On November 9, 2006, the National Copyright Administration (NCAC) officially announced on its website that karaoke businesses shall, on per-booth basis, pay a royalty for music and MTV works, the basic standard royalty charge shall be RMB 12 per booth per day (including music and MTV works), and this standard charge may be lowered according to the scale of karaoke operations in the different regions of China.
    Once unveiled, the announcement caused extensive disputes within the society. The entertainment trade societies in Guangzhou, Shanghai, Shenzhen, and other cities called into question The Standard of Royalty Charge for Karaoke Businesses of NCAC and openly opposed paying the royalty charge that the announcement provided for.

The legal status of royalty collection agencies is under dispute.

     The dispute centers on whether one of the agencies designated to collect royalty charge is a legal entity and whether the standard royalty charge of RMB 12 is reasonable. Music Copyright Society of China (MCSC) and China Audio & Video Collective Administration (CAVCA) (under construction) are the organizations authorized to collect the royalty charge for karaoke, and to administrate the rights of performing, exhibiting and copying of music and MTV works that the karaoke businesses use. However, a double charge is avoided because the two agencies employ a uniform standard charge of RMB 12 per booth per day.
    The following is some background information about the Music Copyright Society of China and China Audio & Video Collective Administration.
    Music Copyright Society of China (MCSC) is a music copyright collective management organization which was jointly launched by National Copyright Administration and Chinese Musicians Association in December 1992. It has the authority to license for consideration the audiovisual works used for publication, live performance, and background music in public places, and the music communicated by radio and television stations and used via the Internet.
    China Audio & Video Collective Administration (CAVCA) was prepared with the approval of NCAC in 2001 and established with the approval of the same administration in December 2005. It mainly regulates the rights of public performances, broadcasting, leasing, and the dissemination of audiovisual works through the information network, and is specially authorized by the right holders to grant copying rights and releases for copyrighted works. China’s relevant trade societies primarily question whether CAVCA has attained legal status; CAVCA is currently in the stage of construction, and is still awaiting the approval of the Ministry of Civil Affairs before it can be officially established. According to The Regulations on Collective Management of Copyrights, “any unregistered mass organization which operates in the name of a corporation or any deregistered corporation which continues to operate in the name of society shall be banned by the registration administration”. Because CAVCA is still being prepared, its activities as a collection agent for the karaoke royalty charge would breach The Regulations on Collective Management of Copyrights and The Regulations on Administration of Mass Organizations of the Ministry of Civil Affairs, since it is not yet qualified as a legal collection body.
     Faced with this question, China Audio & Video Association held a closed meeting in Beijing on December 23, 2006. “As the copyright holders have authorized it”, said Wang Huapeng, one of the Preparing Team of CAVCA, “we will begin to collect royalty on January 1, 2007. The standard charge of NCAC will be strictly complied with. With the highest charge being RMB 12 per booth per day, we will negotiate with the karaoke businesses and have the charge lowered, if applicable”. (Source: CCTV Economic Information Network.)
     By reading between the lines above, the stance of China Audio & Video Association and CAVCA is firm in its decision concerning the collection of royalty charge, but by saying “the standard charge of NCAC will be strictly complied with” makes the royalty charge into more of an administrative one. However, Wang Ziqiang, head of Copyright Division of NCAC has insisted on several occasions that NCAC is only an agent in the collection of the karaoke royalty charge. He said, “as to the role of NCAC, firstly it examines and approves the establishment of collective management organizations and announces their main business fields, charters, standard charges and standard mode of distribution; secondly, the collective management organization is not administratively affiliated with, but regulated by NCAC”.

     Upon hearing the news of CAVCA’s insistence on collecting royalty charge, Huang Shiqiu, head of Guangzhou Cultural and Entertainment Industry Association said openly, “the karaoke parlours of Guangzhou will not listen to any statement from CAVCA on the karaoke royalty charge, unless it has attained legal status”. Further, Huang hoped that NCAC would go to Guangzhou and other major cities to start a field survey and listen to the opinions of the karaoke parlors concerning karaoke royalty charge.

