Rockonomics

by Alan B Krueger

  The government plays a heavy hand in screening concerts. Every aspect of the show—including the lyrics, videos, costumes, and dance routines—must be cleared with the authorities in advance. The practice stifles spontaneity and creates bureaucratic red tape.

  Artists also can be banned from performing for taking politically sensitive positions or for offensive behavior.*2 Selena Gomez, Maroon 5, Jon Bon Jovi, and others have been banned because of their association with the Dalai Lama.12 Björk was banned after chanting “free Tibet” at a concert in Shanghai. Katy Perry, who has performed in China, was barred from performing again because she inadvertently displayed a Taiwanese flag that she was handed by a fan. In 2017, Beijing’s Ministry of Culture judged Justin Bieber too “badly behaved” to allow him to tour.

  The Chinese authorities do not allow general admission tickets at concerts, and the number of people who can be seated on the floor is strictly limited. Concertgoers are prohibited from standing in the aisle or row and dancing. At a Dua Lipa show at the Convention Center in Shanghai on September 13, 2018, some fans were forcibly removed by security guards after dancing and waving a rainbow flag.13

  Exact figures are unavailable, but several observers told me that the most popular performers in China are from Taiwan and Hong Kong. The band Mayday and Jay Cho are popular Taiwanese acts, and Jacky Cheung and Eason Chan are popular Hong Kongese singers. Korean boy bands were extremely popular until recently (even though they often lip-sync during live performances), and Chinese teenage girls memorized their lyrics in Korean. But K-pop was banned for political reasons in 2016. Electronic dance music is going through a boom-and-bust cycle.

  John Cappo estimates that the share of concert acts originating from greater China (mainland plus Hong Kong and Taiwan)is currently up to around 90 percent. In the past, he said, 10 to 15 percent of concerts had consisted of Western acts, and 10 to 15 percent were Korean and Japanese acts.14

  There is a void in the music that Chinese citizens are familiar with because of the country’s isolation during the Cultural Revolution. Many have never heard of the Beatles. Mention David Bowie, Neil Diamond, or Billy Joel, and you are met with blank stares. Elton John is popular only because of the show The Lion King. Chinese students who have studied abroad, however, have helped to raise interest in and demand for Western music.

  Eric de Fontenay moved to China from the United States in 2010 to manage Chinese rock bands such as Second Hand Rose and help bring Western indie bands to perform in China. De Fontenay is bullish on the Chinese music market. He estimates that ticket prices, which are tightly controlled by the government, have risen by 30 to 50 percent since he arrived. “There has been a marked increase in the number of venues that have opened, especially over the past two to three years in first-, second-, and even third- and fourth-tier cities.”15 And existing venues are operating at higher capacity, he added.

  After the Wong Fei fiasco, venues increased their fees, as demand had long exceeded supply. In addition, the government eased constraints on how much venues could charge because promoters, many under investigation for tax compliance problems, were not in a strong position to resist. And ticketing has become more professional and traceable since Alibaba acquired the ticketing company Damai in May 2016.

  More and more top Western acts perform in China as part of their Asian tours. Metallica and the Rolling Stones have toured in China twice. Taylor Swift brought her 1989 Tour to China in 2015.*3 Sam Smith, Mariah Carey, Pink Martini, and Charlie Puth have shows scheduled. Western acts increasingly view China as a profit center.

  For bands like Metallica, ticket prices (to the extent that they can be measured) are at least as high in China as in the United States. Part of the reason for the high prices is that it is expensive to transport personnel and equipment to China, so artists must be compensated for their additional costs.

