Taipanway’s Weblog

Mobile Music Firm Hurray Buys 30% Stake in Chinese Indie Label

Beijing - Hurray Holding Co., a Chinese wireless music distributor, announced on Thursday that it has invested $2.25 million for a 30% stake in Chinese independent record label Beijing New Run Entertainment. Artists on the label include popular singers who have charted hits across ringtones, ringback tones and full-track downloads to mobile phones in China.

This little deal got glossed over by pretty much everyone – and to some extent it should.  However, this is a rally interesting concept that I think I have written about before (and if I have not, I definitely have spoken about it quite a bit).  The expertise of what a record label does and what a technology or portal company does is getting blurred.

In general, a record label finds talent, funds talent, markets talent, helps improve talent (though this is debatable) and helps get exposure and distribution.  I have argued that it makes sense for an Apple a Yahoo, etc.. to sign artists to their own labels.  Why promote 50 Cent where Apple makes 28 cents (compared to 71 cents from the label) when Apple can promote X and make the whole 99 cents.  Of course Apple will have to pay the artists, but maybe there is a new model (actually a very old model) where artists are more like employees that have salaries (of sorts – though this is a bit of a tangent).

An Apple could easily find talent – maybe more efficiently then the labels because they are selling the music direct.  They are a retailer – they know the customers.  Where as the labels are wholesalers – they have no idea who their customers are.  Apple could watch the numbers and see an independent with traction, swoop in and sign them.  They could hire A&R, they could buy small (or even big labels if they wanted) – etc..

They obviously can market talent: They could bundle on their devices, run TV spots but include these artists instead of Eminem, they could promote off of iTunes, etc..

Improve talent – leave it to management and production

And most easily they could get the exposure and distribution locked up

The deal I quote above is a good test of this hypothesis.  I am assuming, and I could be very wrong, that Hurray Holding saw that they could make more money by owning the content then by reselling the content.  True it is very likely that ‘tech’ companies are bad at content but this is a new world.  Apple is as much a brand and marketing company as anyone and probably more so then a label.I   am very interested to see who else tries this strategy and if it works.

One more extension to this – I have argued for quite sometime that music as a primary driver is a bad business.  I have also argued that one of the main problems in the music business is that there is a misalignment of interests.  In the scenario I touch on above, music does not have to be the primary driver and there are no alignment issues.  Time will tell.

Now this is an interesting bit of news.  I am assuming you read the concept so to jump right in.

Does this really matter?  Apple has sold 70 million iPod’s - so if Uni had this deal with Apple, that’s 70 million to Uni and if reports are true, 35 million will be paid to artists (not sure how they will calculate but…).  35 Million is no game changer.  don’t get me wrong, I would like 35 million - but change the landscape for the industry, unlikely.  There are a couple interesting things to focus on for the future:

1) Will Apple in the next round buy into this concept?

2) This is some Pandora’s box MSFT opened up - now they will have to pay the other majors, the indies(?) - but what about the MPAA, TV, Producers - where does it stop?  Future versions of the Zune will not be about ‘music’ it will be about content.

3) How will mobile phone makers respond.  With 600+ mobile phones sold a year (give or take), there real money can be made by the music business by getting their fee on Mp3 phones (as they take market share). problem is that the industry tried to get the carrier/handsets to pay for DRM licensing (at the tune of a $1 a unit) and the industry said no f-ing way.

4) Should MSFT pay Uni for this.  Now I think it is a win for Uni (short term at the very least) but from a ‘moral’ perspective - Should Uni be paid for an MP3 player?  Does Panasonic pay Universal Home Video for a DVD player?

This is a fascinating topic and one where I have to say kudos to Universal and too bad for MSFT - I can’t wait to see how Apple deals with this…