Three of the world's biggest labels, EMI, Warner Music Group and Vivendi's Universal Music and 140 smaller independent labels have launched a service on Google's Chinese web site allowing users to download and save songs.
Rather than charge for its content, a strategy that has worked in the U.S. and Europe through services such as Apple's iTunes, the content will be legally available for free to web surfers with internet addresses based in China.
The music companies hope content from western pop artists will help drive traffic on Google's Chinese-language portal and its local online music partner, Top100.cn, which was co-founded by U.S. basketball star Yao Ming, in turn building ad revenues that will be shared by all members of the partnership.
In addition to allowing music downloads, they plan to offer extras such as free concert tickets, backstage passes and other perks.
The deal won't just help the music companies. Although Google is the world's biggest online search engine, it has struggled to build its brand in China except among westernized, senior-level office workers, a small percentage of the overall market.
Google's main local rival, Baidu.com, controls about two-thirds of the search engine market share in China.
But it's questionable how much the alliance will help advertisers.
One of the challenges the partnership will face is finding ways to make this a value-added service for marketers, said Kaiser Kuo, a Beijing consultant for Youku.com, a well-known rock musician in Beijing and the former of head of digital strategy at Ogilvy & Mather in China.
"Advertisers need to be able to parse people in some way. In the U.S., they can tell a lot about a person's consumption habits based on what kind of music they listen to. In China, that's not so easy, given the homogenous nature of music tastes. This is a novel concept for advertising and not something Google is used to selling either," Mr. Kuo said.
Still, the shift in strategy is timely, coming at a time when marketers such as PepsiCo, Mazda Motor Corp. and Converse are using music to connect with consumers and spending more to reach them online.
While overall ad spending growth in China is expected to reach low double-digit figures this year, spending on internet advertising could grow as much as 30% in 2009. China's internet market grew to RMB 138.99 billion ($20.3 billion) during 2008, a 23.5% year-on-year increase, according to CCID Consulting Co.'s internet industry research center, a figure that will rise to approximately RMB 300 billion ($43.88 billion) by 2011.
Online ad spending on the rise
Online advertising represents about 14.5% of 2008 revenue, or RMB 19.73 billion, with the rest coming from online games (26.0%), e-commerce (25.3%), instant messaging (8.9%), search (7.3%), e-mail (1.7%) and other sources (16.3%). CCID estimates that online advertising grew 53% last year compared to 2007.
China is the world's largest digital media market with 298 million internet users (including 279 million broadband users) and 650 million mobile phone users in January 2009. But profit has eluded entertainment companies in China, including film and television producers, because consumers can easily download content illegally to their computers and phones.
About 84% of China's nearly 300 million internet users download music over the web, according to government figures. Nearly 100% of music downloads in China violate copyrights, says the International Federation of Phonographic Industries, which represents the global record makers, costing the music industry hundreds of millions of dollars.
Major sites such as Baidu allow users to download music as well as films and television shows. Music companies have tried suing local sites with minimal success and little support from consumers. With few other options for growth other than ad revenues, the industry has changed tactics in the hope of at least building revenues in China, even if it means allowing, or even encouraging, free downloads.
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