  John Cappo pointed out another aspect of the superstar model that makes the Chinese market ripe for superstar performers. Concert conditions used to be chaotic; today they are more standardized and professional. In the past, it was costly and burdensome for artists to tour, even in major cities. And the fan experience was less than desirable. The temperature in the venue was often too hot or too cold; the bathroom facilities could be unusable or nonexistent; concession stands could be empty; and setting up a stage could take five or six days, given lax supervision and the lack of rigging capabilities or load-bearing roofs. Today, the venues are much better managed. “The infrastructure now exists in China for bigger shows and can deliver a better fan and artist experience,” Cappo said. “The Mercedes-Benz Arena in Shanghai and the Wukesong Arena [now called the Cadillac Arena] in Beijing are world-class facilities, on par with the Staples Center in LA.”

  The market in China is also becoming more consolidated and commercialized. When Jacky Cheung toured mainland China in the past, he required dozens of promoters, one for each market. That is no longer the case. Multi-city tours organized by the same promoter are now common. Live Nation and AEG operate in China. CMC Live Entertainment, in a joint venture with Creative Artists Agency, is trying to build a nationwide music conglomerate, encompassing both a horizontal monopoly that promotes shows across China and throughout Asia and a vertical monopoly that develops and manages talent.16 In 2018, CMC Live promoted Jacky Cheung and Mayday tours in cities both large and small, as well as hundreds of other shows.

  John Cappo has turned his attention from working with American acts visiting China to producing and managing Chinese acts touring in China and elsewhere in Asia. He plans to bring his show to Las Vegas and Canada. Still, few mainland Chinese acts sell enough tickets to fill a large arena, even in a city with fifteen or twenty million people. And perhaps only Jacky Cheung and Wong Fei can fill an arena for more than two or three nights in a row.

  Eric Zho: Creator of My Way, My Show and the STORM Festival

  Eric Zho was born in Taiwan and raised in the United States. He attended Brown University and graduated in 1999 with a joint degree in economics and philosophy. I interviewed Zho in Shanghai on March 19, 2018.

  Zho came to China in 2002, expecting to stay for just one year. His first project was a reality television singing competition show similar to American Idol, in a joint venture with the Shanghai Media Group and Universal Music. At the time China had few local stars. The music most Chinese people listened to was Mando-pop by pop singers from Taiwan or Hong Kong. The name of Zho’s show translates to My Way, My Show, which connotes an edgy, independent streak. Contest winners were signed to a record contract and artist management deal by Universal to capitalize on the publicity.

  The show quickly vaulted to the top spot on Chinese television. Thirty million viewers watched the first episode, and more than 100 million tuned in for the second. At its peak, Zho said that 150 million people watched each episode, on par with the viewership of the Super Bowl.

  The success quickly spurred copycats. “China is great at copying,” Zho said. Seemingly overnight, more than thirty networks produced competitors. As an indication of the format’s popularity, the state regulatory agency thought the music competition shows were “polluting the airways,” so it limited the number of series to two per network.

  Zho’s show was a launching pad for mainland Chinese pop stars such as singer Jason Zhang. Winners of Chinese TV music competition shows now tour in Singapore, Malaysia, and elsewhere in Asia, and occasionally in North America and Europe.

  Zho said that success didn’t just happen by accident. He carefully constructed artists’ stories to attract interest in the contestants. He hired a hundred interns to post positive comments about the singers on the Baidu message board. This strategy created a critical mass, leading to more comments being posted, and soon some of the singers went viral—yet another example of network effects and compound advantage in the music business. He is proud of the “buzz creation methodology that
we created.”

  The show ran for seven seasons, but Zho left after the third season to strike out on his own. His friends urged him to stay in China because of the opportunity to shape the nation’s culture. As someone who was fluent in Chinese, yet raised and educated in the West, he felt uniquely positioned to bridge two cultures.

  He soon moved to the live music business. With backing of investors and sponsors, he hit on the idea of creating the STORM Electronic Music Festival. Launched in 2013, STORM leveraged the growing popularity of dance music in China. Zho told me that he looked for a product that could be branded. “If you promote an artist’s concert, the artist owns the brand,” and, with competitors, there is little the promoter can capitalize on. If you create a successful festival, however, you own the brand and can earn higher margins.

