Warner Music in China wireless venture

Warner Music has signed a deal with China Unicom, the Chinese mobile phone operator, to sell music to Chinese wireless users, potentially opening the path towards profitably distributing music in a market dominated by physical and digital piracy.

The deal, expected to be announced on Tuesday, is the first such agreement between a leading music company and a Chinese mobile operator. More are expected as China prepares to upgrade its mobile networks to allow more data and content to be distributed.

“Digital distribution, especially on the mobile platform, has been an area of focus since we acquired Warner Music,” said Alex Zubillaga, executive vice-president for digital strategy and business development at Warner Music Group. “China is one of the largest mobile markets, with over 400m wireless customers and, combined with the secure distribution of wireless networks in a market where piracy is a problem, makes this deal an important part of our strategy.”

China Unicom is the second biggest mobile operator in China, with 130m customers. Most of the rest of the market is covered by China Mobile.

Mr Zubillaga said Warner Music, bought by Edgar Bronfman and private equity investors two years ago from Time Warner, was talking to China Mobile about a similar deal.

Despite China’s potential market, with its population of 1.3bn people, music companies and other international media groups have struggled to make money there owing to government restrictions on ownership and to rampant piracy.

For music companies in particular, the International Federation of Phonographic Industries, which represents the global recording industry, has estimated that $400m is lost in sales every year to piracy.

In addition to the sale of pirated CDs, the growth of internet use in China has resulted in growing digital piracy.

Mr Zubillaga said that, for music sales, there was little intervention or focus on its distribution by the Chinese authorities, who restrict certain types of information such as some internet sites and some news content.

“Music is somewhat different to, for example, news,” he said. “The vast majority of the music we will sell is local or regional content and some big international artists such as Madonna and Linkin Park.”

He does not expect the authorities’ hands-off approach to change even if music video content is distributed once China develops its 3G mobile networks.