Category Archives: Business Analysis

Business Analysis, International Music, Music Industry

Apple Music in China Part 2

Copyright, Legality, and a little bit more Pricing

For those of you who don’t know, China actually has copyright law, by large similar to the US one.  However, the enforcement of copyright law has been a problem for years. Ever since 1979 China opened its door to welcome western trade and culture, major amount of music, TV shows, movies, entertainment programs, etc, has been made available. The popular mean to consume these copyright protected content is through torrent and “safe-harbor” sites. Good news is that, the Chinese government has been working on this issue for quite a while. According to China’s Legal Daily website, in the past ten years, 1,926 copyright-infringed sites were closed, and 4,241 copyright infringement cases were processed. There is definitely progress,

Because of the enforcement problem, the majority of population has not yet fully adapt to the idea of “paying for intellectual properties,” which is, in fact, also a new idea in western countries. The smart strategy about Apple Music is that, the extremely low price of 10 Yuan (approx. USD $1.52) can create an illusion of paying for only “the service,” instead of “the copyright content.” Now, it’s hard to judge so quickly whether or not the dirt cheap price is ethical, since it seems, at least right now, that this cheap price is the only bet for not just Apple, but also perhaps any streaming service to gain market share in China. Long before this Apple Music conversation, I had the fortune to use a Chinese streaming site, Xiami (虾米), for a while. Owned by Alibaba, Xiami is arguably the largest streaming site in China right now. However, it also faces lots of legal issues since the site charges so less, essentially 10-15 Yuan per month (depending on whether you buy an entire year worth of membership at once or not). It also has a free tier with limitations, just like Spotify does. I have noticed that there is a lot of content, mostly foreign, made unavailable on Xiami, possibly because of copyright issues. What’s relevant and intersting is that Apple’s price in China matches Xiami’s, which makes Apple so competitive since it has a much larger selection and of course less copyright issues because it can afford paying royalties. Worst thing comes worst, it can pay its way out. Voila!

The sense of not paying for intellectual properties is so deeply rooted in China for many generations, so much so that it makes it extremely hard for intellectual content, by itself, to generate revenue there. While the situation my be severe in China, I really believe even in the U.S. or Europe, this phenomenon still exists. The reason behind this current phenomenon has two main factors: lack of education about intellectual content and the traditional perspective of valuing only tangible properties. In day to day life, people still value houses, gold, stocks and bonds… pretty much anything that can turn into cash relatively quickly. Very few sees the value of creativity, art, vision, intelligence, aka “the things that are necessary for human society and growth but no one realizes we need it until it’s gone.” Well, if we don’t appreciate, if we keep refusing to pay, they will be gone, very soon.

 

Legal Daily on Copyright Enforcement (Chinese) http://www.legaldaily.com.cn/index_article/content/2014-10/26/content_5814731.htm?node=5955

Pricing for Xiami (Chinese)                                     http://www.xiami.com/vip

Business Analysis, International Music, Music Industry

Apple Music in China Part 1

I want to write a series of blogs about Apple Music’s ambitious China launch because it is exceptionally interesting to me. This blog post has some of my initial thoughts, just barely scratching the surface. I’ll come back with more observation and thoughts quite soon. Stay tuned! 🙂

Finance and Strategy (ish)

Apple Music, the most trendy type of service provided by the biggest company on Planet Earth, is coming to the country with the largest population. Isn’t that intriguing?

I just got the news a few days ago on Chinese website, Sina. Apple Music is launching in China, at last, after all the epic fail(s) of pretty much every other streaming music service providers out there. Oh boy, Apple certainly dreams big. Not only that the enforcement of Chinese copyright law is a complete disaster, but also because there are already lots of options for streaming music out there in that land, legal or not. Spotify hasn’t been able to launch in China for years! Have you ever wondered why?

Now, what’s interesting about Apple’s case is that, while Spotify, as a company, struggle to break even, Apple has got tons of cash sitting there doing virtually nothing. Compared to Apple’s value sets that they always talk about (the innovation, radical thinking, and unconventional approach, blah blah blah. You get it), when it comes to finance, it seems that Apple is actually quite conservative. But really now I see why they need the cash for – to fund the project they know that they won’t make any profit.

Let’s take a look at the numbers.The subscription fee for Apple Music in the United States is $9.99 per month, in the United Kingdom is £9.99 ($15.16), in the Euro Zone countries is €9.99 ($11.20)… And guess what they set the price for China? CN¥9.99. What’s that in USD terms? $1.57. One dollar and fifty-seven cents, respectively, for monthly subscription. In my own experience living in China, 9.99 is not even enough for a decent lunch in the city. Now, I guess the first-world folks are all super mad at us.

Great news for the Chinese folks, bad news for Apple. At the end of the day, a dollar and fifty-seven cents per month is never really a business, especially when you are obligated to pay huge amount of royalties, and by that I mean, some serious cash, to songwriters and right holders every quarter. Even if you have a huge user base, like Spotify does, I’m really scratching my head to see how Apple can make Apple Music a profitable business. The only way I can think of is that, maybe those Cupertino folks never expect it to be profitable! One thing for sure, though, is that Apple is DESPERATE to get some good o’ market share for its music service. I mean, let’s be real, Beats Music was a joke after all, and sure everyone at that company was terribly embarrassed. But this time, the game has changed:

1) Apple Music pretty much carries the same kind of variety as iTunes Store, which is insanely attractive.

2) The price is so low to the point that almost everybody in China is able to afford it. There IS value attached to the exceptionally low price, aka major potential gain of market share, and sure this price is well matched to the average earning v.s. purchasing power of the currency in China (won’t even mention the crazy inflation out there).

3) And with the gigantic population count, if everything goes smoothly, Apple can soon become the largest streaming music service on Earth!

But how’s that gonna continue working if you don’t make a profit? Ah ha! That’s when the $203 billion cash on hand becomes handy. If anything happens, Apple can always pay. This is why all the other services failed. They are simply not able to feed themselves with such awfully thin profit margin, not to mention matching people’s different purchasing powers in other territories. I mean, Spotify struggles even when it charges $9.99, which is a price that people in other parts of the world may not even be willing to paid for. Apple, on the other hand, has the financial foundation to fund whatever business and do whatever they want, even if it is, virtually, throwing dollars into the Pacific Ocean.

 

Sina Tech on Apple Music’s China Launching http://tech.sina.com.cn/mobile/n/n/2015-09-30/doc-ifxifmki9632675.shtml

CNN on Apple Music’s China Launching http://money.cnn.com/2015/09/30/technology/apple-music-china

CNN on Apple’s cash on hand http://money.cnn.com/2015/07/22/investing/apple-stock-cash-earnings/