Music Market Focus: China (Part 2/2) Inside the Chinese Live Music Industry

This article is the second chapter of our analysis of the Chinese music industry, dedicated to the country’s live performance market. In case you’ve missed the first part where we explore the recorded music landscape in China, you can catch it here. Also, if you are curious about the opportunities of the Chinese market, check out our local companies knowledge base, curated by industry insiders and for international music community.

We want to thank Kyle Bagley, the CEO of the Shanghai-based music marketing company Groove Dynasty for consulting us on the Chinese market and sharing his first-hand insights into the local industry.

So, to pick up where we left off, the Chinese digital music services — while amassing vast user-bases — still fall short of a reliable source of income. The per-stream payouts in China are just 1/30rd of what Spotify pays the artists on an ad-supported. To talk about the value gap: while Tencent Music Entertainment reported an annual profit of $270 million, less than 6% of artists and musicians in China can afford food on the recording sales — so they naturally have to focus on other sources of income.

Of course, there are dozens of ways that artists can make money outside of streaming and music sales in general. You can get into content synch or brand partnerships — which is such a widespread practice amongst the Chinese stars, that back in 2015, the government amended its Advertising Law, to explicitly regulate the boundaries of celebrity-endorsement. However, much like on the western markets at the height of piracy, the backbone of the music economy in China are live performances. Accounting for 65% of the market, music shows are the primary source of income for local artists — and the key point of market-entry for international acts. That’s why we’ve decided to focus our second chapter on the concert business in China. So, here’s everything you need to know about live music market in China:

The portrait of Chinese concert-goer

Perhaps the best place to start would be the basis of the live market. Who are the people, going out to the shows and buying tickets in China? Two key trends can summarize the current socio-economic landscape of China. Firstly, in the last 40 years, the urban population share grew from 19% to 58%. Secondly, there’s a massive uprise of the “new Chinese middle-class”: depending on the boundaries of the income band, different sources provide widely ranging estimation of middle-class population in China. Official government statistics quote 400 million figures, while PwC estimates the middle-class population at just 109 million. Regardless of the definition, though, the trend is clear: GDP per capita has multiplied by a factor of 30 in the course of the last 20 years.

Those two trends created a new generation of the Chinese consumer, or, as McKinsey puts it to avoid using the term “millennials”, the “post-90s” generation. The post-90s are the first generation that grew up in an age of relative wealth, exposure to western culture, and widespread adoption of digital technologies. Now, the post-90s are coming of age, and, by McKinsey projections, they will become the main driver of consumption in China for the next decade. Now, take this tech-savvy, globally connected generation raising into the buying power, and provide it the free, unlimited music access — and you’ll get the portrait of the modern Chinese concert-goer.

Free music access is known to drive ticket sales, especially for the independent artists out there. That is something that the music industry in the west experienced throughout the Napster-era: while the recording revenues were plummeting, consumers discovered new artists through the pirate services — the ones that they wouldn’t have discovered otherwise — and went out to buy tickets to their shows. This effect is recognized both by the academic papers and the industry professionals. Here’s how Tom Windish, one of the world’s most prominent booking agents, described that era in our recent interview:

“All of a sudden, our artists’ music was available for free on the Internet. Everyone could go, download it, and then tell their friends — and, almost immediately, more people were buying tickets to see the shows.”

So, the post-90s grew up listening to music from all over the world, and now, they have the purchasing power to drive the demand for live performances of all shapes and sizes. However, is the industry ready to supply the new type of concert-goer? We have to keep in mind that the Chinese music industry as we know it was born about a decade ago — while most of the traditional markets have more than a hundred years behind their belt. So, while most concert halls across Europe were there 30 years ago, in China, the live infrastructure is still just fleshing out.

Live performance venue landscape

To simplify things a bit, let’s split up the live performance landscape into distinct parts. Based on the analysis of the live market, here are the four segments that we’ve identified, based on the scope and/or type of the performance space:

• Large-scale performances: concert halls and stadiums.
• Dance clubs
• Livehouses
• Music festivals

In the following section, we will go through those segments one by one to highlight the main trends and assess the general direction of the live market.