  Using his marketing expertise, he first created a story for the festival. Why STORM? The backstory, he explained, “is about Arcturian aliens who were expelled from the Andromeda galaxy, and roamed around for two thousand years before discovering planet Earth and creating the STORM Festival.” The story invokes futuristic images of aliens and high tech. In 2017 the STORM Festival was held in seven cities in China (Beijing, Shanghai, Chengdu, Guangzhou, Shenzhen, Nanjing, and Changsha) and drew a total of 190,000 fans.

  Next Eric Zho aspires to create STORM Academies, to educate and develop the next generation of music talent in China.

  Music Festivals

  As music festivals gain popularity in China, they pose their own unique set of challenges. Festivals are typically held in a park, and parks in China are considered “the people’s parks.” Archie Hamilton, a tall Scot who has been organizing festivals in China since 2007, told me that he was shocked to discover a group of retirees practicing tai chi in the park on the day of his first festival. And it is not uncommon for the police to take down a rope cordon that prevents non-paying customers from entering a festival, or for security to open an unauthorized entrance. Festivals, however, do allow general admissions, standing, and dancing, and in those respects resemble festivals in the United States and elsewhere.

  China’s first annual rock festival was the Midi Music Festival, begun in Beijing in 1997.17 Hamilton estimates that there are more than four hundred music festivals a year currently being held in China. Electronic dance music festivals, with international stars and world-class DJs, are growing particularly rapidly. Live Nation Asia, for example, announced a multi-year partnership with Budweiser to present the Creamfields dance music festival in China, Hong Kong, and Taiwan, so the explosive growth of festivals is likely to continue—as long as the government permits it.

  Eric Zho, founder of the STORM Festival, said that there has been intense competition for festivals in recent years. The STORM Festival is one of the largest in China. The 2017 Shanghai edition drew 70,000 fans over two days, featuring three stages and eight acts a day per stage. There are three pricing tiers for admission: general admission tickets for $50 (380 RMB), VIP treatment for $140 (980 RMB), and VVIP tables with champagne service like a private club for $2,900 to $8,700 (20,000 RMB to 60,000 RMB). Zho said STORM offers an early-bird special for general admission tickets targeted by demographic group, an effort to price-discriminate and sell more tickets by charging less to those who are more price sensitive. It is critical to fill the general admission spots, he noted, because VIPs do not want to look out at a half-empty field.

  Zho estimated that about 40 percent of festival revenue comes from ticket sales, 40 percent from sponsorships by companies like Budweiser and Adidas, and 20 percent from food and beverage sales. Sponsorship revenue is even greater in China than in the United States, as Chinese millennials have substantial disposable income. Approximately half the festival budget goes toward paying the performers.

  The economics of festivals in China is becoming highly competitive. In addition to Live Nation and AEG, wealthy individuals are launching their own festivals, often at a loss. The competition has bid up artist fees and cut into profit margins. The Chainsmokers, I was told, were paid $1 million to perform at the 2017 Shanghai Ultra festival, substantially more than the nightly fee for their Las Vegas residency at the time. Festival organizers vie to lock performers into exclusive deals, preventing them from performing at other events in China for a period of time before and after the festival.

  That said, shows and festivals can be cancelled at the last minute without warning or explanation. The Ultra festivals were cancelled in Beijing and Shanghai in 2018, for example.18 And Nicki Minaj flew to Shanghai to perform in November 2018, but declined to go onstage because the event was underattended and possibly fraudulent. This environment creates obvious risk for fans, promoters, venues, and artists.

