettes,” he notes. “There were also CD sales in the early 1990s during a brief window of opportunity when there were no other choices. Bands like Black Panther sold 1.5 million legitimate copies of their debut album in 1992.”

Artists and record labels now turn to corporate sponsorship, corporate events and mobile sales for the majority of their revenue, however. Albums and record sales are secondary and the Internet is used for promotion only. “Internet and mobile apps do not figure in at all as direct sources of revenue,” says Davis.

Baidu is doing its best to change that. “The way people discover music in China is different from the West: It's more grass-roots, more from the ground up,” notes Catherine Leung, head of music and entertainment at Baidu. The company is hoping to offer users a service that will help promote artists that might otherwise be overlooked, offering “a music experience rather than a music search service,” Leung adds.

Changes at Baidu

The search engine’s move into providing legal content is particularly significant considering the company’s size and its history. Baidu is the most popular search engine in China and has long been recognized as one of the worst offenders when it comes to illegal downloads. In 2008, a group of copyright holders successfully sued the company, receiving around 6.5 million yuan in damages, according to China Daily.

In the aftermath of the copyright suit, Baidu has been attempting a turn-around. Baidu Ting hopes to create a new, advertising-based payment model for music without losing any of its current users. “We believe in the future of a successful music platform because that’s what China needs,” says Leung. “But, I would say, it’s going to be a long road.”

To create the platform, Leung and her team looked at the design of a number of popular Western music sites. They were interested less in sales platforms like iTunes and more in websites that provided users additional value — sites that users might continue checking throughout a day. One of the sites they looked at closely, Leung notes, was the American music streaming service Pandora, which allows users to create customized "stations" that reflect their musical tastes.

In the end, Baidu decided to adopt a mixed approach. Baidu Ting users can use the site like an online radio, but they can also look at music news, browse new releases and download music. “We consider ourselves more of a music media site, not completely a radio,” says Leung. Baidu has reached deals with a number of record labels and pays on a per-stream and per-download basis. “The end users, however, are not paying for the music,” she notes. “Baidu is paying the labels and all revenue comes from advertising.”

Even though downloads are still free, Baidu Ting is taking on a competitive market. Leung calls popular reception of the service both “hot and cold. There are still a lot of other music sites that do not play by the rules,” she says. “So we find it challenging.” The competition, she adds, has pushed Baidu to offer better technology and more personalized services like individual playlists and recommendations. The company is also looking to partner with some musicians for marketing and promotion campaigns. In the future, Leung notes, Baidu is hoping to help uncover local talent and support the music community. “We offer a platform and a stage to show their talent to the world."

Online Promotion

For artists, Leung admits, online platforms still play primarily a promotional role. Promotion, however, can be powerful. "The media landscape here is different from any other market," says Leung. "Even today, most broadcasters are state-owned, so providing a vibrant platform for music or any other form of entertainment is not really on the top of [the broadcasters'] agenda."

Traditional avenues for promoting music, such as television or even radio, are less available to Chinese musicians. Because the media is government-controlled, only approved programming and music make it on the radio or television. There is no equivalent to MTV or “Saturday Night Live.” “This gives the Internet even more opportunities to get creative,” Leung notes. “Content providers have to rely more heavily on the Internet as a promotion and distribution platform.”

Online platforms are also forcing the industry to rethink the way it approaches promoting and distributing music. “Before, I think content providers were used to separating the marketing, promotion and distribution,” says Leung. “Now, we have to look for an alternative — how to distribute and sell in a new media way.”

Baidu is not the only online service trying to find the balance between attracting users and promoting artists online, although not all of them provide music legally. Baidu Ting’s largest competitors, Douban and Xiami, both are services that combine music distribution with social networking. Douban is a popular social networking service that TechRice’s Lukoff says has a “hipster appeal. This is a great case of a truly innovative Chinese service." On Douban, connections are based on interests rather than your immediate friend group.

Users can find music, film and book reviews and, for those who register on the site, Douban provides recommendations. Artists are able to post and promote their work and users can stream music on Douban.fm, a platform that has license agreements with a number of international record labels and is intended to tailor itself to user preferences. Douban has also released a mobile app that allows artists to create personal profiles and fans to subscribe to individual live streaming channels that follow a band’s latest news and releases.

Xiami offers a service similar to the United Kingdom’s Last.fm. Users are able to stream music and the site creates a personal profile, tailoring itself to individual preferences. Xiami is free unless users want to download music. Then, the platform turns to a system of virtual currency in which 1 RMB equals 1 Xiami dollar. A download costs 0.8 Xiami dollars and users can increase the balance in their Xiami bank account by sharing, reviewing or promoting music they like. Xiami dollars can also be earned by uploading an album that hasn’t been uploaded before.

Xiami recently introduced a new feature called Xiami Loop, a service that allows five users to assemble in a virtual room and play DJ, each taking a turn selecting and mixing music. Users can create avatars, chat with each other and rate the music being played. Unlike Baidu, the majority of Xiami’s music is not licensed. In 2010, a group of folk musicians called for a boycott of the site due to licensing infringements. For artists trying to make a living, promotion has its limits.

Corporate Sponsorship

While Baidu and Douban have licensing agreements, a fact that Leung calls a “step in the right direction,” none of the current online service providers have solved the problem of how to support artists with the compensation they currently provide. According to Felix Cheng, a music blogger and A&R at Universal Music China, most artists in the country rely on a combination of corporate sponsorships and events for their bread and butter.  

"Forget record sales," says Cheng. "An album is no more than a name card now." Instead, the most important source of revenue for these musicians is performing at corporate events. “For established pop artists, the most important thing is what we call 'commercial shows,'” Cheng notes. At these events, an artist can charge anywhere from one thousand to several hundred thousand RMB a day.

Another reliable source of revenue for Chinese artists is mobile sales. "I've had mid-level Chinese pop stars tell me that China Mobile is like mom and dad — the money made from China mobile is the only thing that is keeping them housed, clothed and fed," says Davis. Chinese artists can earn money from mobile value-added services like ringtones and caller ring-back tones.

“For non-mainstream artists and bands, there is no particularly viable business model and most musicians will also hold day jobs,” Davis notes. “In recent years, there have been a number of brands, like Converse and Vans, which have become more interested in working with younger, more underground rock bands to promote their brands, so some musicians or acts at this level are gaining access to more sources of supportive income.”

Both Cheng and Davis are pessimistic about the role online platforms can play in supporting the music industry. Davis cites Sina Weibo, the Chinese microblogging service, as the most interesting online development. “It’s an extremely effective platform for artists to communicate directly with their fans.”

Cheng points out that, while some sites are working to cut back on piracy and reach licensing agreements with record labels, the amount of money exchanging hands is still small. “Most of these are what we call 'blanket licensing deals' that cover the whole catalog of a record label,” he notes. “Indie labels don’t really have a say in the negotiation, since their catalogs are usually too small to matter.”

Any future progress will rely, in part, on government enforcement of licensing agreements. This, also, looks bleak. Musicians in China recently protested a proposed amendment to China’s copyright law, which would remove the sentence “No work can be used if the copyright owner refuses permission” from the existing legislation. In the meantime, Leung says Baidu Ting will continue trying to support the development of China’s music industry. “Unless there’s a vibrant community it’s hard to grow the market,” she notes. “We’re trying to grow that community.”