Apple Music enters China… and takes a huge risk

Apple has launched its music streaming service Apple Music in mainland China, its most important market outside the United States.

It’s ensuring that it gets a foothold in the market by offering the service at a fifth of what it costs a month in Australia and the US. For the equivalent of A$$2.25 a month (after the initial three-month trial membership), it will carry international stars as Taylor Swift and Ed Sheeran as well as regional artists like Eason Chan, Li Ronghao, JJ Lin and G.E.M.

Also available now in China (where 70% of customers use android phones) are iTunes Movies and iBooks. The latter will provide Chinese translations of hits as the Twilight series.

“For the first time, customers in China will have access to Apple’s entertainment ecosystem with music, movies and books right at their fingertips,” Apple said in a statement. It is giving away a free download of recent hit film The Taking of Tiger Mountain.

China’s digital music market is worth about 12.6 billion yuan (A$2.8 billion) for 2015, up 30% from last year, according to Chinese service provider Analysys.

Apple products mainly the iPhones fetched about US$17 billion (A$24.26 billion) in China in the first quarter of 2015. That makes it its second biggest market after the US. According to Apple, China is the largest market for its app store and the second largest for its hardware products. It sold a record 13 million iPhones during the first weekend of its latest handsets. It expects to double the amount of its retail stores there by mid-2016.

But is all this high profile brand recognition enough to carry Apple Music over the line? As in the West, Apple has entered the Chinese streaming market late where rivals have already established themselves. But it’s a growing market where authorities are clamping down on rampant deep-rooted music and movies piracy. In July, China's top copyright regulator introduced stricter rules which forbade online streaming services to offer unlicensed music.

Apple Music has to contend with popular well-established local streaming services like Tencent’s QQ Music (A$2.30 a month without ads, and allows customers to tap into an existing social network and share songs) and free music streaming services from China’s largest search engine Baidu. Entering the market this month was Chinese film studio Alibaba’s video streaming TBO as the local version to Netflix.

Apple Music will face language barrier and different tastes, warn local analysts. "China is more of a difficult market to penetrate, especially for global companies. China tends to prefer local companies," said Karissa Chua of research company Euromonitor International to CNBC.

Sandy Shen, Research Director for mobile devices and consumer services at Gartner also pointed out that there are many local players who offer services at no charge. Chinese consumers are used to downloading illegally for free and will be extremely price-sensitive. "Unless (Apple has) exclusive content craved by local users, it will be difficult to establish [the service] in such a crowded market."

China’s top video steaming sites, Youku Tudou and iQiyi, complain they have only managed to convert 1% of total viewers into paying subscribers.