China Continues Upward Trend In Digital Music Listening, Though Larger Problems Seem Steadfast

Chinese President Xi Jinping

Two recent studies, from Nielsen and the China Internet Network Information Center (CNNIC), shed light on the state of digital music, and the country's relationship to the web generally.

Nielsen, through its "China 360" report which polled 2,031 Chinese citizens in early Dec. 2015, found that 72 percent of respondents listen to music for an average of 16 hours a week. Chinese music fans were found to spend an average of $86 annually on music, half of which goes to live events, 16 percent was spent on physical recordings, 9 percent on digital music. Notably, music accounts for a larger percent of Chinese consumers' total yearly entertainment spend than Americans' -- 14.1 percent and 7.5 percent, respectively.

Since it's 2016, the real story is in streaming. Only 8 percent of those polled told Nielsen they are 'very likely' to pay for a streaming subscription, with 32 percent saying they're 'somewhat likely.' The exceedingly specific figure of $5.57 is cited as a price point fans would be willing to accept. A large majority of streaming listeners, 72 percent, told Nielsen they had found that a record they wanted to listen to wasn't available on the service they typically use. When that happens, nearly half of Chinese fans -- 45 percent -- resort to piracy, either ripping the music they want to hear from a website or they "find a way to get it for free through other means." This is compounded by the fact that most fans who stream music legitimately do so for free, with ad-supported streams generating the vast majority of digital sales revenue in 2014 -- $63.5 million, according to the IFPI. Subscription streams generated $14.8 million.

According to CNNIC, Internet penetration in the country stands at 50.3 percent, with 688 million people using the web -- up 39.51 million, or 6.1 percent, added in 2015. (The entire population of the U.S. stands at 318.9 million.) For businesses, the picture is much like India from the point of growth potential, though major cultural differences remain. India presents a similar opportunity, though at a much smaller GDP per capita.

Kugou ("cool dog") and Tencent's QQ Music are the country's main way for fans to stream. Tencent has made great strides in licensing content from U.S. rights holders, signing up Warner Music and Sony Music to distribution deals. Apple Music is in the country, but it's impact is clearly negligible and far outweighed by companies native to the country. A vast majority of music listened to in China is local -- 90 percent of respondents listened to music in Mandarin, 40 percent in Cantonese and 33 percent in English.

That said, rules introduced last year seemed to -- through their outright opacity -- clearly favor companies with governmental relationships. The new rules, handed down by the Ministry of Culture, required streaming music companies to monitor the catalogs they put online for content. Let's not forget, however, the massive amount of business Apple does there through its manufacturing business. Apple could very easily leverage those relationships.

Operating a cultural business in China is fraught with booby traps.Touring bands have had concerts canceled over things like their stance on Tibet, or interpretations of artists' tweets. Propaganda, issued through state-run news agency Xinhua, remains a daily presence.

While the country remains a black box, its lid has clearly been cracked. What remains to be seen is whether it will ever fully open.