Last week, while I was watching a popular Chinese entertainment channel on satellite TV, I was bewildered by a scene of many of China’s most popular music stars happily accepting MTV Video Music Award-type trophies from Chinese search engine Baidu during an award ceremony co-hosted by Baidu and a national TV station. Seeing these celebrities dressed in sleek couture walk on stage to proudly receive awards like “Most Searched Artist on Baidu” gave me a very surreal feeling. I can still remotely recall that not even five years ago, these singers led waves of campaigns seeking public support in battling illegal online music downloads. In these campaigns, China’s largest local search engine, Baidu, was portrayed as an accomplice of illegal music download sites because Baidu first gained massive popularity by prominently displaying illegal MP3 music download sites in its search results, to the delight of hordes of music fans. As a result of that, Baidu has constantly found itself in many disputes and even got sued by major music labels and singers in the past.
Not many years have passed, but things have changed drastically. These singers and music labels are no longer at war with Baidu, even though Baidu today is still providing easy access to millions of illegal music download sites, and has even come up with more music lists such as “Top 100 Most Popular Downloaded Songs” to help guide people’s illegal downloading. It looks like these music labels and singers have given up on battling online piracy and have aligned with their ex-enemy. What turned these past foes into today’s bed-fellows? I later found a good answer, courtesy of my classmate Lisa who introduced me to Chris Anderson’s new book: Free: The Future of a Radical Price.
As said in Lisa’s review of Anderson’s book, Anderson optimistically, yet assertively, painted a picture of information flowing free like water, seeking lower ground in today’s digital world as the reproduction and distribution costs for information products are getting lower and lower. This has prompted our society’s evolution towards a new “Free” economy. In Anderson’s book, he gave numerous examples of how companies benefit from this Free business model. One chapter is devoted to the “Freemium” model adopted by information giant Google, which gives out many of their popular services like Gmail and Google Map for free, then build a 20 billion dollar advertising business out of the immense content generated by users on these free services. Anderson also states that 80% of internet companies today are built on the same Freemium business model in which they give out basic services for free to the majority of their users, and charge a small percentage of their users for upgraded services after these users have gotten hooked on the basic service. Though some of these so-called Freemium models do sound like “digital age ‘bait and switch’ marketing or stand cross-subsidy economics” according to Lisa, she believes that Anderson did a good job in his book defining “how [the] traditional brick and mortar or atom-based economy defines value by money, money, money and how the digital/bits economy defines value “by attention (traffic) and reputation (links).”
This new digital age measurement of value through attention and reputation helped answer my earlier question of why the Chinese music industry would align with its former foe, Baidu, as it is becoming increasingly clear that Baidu can bring them attention and reputation through its search service. The current digital environment has witnessed an irreversible trend where songs can be turned into free-flowing bits, and this is especially true in China, a country which has a cultural tradition of tolerating piracy of intellectual property. After the revenues of Chinese music labels were crushed by the online spread of pirated music, and without a viable legal alternative for revenue in the digital age like Apple’s iTunes in the U.S. (even iTunes gets popular in China, I highly doubt people would pay for cheap music if they can get it elsewhere for free easily), music labels have accepted the situation and started to fight in a different battle field—for fame and reputation, which can still bring them millions of revenue through concert tickets and endorsing other brands with their reputation. At this point, I recall that executive Long Danni, from one of China’s most successful entertainment agencies, Tianyu, once said in an interview that today albums are like a singer’s business card, which they use to introduce themselves to their audience instead of making money out of it. Long Danni’s remarks provide a good explanation for the state of the music industry. Chris Anderson also made some comments specifically about how the music industry should respond to new digital trends coincides with Long’s remark, according to another review of his book by Malcolm Gladwell from The New Yorker: “To musicians who believe that their music is being pirated, Anderson is blunt. They should stop complaining, and capitalize on the added exposure that piracy provides by making money through touring, merchandise sales, and “yes, the sale of some of [their] music to people who still want CDs or prefer to buy their music online.” “
In Gladwell’s article, he takes the Freemium concept advocated in Anderson’s book with a grain of salts and also threw in a couple real life examples of how the internet business stays free when they try to sell free. One example he mentions is online video site Youtube. It is without a doubt that Youtube has garnered unparalleled fame and reputation in the internet world, but it still has reported financial losses for the past several years. According to Gladwell, because of the nature of Youtube’s amateur content, it is quite hard for Youtube to make huge profits by selling ads on these videos.
I agree with some of Gladwell’s other critical perspectives on Anderson’s Free economy, but I have to disagree with Gladwell on this particular point for focusing on the short term monetization value for Youtube. I believe by being the undisputed leader in the online video field, Youtube possesses incredible power, which they may not have fully unleashed yet. But even at this point the site has added huge intangible value to Google’s overall search businesses, which by itself does pay off and has exceeded the cost to run Youtube within the Freemium model. The potential expansion of Youtube’s revenue streams has also been noted by many Wall Street analysts, and a recent comment by Google CEO Eric Schmidt even suggests that Youtube may bring in profit for the company this year. In the near future, when Google finishes building its integrated content empire, these amateur videos on Youtube will be an essential element in it. At that time Youtube’s monetization powers will also be fully unleashed. I have no doubt that the money Google paid for this Free video sharing site will prove to be worth it.
No matter if you agree with Anderson’s of advocacy of the Free economy power or not, the Free age has arrived. Look around on the internet, the most popular and promising internet businesses such as Facebook, Twitter have all been handed to their users for free. Facebook has reported huge revenues by selling targeted ads while Twitter is still trying to figure out its way to make money. While I believe selling ads should not be the only or primary way for these Free online businesses to make profits, I do keep an open mind to potential new monetization business models that have yet to be revealed in the coming decade. I believe whoever can successfully build these original business models in this Free world will be the next Bill Gates for the 21st century.