1. Large-Scale Performances: Concert Halls and Stadiums

Throughout the years, the Chinese government has made significant investments into the mass-entertainment spaces, from stadiums and multi-purpose arenas to state-owned theaters and concert halls. There’s no shortage of large performance spaces on the market, but they remain mainly reserved for the pop-genres, with a rare rock, hip-hop or EDM show thrown in the mix. Large-scale performances account for around 85% of the overall ticket sales, which shouldn’t come as a surprise — the 10% of top-grossing concerts will make up the lion’s share of the box office on every market.

The primary trend in the large-scale segment is its transition from offline performance and into an online space of live-streaming services of Tencent Music Entertainment and alike (which we’ve studied in detail in the first chapter). The number of large-scale concerts is in decline for the last three consecutive years, shrinking another 19% in 2018. At the same time, that decrease hasn’t impacted the turnover of the segment. While there are fewer shows, the prominent Chinese artists fill the biggest stadiums — and the live-streams of those performances attract more and more viewers. In 2018, TFBOYS’ 5th-anniversary concert broke 2017’s records, gathering 450 million live views — while other major local artists, while nowhere near the TFBOYS’s scope, are crossing over the 100 million threshold.

This digitalization trend might receive an extra push in the coming years with the development of VR live streaming, which is a hot topic in Chinese tech. In that sense, the large-scale performance in China might be the first part of the global music industry to turn the live performance — which is the only part of the business that remains 99% “physical” — into the digital commodity.

2. Dance Clubs

The second part of the live landscape are the dance clubs, hosting electronic music shows. Underground scene aside, China has become a vast market for EDM in recent years, as the consumers have embraced the genre. Now, some of the biggest names in commercial electronic music treat China as their 3rd biggest market, following only the U.S. and Europe.

However, while other international, independent genres are taking over the first- and second-tier cities, the rise of dance music in China is the story of horizontal development. One of the primary shifts in dance music is the growing role of the rural part of the market. A couple of years ago, major EDM artists touring in China would only perform a couple of big festivals, and maybe do a solo-show in Beijing, Shanghai, Guangzhou and/or Shenzhen. Now, they can tour across the country, going into a lot of the smaller (keep in mind, that the third-tier city can still be up to 3 million in population), more distant cities across the country.

At the same time, an average dance club in a third-tier city in China would probably be very different from what you’d expect in Europe or the U.S. The dance clubs in China make most of the money on their VIP clientele, rather than an average concert-goer. So, instead of a packed dance floor, you are likely to see the venue packed with VIP tables — which means that the cap of the dance club might be much lower. That completely changes the approach to concert promotion and touring of electronic artists in China. When the venues are focused on the minor segment of high-spending clients, you don’t have to attract huge crowds — what you need is a small, but prosperous audience that will book out the VIP section.

3. Livehouses

Livehouses are diametrically opposite to the dance clubs and their VIP sections. The other side of small to mid-scale performance, Lifehouse is the most vibrant, rapidly developing sub-section of the live industry. In its core, Livehouse is a term used amongst the music professionals in Asia to describe small-scale to mid-scale venues, inspired by the western music clubs: no seats, direct stage access, open bar and so on. Falling anywhere from 100 to 3000 person cap, Livehouses host around 85% of all concerts in China, welcoming performances of all genres, from idol-pop to EDM, rap, rock and everything in between. The venue format became a staple of the independent and international music — Livehouse is both the most diverse and the most foreigner-friendly part of the live business. In 2017, international artists’ performances accounted for 32% of the Livehouse box office, compared to 11.8% average across the live industry.

Despite bringing only 2,5% of the ticket sales, Livehouse venues became one of the hottest topics amongst the music professionals in China — and here’s why. Livehouses showcase the gap between supply and demand on the market. The post-90s generation asks for a more westernized live experience, a wider range of international acts and independent local music, and Livehouses host performances that tick all of those boxes. However, if in neighboring Japan there are over 3000 such venues, in China there were only 300 Livehouses in operation in 2017. So, it’s a single venue per 4,73 million people.

While the lack of infrastructure holds back the revenue figures, the segment quickly evolves to fit the growing demand. Livehouse is the fastest developing part of the live business, growing 51% in 2017 alone. Music professionals across the industry recognize the huge potential of the Livehouse as the cluster and gathering point for the Chinese youth, as some of the biggest players on the market start to pour money into the sector. To list a couple examples, Modern Sky, the largest independent label in China, plans to launch 20 Liveouses by 2021, and NetEase, in line with the company’s positioning around independent and international music, has recently partnered with SME to “make Livehouse as common as karaoke” (which quite an ambition, given the fact that karaoke is a $13 billion industry in China).

