China to curb unauthorized digital rights companies
(Financial Times)
Updated: 2006-01-06 15:13

China's National Copyright Administration is preparing a crackdown against rights management companies it says have no authority to issue licences and collect fees from entertainment venues and internet websites that use their clients' music.

The move throws into doubt the activities of local and foreign-invested copyright management companies working to help music groups promote legitimate use of their content in China's booming internet and mobile telephony sectors. Such digital rights, which cover services such as MP3 downloads and mobile phone ringback tones, are an increasingly important source of revenue for music companies that previously relied mainly on compact disc sales.

In China, where online piracy and sales of counterfeit CDs are both rampant, companies such as the Beijing-based rights company R2G have won plaudits by tracking down websites offering music pirated from their clients and encouraging them to sign licensing agreements instead.

Digital rights management is seen as a potentially lucrative business. Rock Mobile, a spin-off from Taiwan's Rock Music Group that handles Chinese market digital rights for companies such as EMI and Sony Music, last month raised $30m in international venture capital financing.

However, administration officials insist only the non-profit Music Copyright Society of China (MCSC) and another state-backed audio-visual rights association approved last month can legally undertake "collective copyright management".

"Whatever face you put on it, you cannot get involved in this kind of business unless you have the approval of the copyright administration," said one official, who declined to be named. The official cited rules issued in March that allow the government to confiscate earnings and pursue criminal charges against violators.

In a notice issued to the state media last month, the administration accused unauthorised companies of hurting copyright holders' interests, causing chaos for users and "seriously disrupting market order". Rights management companies acknowledge some ventures have sold rights to foreign music in China under false pretences, but argue that agents operating under genuine contracts perform a valuable service.

Wu Jun, CEO of R2G, said his company was approved by China's Commerce Ministry to offer services including copyright licensing.

He said that while MCSC was a "default option" for music copyright holders, they could decide for themselves whom they wanted to manage their rights. "As far as I am aware, this is perfectly legit," Mr Wu said.

Copyright administration officials declined to comment on the scope of the crackdown, leaving unclear what impact it might have on digital rights companies. Chinese officials generally have considerable discretion in enforcement of often vaguely worded regulations. Jerry Ku, vice-president at Rock Mobile, said he had been advised that the administration would focus on management of rights for music played in public places such as restaurants and hotels, an area where the MCSC has long played the leading role.

However, the administration official insisted its ban on unauthorised collective management applied to all types of music copyright.

An official of the Internet Society of China, a state-led industry group, said that requiring state approval for rights managers would help to ensure music users' interests were protected.

"If state approval were not required for the management system, it would stand completely on the side of the rights holders," the official said.