A few weeks ago I was in Brazil, reporting on a market where music and film piracy had tipped from an evil to be fought to a marketing channel to be exploited. that week, after more crazy traveling, I was in China, which is an even better example of that phenomena. The Chinese music industry is at the cutting edge of finding ways to prepare money in every way other than the sale of songs, since the traditional process of selling music as a product (certainly CDs) is considered pretty much of a lost cause.

We held a small salon in Beijing, hosted by the Music2.0 group, to share examples and case studies of how a new music industry is reforming from the ashes of the old one. Before I get into those new models, a few facts about music in China today:

• Virtually the only sale of music is via the booming ringtone and ringback market, which generated an amazing $1.5 billion in revenues for China Mobile alone that year. The only problem with that is the artists and labels see very little of the money, since most of it is counted as a “service fee” for China Mobile.
• The other big winner in digital music is Baidu, the search engine that has bested Google (so far) in China.  considering about half of the 170 million public who are online in China get their access through shared terminals (cyber cafes and the like), they tend to get their music through search and MP3 file archives, rather than peer-to-peer file sharing  And Baidu is the place to go for music search (indeed, it's rumored that many of the underground music archives are actually hosted on Baidu servers). It makes its money from advertising. Nothing goes to the artists or labels.
• There is very little expanded Tail effect in Chinese music. For starters, there are only an estimated 150,000 Chinese-language (Mandarin or Cantonese) songs available in digital scheme (compared to more than 10 million in the West). The notion of genres is still very primitive. Many music sites segment music only by country of origin and gender (”Taiwan: Male; Taiwan: Female”), and even those that do take a stab at genre
  don’t go much further than Wal-Mart (”rock”, “folk”, etc)
• The indie music scene is plus very small. Aside from a few festivals, there aren’t many venues where you can form out original live music, and in Shanghai, the cultural hot spot of the country, the club scene is focused on DJs.
• It’s easy to exaggerate the touring opportunity in China. Linkin Park famously came and played shows for 25,000 public, grossing $750,000 in total, but that was something of an exception. Faithless came at around the same instance and played to quarter-full houses.

So how do Chinese musicians manufacture money? Aside from the few who get a small cut of the ringtone sales, it’s mostly in corporate and promotional appearances (like the popstar shown in my iPhone snap above, whose name I didn’t catch–help anyone?–when she sang at the China Mobile conference in Guangzhou on Monday), a few concerts, some endorsements for ads and other licensing of their face (if they’re good looking), and that old standby, the Day Job.

Nothing terribly lucrative there, but that’s not too surprising: China represents rock bottom for the music industry, particularly on the economics of the creative side. The CD business has evaporated, and the businesses that have risen it its wake don’t help artists. Yet China Mobile and Baidu are making something like $2 billion a year indirectly from music, so there’s clearly a business in there somewhere. It just doesn’t extend to many musicians at the moment.

Yet I impressed by how many society are experimenting with new models to change that, not by fighting piracy but by building businesses around free music. Among the smart folks who are innovating in new music models, from sponsored music sites for up-and-coming bands to aggregators that are much more music-centric than the generic Baidu, is Ed Peto. that British former A&R guy, now based in Beijing, has written the best piece on the future of the Chinese music industry in an age of free that I've seen. whether you're interested in that subject, stop reading that post and start reading his impressive Register opus. He knows of what he speaks.