4. Music Festivals

Last, but not least, we have music festivals. As of 2017, festivals generated around  $90 million, accounting for 12% of the live market. However, despite the minor revenue share, festivals are a massive point of interest, both for local music professionals and their international partners. The festival market is still in the early stages of its development: while the total number of festivals grew 2,5 times from 2015 to 2017 (with trend flattening out in 2018), the market remains extremely volatile. Dozens, if not hundreds of local and international brands are entering the market each year, but few of them stick on the market. According to the Xiao Lujiao Think Tank, in 2018 the survival rate on the market was less than 50% (up from 39,3% in 2017) — which means that only one of two festivals hosted in 2017 made it to 2018.

Right now, the music festivals are mostly focused around the more densely populated provinces along the Chinese coastline. Four out of five top sub-markets (namely Guangdong, Jiangsu and Shanghai, Sichuan and Zhejiang) are located in the eastern part of the country, creating a very competitive market area. At the same time, the western part of the country and the third-tier cities represent untapped potential, seen by the experts as the primary source of the future growth of the festival business.

Among the international festival brands, the most notable are the local installments of ULTRA and EDC, cashing in on the explosion of EDM in China. For the home-bred festivals, on the other hand, the one brand you should know are the Strawberry Music Festivals. Organized by the country’s biggest independent label, Modern Sky, Strawberry Music Festival is a touring event, bringing a rotating selection of local and international artists to several locations each year. In 2019, for example, the festival will include six events across China. In a way, it has become the Coachella of China —  the name of the festival has become way bigger than any of the artists that take the stage, making Strawberry Music one of the leading tastemakers of the Chinese youth.

The music festivals, much like Livehouse performances are the primary entry point for most international artists (leaving the top-tier global acts out of scope) in China. However, touring the country is a complicated matter, with quite a bit of potential pitfalls to be aware of. In the next section, we will take a perspective of international artists performing in China, and share the primary concepts that you need to be aware of when planning your first Chinese tour.

International Artists Performing in China

While the share of international artists on the live market is still quite low, the roster of companies like SplitWorks showcases that there is value on the market already. On top of that, even if at this stage of the market’s development most artists probably won’t make much on their first tour, dedicating time and resources to the Chinese audiences can prove to be an extremely profitable long-term investment. Let’s not forget — we’re talking about the fastest growing music market in the world.

However, the market requires a unique approach, both in terms of promotion and tour management. It would probably make more sense to focus on the second part at the expense of the cheap advice of setting up your QQ, Weibo, and NetEase Cloud Music accounts. So, what do you need to know about China when planning your first tour there? The first, and probably the most important thing you always have to keep in mind are the Chinese officials. While the government plays a minor role in most of the local markets, the local regulations in China can cause quite a bit of trouble to someone who hasn’t had the first-hand experience with the market.    

How the Chinese Government Impacts the Live Market

While the local consumers are becoming more and more westernized, you have to remember that China is still an authoritarian, communist state. That means that the government is directly involved in all parts of public life, and the music market is not an exception. To put it in perspective, here’s a music video of our go-to Chinese boys-band TFBOYS performing “We Are the Future of Communism”, the Chinese anthem of Young Pioneers:

The government’s involvement in the music business, however, doesn’t end at engaging the top C-pop stars into the ideology promotion — and the live industry is the part of the music business where the influence of the state is most apparent. Don’t get we wrong, it’s not like the Chinese Ministry of Culture is running every show in China, but you should definitely be aware of the governmental structures if you want to get into the market.  

Visas and Censorship.

Every artist that want to tour in China has to get a performance permit (an approval letter from the Cultural Department), which means that the government can simply stop the artists from entering a country if it wants to. This context of performance censorship can be split into two distinct parts.

