We just had a very interesting meeting with Michael Song, managing director of Taihe Rye Music. He is Chinese, but spent six years at Texas A&M and returned to China in 1996 to work in the budding music scene in China. He is in the agency business and represents the #1 male musician in China.
He explained that the legal music CD business in China is about 5%. In other words, 95% of the CDs on the market are pirate copies. He said that it was the teenagers who were passionate about the artists and liked to hang out in the record shops that tended to buy the legal CDs. Even in the top artists, CD sales only represented 30% or so of their income, while less known musicians actually lost money on CDs. The CDs are important, however, as a marketing and promotion vehicle.
Because the mass media is state owned, it is difficult to use the mass media for promoting artists. For this reason, it appears that the successful artists in China tend to be more talented, singer songwriters who tend to be popular longer compared to artists in markets such as Hong Kong and Taiwan where pop idol style artists are highly promoted and often lack talent or long term potential.
He told us that his artists got revenue share deals with percentages a bit worse than their counterparts in the US, but much better than in Japan. Most of the revenue comes from advertising/endorsements and concerts, but he is aggressively working on new business models involving alternative media such as the Internet and mobile devices.
My "take-away" was that in a market where the record industry basically doesn't function, artists and agents are going to be pushing the cutting edge of music business models and might in fact discover the post DRM/RIAA business model before Hollywood does. Obviously, it helps to have a huge growing market such as China, but I think it would make sense for artists and music industry people to keep an eye on China for breakthroughs in the music business.