China is buzzing with rumors about Apple cutting a distribution deal for its iPhone with China Mobile, the country’s wireless service giant. Much smaller China Unicom has also been spinning in the rumor mill–and unlikelier still, an unnamed South China-based retailer.
China Mobile CEO Wang Jianzhou said last week that the company is in talks with Apple on bringing the iPhone to the Chinese market, according to a Sina.com report.
But there are sticking points. Chinese service providers aren’t much interested in sharing revenue with handset makers, something Apple counts on. It’s just not done, a phone executive told Reuters.
There’s another issue: the iPhone’s locked hardware. Chinese, like a lot of sensible people, like phones with changeable SIM cards.
Pricing could also be an issue. But Marbridge Managing Director Mark Natkin said that China is not short of high-end spenders. There are a lot of early adopters–and they don’t mind spending to stay ahead of the crowd, he said. Plus, many shops in Beijing already carry phones priced as high as $1,000.
So a $500 iPhone should fit fine at the high end of the market. And, thanks largely to the success of the iPod, Apple now enjoys strong brand awareness in China.
“In any electronics center, there are usually a couple of Apple counters,” Mr. Natkin said
But that brings up another interesting bend in the road for Apple–content. iTunes has yet to open a Chinese outlet, though to hear Mr. Natkin describe the situation, it would hardly matter if it did.
“The traditional music industry got clobbered–first by offline piracy and then by online piracy–it’s just very difficult to produce music and make any money from it,” he said.
This is where China’s music story gets truly bizarre.
“One of the only forms of music that’s really profitable is ringback tones. It’s about the only thing you can’t pirate,” Mr. Natkin says. “It all sits on operator servers.”
And ringback tones are hugely popular. Call someone on a mobile in China and chances are good you’ll get a blast of something–like the saccharine stretches of Kenny G that used to fire up on Mr. Natkin’s phone (before he finally got his provider to get Mr. G off the line).
But Mr. Natkin says ringback tones, or color ringback tones as they’re known in China, have ushered in a renaissance for a music industry that had long been in a nosedive.
“Suddenly, along comes color ring backtones, and now there are music studios that produce music exclusively for that.”
According to Marbridge data, China Mobile makes about a quarter of its revenue in so-called value-added services derived partially from ringbacks; In 2006, it made 6.67 billion Chinese yuan, about $910 million, on ringback tones—nearly 10 percent of its “value-added” service revenue that year.
Providers are known to be aggressive on the sales side, popping clips on unaware customers as they did with Mr. Natkin. Now, he says, they’re busy figuring how to splice in ads near the front of music clips–and drawing up plans for an assault on the corporate world.
It all makes iTunes seem a long way off.
Senior Editor Joel McCormick reported from Hong Kong.