On one side, you’ve got huge international artists planning to perform in China — a kind of artists whose shows are likely to become national news. In that case, be sure that the Chinese officials will take a deep dive into the artist’s background, social media, press mentions, lyrics and affiliations, to see if the show and the artist’s image won’t go against the country’s ideology. Whether or not the artists get the permit will be a political decision, rather than a technical one, so you won’t find a defined set of rules that you have to follow to make sure that the artist’s performance will fly with the officials. In that sense, when it comes to the big acts, it is almost impossible to predict the ruling of the Chinse Ministry of Culture.

Just to list a couple of examples:

• Maroon 5, Lady Gaga and Selena Gomez are reportedly banned from performing in China due to their acquaintance with the Dalai Lama
• Katy Perry was refused a performance visa since she wore a sunflower dress at her performance in Taiwan (sunflowers are the symbol of Taiwanese anti-China movement)
• Justin Bieber was denied access into the country as the Chinese Ministry of Culture though that it’s “not suitable to bring in badly behaved entertainers”
• None of the major K-pop artists performed in China since 2016, when South Korea deployed the U.S. missile defence system

The list could go on — but you get the picture. The state-run censorship creates a considerable risk that stops a lot of the bigger acts from entering the market. What is the point of fitting a China on to your busy tour schedule if the gig might unexpectedly fall apart?

On the other side of this context are the artists of the smaller scope, that won’t make the headlines of Chinese newspapers — and thus won’t become a subject of big politics. In that case, the process of getting a performance permit is a bit more predictable. Every artist, applying for performance visa will have to submit their set-list, lyrics, audio-visual show material — virtually every piece of content that will be performed publicly — to the local Ministry of Culture department, and based on that information the officials will either allow or deny the entry into the country.

In most cases, getting a permit won’t be a problem for smaller artists — unless the act is particularly political, or the lyrics frequently reference drug use or other illegal activities. Be aware though, that the process of getting validation from the Ministry of Culture alone can take up to 6 weeks, and there still will be some degree of uncertainty, since no one can guarantee the final ruling.

The complications on the legal side are generally considered the biggest barrier for international music in China. Outside of the performance permit, there is also the question of shipping and local customs — the money and time that you need to spend to get the equipment in and out of China create a huge obstacle, especially for big-scale shows. The legal pitfalls create a very uncertain environment on the live market. The industry professionals working with international artists in China have been calling for reforms, that would create a more predictable and safe business environment — but, in fact, it is an open question if the Chinese officials actually want to create a more globally connected music market.

The future of international artists in China.

Perhaps the loudest news in the local music industry as of late was the announcement made by the Chinese tax office bureau in February 2019. According to the circular, from now on, every foreign band performing in China will have to pay a minimum of 20% tax on all ticket sales. That might not seem like a lot at first, but if you actually consider the cost structure of a live performance (the one that we’ve laid out in our Mechanics of Touring, for example), and then cut off the 20% on top — well, a lot of the shows won’t turn in a profit.

That mainly affects the small scale, Livehouse-type performances, that were operating at a minor profit as it was. The new tax has sparked a discussion across the local industry, with some professional going as far as stating that the market is headed towards the future without foreghn artists, while others are pointing out that the reality is not that grim. From a more positive point of view, the international artists’ performances — given the fact that the government will ease on the legal barriers and facilitate touring for international acts — will be a question of scale and moving from the underground venues to the louder names and bigger concert-halls.

In sum, the Chinese music industry in general and the live music sub-market, in particular, are still a developing, rapidly changing environment. At this point, it’s hard to tell what direction it is going to take. The market is affected by several opposing trends: on the one hand, we see a rapid development of the LiveHouse and music festival scenes, creating a platform for international performances. On the other hand, governmental regulation and dominant streaming business models of Tencent seem to cultivate a more closed off market environment. So, will the market open up to international music or move towards a more isolated future? Will it centralize in favor of the first-tier acts, or become more diverse, following the tastes of the Chinese youth? All those are viable options — and only time will tell what direction the market will take. However, the Chinese music market, with its unique DSP landscape and volatile, yet promising live performance market, should surely become a point of interest for artists looking to expand their global presence.  

P.S.: If you find yourself curious about the opportunities of the Chinese music market, check out this list of local Chinese music companies — from festival promoters and booking agencies to record labels and online music media platforms. We've drafted this list specifically for international music communities looking into the Chinese market, based on our research as well as the opinions of industry insiders.