  Still, China has come a long way. “Ten years ago,” Archie Hamilton said, “no one knew what live music was, concert or festival. Now it has become a thing among a certain generation.”19

  Copyright Protection: From Confucius to QQ

  China does not have a historical tradition of respecting copyright. In fact, Confucius participated in copying others’ folk songs in the classic book Poetry (also translated as the Book of Songs). According to professors David Herlihy and Yu Zhang, Confucius “believed that intellectual knowledge of these songs was the common heritage of all Chinese people and could not be owned by private individuals.”20

  China enacted regulations to restrict the transmission of copyrighted material over the Internet in 2006. The regulations were weak tea, however, and piracy and unauthorized uploading and downloading of music remained rampant. In 2010, copyright law was strengthened to remove plagiarized material and unauthorized modifications from the web. Non-profit management organizations representing copyright owners were formed and regulated by the National Copyright Administration of China. In July 2015, the National Copyright Administration issued a “Notice on Ordering Internet Music Service Providers to Stop Communicating Unauthorized Music Products,” which threatened severe penalties for violators. Nearly two million songs were subsequently deleted from the web.

  Sam Jiang, an investor and former executive at Tencent, told me that piracy, once a major problem in China, has been greatly reduced recently for two reasons: the government cracked down on the practice, and streaming companies began policing one another to ensure that no competitor has an unfair advantage by streaming unauthorized music.21 Copyright protection in China is probably stronger for music today than it is for movies or other forms of intellectual property. Nonetheless, copyright royalties are lower in China than they are in the West, especially for publishing rights.

  Bill Zang: The Man Who Brought Michael Jackson’s Music to China

  Now in his late sixties, Bill Zang lists five affiliations on his business card, including vice president of the China Audio-Video and Digital Publishing Association. I interviewed him in Shanghai on March 20, 2018.

  Why did he devote his career to the music business? Through a translator, he explained: “For a very personal reason. In the Cultural Revolution period people could access very little culture, but I was touched by a recording of Swan Lake, the Russian classic. It was magical. I decided right then that I would spend my career working in music if I could, because it was so beautiful.”

  Zang witnessed the evolution of music in post–Cultural Revolution China. From 1980 through 1995, China opened the door to music from Hong Kong and Taiwan, he said. Schools mostly taught classical music. But most people had a strong preference for pop. In the 1990s, students educated abroad brought Western music back to China. In the early 2000s, Korean and Japanese music influenced the development of Chinese music, and the government supported the spread of South Korean pop music and dance. Since 2007, China has been touched by a growing number of European and American artists. He is especially proud of having played a part in bringing Michael Jackson’s music to China, and he regrets that he could not arrange for Jackson to visit in person.r />
  Mr. Zang’s prediction for the next decade: “Western countries will influence Chinese music more because young people are exposed to it and open to it. Pop, jazz, R&B, rock, EDM are all growing fast. Music from Hong Kong and Taiwan is now growing more slowly.”

  He envisions a future where there will be international cooperation between artists in international companies, and music will combine traditional Chinese music with Western influences. “American music combines African, jazz, and hip-hop,” he noted. “Chinese music can combine with Western music to make a world song.”

  Music Production and Dissemination

  Partly because of the legacy of weak copyright protection, the recording business is in an embryonic stage in China. Entertainment lawyers who understand music copyright and licensing agreements barely exist. Music is produced by four main groups: the major labels (Universal, Sony, and Warner); Taiwan’s Rock Records; small independent mainland music companies, such as Vibe 9; and independent artists. There is no Chinese equivalent of the major labels, but Tencent Music Entertainment (TME) has been acquiring labels to produce its own music and may well become a force in music production in China. Because China tolerates large, multi-industry monopolies, Tencent could leverage its position to provide live entertainment as well.

  Music companies in China are often broader in scope than American record labels. A music company can manage an artist’s entire career and extract most of his or her income. Eric Zho said that the main difference in the music business between China and the United States is that the United States has a separation of responsibilities, “from managers to agents to promoters to the whole ecosystem. In China, you can be a promoter, and a manager, and an agent—and a relative—all at once.” It is an arrangement that breeds conflicts of interest, a problem that was common in the United States in the 1960s. And music companies do relatively little to develop artists or promote their music. Instead, they look to capitalize on singers who are already going viral. Some lucky Chinese singers become Internet phenoms, streaming their music directly through their smartphones.