Google’s Chinese Music Experiment

LOS ANGELES–Imagine a service that provides instant downloads of popular music, like Apple‘s iTunes, but without the 99-cent-per-song fees. That’s precisely the surprise gift Google delivered to its Chinese users this week.

With online music store, Google (nasdaq: GOOG – news – people ) China unveiled a music-search service that will ultimately make millions of songs from 140 record labels available for download free of charge. Among the music giants turning over their valuable tracks to the new service are Sony Music Entertainment, EMI, Warner Music Group (nyse: WMG – news – people ) and Vivendi SA’s Universal Music.Western music fans may be tempted to view Google’s Chinese experiment as a sign of things to come in the U.S. and Europe. But the vast difference between the paid-music market dynamics in China and the rest of the world suggest record labels won’t agree to export the free download service any time soon.

The Google service will make money by selling advertising next to music listings delivered to users searching for particular artists, albums or songs. The resulting revenue will be split between Google, and the record label partners. Chief Executive Gary Chen told The Wall Street Journal that he hopes the service will grow to $14.6 million within the next few years.

The music industry‘s decision to turn over their catalogs in exchange for a share of such a measly new revenue stream illustrates the desperation of record labels in China, says Sonal Gandhi, a music and media analyst with Forrester Research (nasdaq: FORR – news – people ) in New York.

“The labels are making essentially no money from their music in China because people downloaded illegally with impunity,” Gandhi says.

Music downloading is prevalent in China–70% of the nation’s 300 million Web users download songs–and overwhelmingly illegal. The International Federation of the Phonographic Industry claims that 99% of Chinese music downloads are not sanctioned by record labels. Partially due to piracy, China’s entire recorded music industry books just $86 million in annual revenue, compared with $10 billion for the U.S.



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