The income from karaoke royalty charge

     As the dispute will persist with regard to the collection agent, is there any further meaning to the collection of karaoke royalty charges? The royalty has attracted great attention from both the Ministry of Culture (MOC) and NCAC and both have formulated different charging standards, and entrusted their subordinates to implement them. What has caused them to be so efficient in regard to the charge of karaoke royalty?
     As several media have estimated previously, the copyright royalty of China could total up to RMB 10 billion a year and the collection agency may receive around RMB 2 billion for management costs.
     According to the statistics of Jinghua Times, Shanghai has currently more than 3,000 karaoke parlors, with the smallest one operating more than 10 booths and the largest one operating more than 200 booths. If each parlor has 30 booths on average and each booth is charged RMB 12 per day, the annual royalty charge for Shanghai would be around RMB 390 million and the management costs would be RMB 78 million.
According to an interview with the deputy head of the Copyright Administration of Guangzhou on CCTV’s Economic Half Hour, a preliminary investigation and estimation has disclosed that the annual karaoke charge will add up to a huge amount of money at RMB 12 per booth per day. “Guangzhou now has more than 510 exclusive karaoke parlors and at RMB 12 per booth, Guangzhou would roughly contribute RMB 50 million at the very most in royalty charges. However, if the karaoke parlors in the food and drink sector are also included, there will be about 7,000 karaoke parlors which would bring in about RMB 70 million as royalty charges,” said Zhou Xianhua, deputy head of the Copyright Administration of Guangzhou. 
     As to the distribution of the large sum of money, Wang Huapeng of CAVCA’s Preparing Team said that the major part of the royalties would go to music companies and music copyright holders, and 20 percent would be retained as management cost by CAVCA. Liu Guoxiong, President of CAVCA, said that about 30 to 40 percent would be retained.

The moves of NCAC and MOC for collecting royalty
    The karaoke copyright charge involves NCAC and MOC. One is the copyright collector and the other has the authority to manage karaoke parlors.
On July 18, 2006, MOC announced that it would soon launch the “National Karaoke Content Management Service System” and planned to collect a music royalty charge according to the click rate of KTVs (karaoke booths), in order to gradually settle the controversies between the recording industry, the copyright holder and the karaoke parlors. 
    On July 20, NCAC gave an official reply stating that the China Audio & Video Association and the Preparing Team of CAVCA could collect royalty charges for MTV works from karaoke parlors.
    On July 27, NCAC said openly that the standard of copyright charges for the karaoke businesses (draft) would be released shortly, which was expected to be lower than 0.5 percent of the turnover (beverages included) of karaoke parlors, at RMB 0.17 per song.
     On August 3, MOC released the main details on the “National Karaoke Content Management Service System” and planned to have the system installed in Wuhan, Zhengzhou and Qingdao, three trial cities, before it was gradually spread to the whole country.
     On August 21, NCAC published the standard for copyright royalty charges to solicit opinions. It was determined that karaoke businesses shall pay royalty for the music or MV works used on annual and per-booth basis; and the standard royalty charge (music and MV works included) was RMB 12 per booth per day. 
     On November 9, NCAC made a public announcement that the standard royalty charge was finally decided to be RMB 12 per booth per day. 
     On November 9, a working team from MOC installed the first KTV collection system in Changsha City. The system was soon installed in the remaining 19 trial KTVs in the city. It provides a detailed record on the uploading, downloading and the number of demands of the songs in the pool.

     On December 23, the Preparing Team of CAVCA held a closed meeting in Beijing. It decided that the collection of the karaoke royalty charge would start on January 1, 2007. 

Who is the final winner of the initiatives? 

    The imposition of the karaoke royalty charge should be regarded as a step forward in China’s copyright protection because the rights of copyright holders are highlighted. However, it has turned out to be a contentious dispute between NCAC and MOC, between MCSC, CAVCA and the local entertainment trade societies, as well as copyright holders, music companies and karaoke business behind them. It is still uncertain who will be the final winner.
    Although the conflict continues, one thing for sure is that under the existing legal framework, a solution will be found for the dispute on the collection agent, standard and procedure for collection. Karaoke royalty charge may not be enforced unless a consensus has been reached among all the parties concerned. Time and practical experience are required to produce a more reasonable mode of collection that is acceptable to all.
    As one party affected by the collection of karaoke royalty charge, the consumers are mainly concerned with whether karaoke businesses will raise prices and whether they will have to pay for the royalty charge. They do not want to be the ultimate loser. Although the karaoke businesses have not said that they will raise prices, the royalty charge will probably cause a change in prices. Of course, this issue, though widely observed, is not the center of the dispute, nor is it the essence of the royalty charge. The rise in price can be understood as being caused by the market or the protection of intellectual property. The “free lunch” of the karaoke industry will finally come to an end. Whoever pays the bill, it will be good news to the copyright holders. No matter who is the ultimate winner, karaoke royalty charge will improve the protection of intellectual property in China.