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By Jason Szep

JOHOR BAHRU, Malaysia (Reuters) - A handwritten sign at the entrance to a tiny shop in southern Malaysia's busiest city sums up the music industry's colossal problems in Asia.


"1 CD for 7 ringgit," it beams in bright blue ink. This sum is equivalent to $1.80.


As two policemen direct traffic just yards away, the shop's teenage manager brags of even better bargains, running a hand along makeshift shelves lined with hundreds of compilations -- from pop princess Britney Spears to Taiwanese idol Jay Chou.


It is just one of a dozen shops brazenly selling knockoff pop music CDs and DVD bootlegs of Hollywood films in a single neighborhood in Johor Bahru, only a few minutes' drive from Singapore -- and one of thousands scattered across Asia.


But as Washington presses Asia to curb the sophisticated piracy syndicates equipped with CD-burning technologies and stacks of blank discs that supply the shops, a bigger battle is brewing online against Web pirates in the fast-growing region.


The rollout of high-speed broadband Internet in India, China and Indonesia, three of the world's most populated countries, could expand the number of people downloading free music off the Web by millions a month.


To fight back, labels are releasing more hits to fee-based online music services in Asia, accelerating growth in an embryonic industry now dominated by just two companies -- Soundbuzz.Com and Sony Corp (NYSE:SNE - news) (news - web sites)'s Planet MG.


"The digital music medium is coming of age in Asia," said Sudhanshu Sarronwala, 38-year-old chief of Singapore-based Soundbuzz and former managing director of MTV Networks Asia.


Four-year-old Soundbuzz has licensing agreements with 65 record labels in the region and operates in 12 Asian markets in eight languages -- from Chinese and Korean and Japanese to the Bahasa languages of Indonesia and Malaysia.


Its clients include Web portals (news - web sites) run by Microsoft Corp's MSN and Yahoo Inc. (Nasdaq:YHOO - news) "We build the storefront look and feel for the client," said Sarronwala.


ASIAN GROWTH?


Asia was once prized by record labels including Time Warner Inc's Warner Music Group, EMI Group Plc (news - web sites), Universal Music and Bertelsmann unit BMG for its potential for growth as U.S. and European markets mature.


Instead, recorded music sales in Asia are sliding faster than in the United States and Europe, the International Federation of the Phonographic Industry (IFPI) says.


Asian music sales slid 13 percent in the first half of 2003 to $2.59 billion, a fifth of the world's total, outpacing a fall of 10.9 percent globally. South Korea (news - web sites)'s fall of 23.1 percent was the worst, followed by Taiwan's 21 percent and Japan's 13.5 percent -- Asia's three biggest music markets.

In Taiwan, which accounts for 80 percent of Mandarin language music sales worldwide, around half of all music sold in the past two years was pirated, while nine of every 10 recordings in China are fakes.

Analysts say growth in legal music download sites in Asia's vast, upwardly mobile markets, in tandem with broadband Internet, could help stabilize the world music industry.


But whether paying sites take off depends on how quickly so-called peer-to-peer networks such as Grokster and KaZaa -- where surfers can download an entire 10-track album in 15 minutes -- are shut, said Simon Dyson, senior analyst at Informa Media.

"If they don't get that control, and broadband increases, then you can see music sales going right down," said Dyson.

Much depends, he says, on whether record labels win their appeal of a potentially precedent-setting April decision by a U.S. federal judge who ruled Grokster and other file-swapping networks were not liable for what their downloaders are doing.

"The opinion is that they will probably win that. If they do win that, then obviously they can start encroaching on file sharing networks," he said.

GROWING LAWSUITS

Music copyright lawsuits are also flaring around Asia. Taiwan's music industry has taken legal action against two Taiwanese sites -- www.kuro.com.tw, which has about 500,000 subscribers, and www.ezpeer.com with 300,000 members.

South Korean free music site www.soribada.com, which counts six million members and gets about 1.5 million hits a day, is also being sued. A court told Soribada to shut its server in February but it switched to new servers and is open.

"Record companies all over the world are struggling with this," said Terence Phung, managing director of Sony Music Entertainment Singapore Pte Ltd. "It is hurting all of us. There is no solution available to stop this. It is a huge problem."

Although copyright infringement is a crime in Singapore, a 2001 government survey showed 500,000 of its four million people used the Web to download music. Internet service providers are sending letters to downloaders of pirated music on behalf of the recording industry but they do not initiate legal action.

"We encourage our customers to feed back to us on these allegations by the copyright owners. We will then advise the copyright owners accordingly," said Mervin Wang, a spokesman at Pacific Internet Ltd, a Singapore Web service provider.

Sarronwala says the opening of Apple Computer's iTunes Music Store this year was a turning point, spurring labels into releasing quality music online. Though he doubts piracy will vanish he reckons legal online music can thrive alongside it.

As sales fall across the industry, Soundbuzz went profitable on a quarterly basis this year after growing revenues for the past four years, said Sarronwala.

Swee Wong, senior vice president at BMG International based in Sydney, said the appetite for legal music downloads in South Korea and Taiwan was growing. "They are ahead of the game," he said. "But it's not happening as fast as I would like.

"China remains the wild west," he adds. But even if just 10 percent of China's sales are legitimate, that is still a huge market, he said. "The potential market in one city could be as big as or bigger than Hong Kong or Singapore." (Additional reporting by Doug Young in Hong Kong and Judy Lee in Seoul)

if they open online pay sites in asia to counter this and charge the triditional .99cents a song and the people can buy a whole album for under 2 bucks. guess who'll win that one.

This is a world wide backlash. When an industry monopolizes a single product and lets no one else play and the product (creativity and ideas) have been public domain for the existance of mankind until mega corporations perverts the copyright laws to close that domain, then this is bound to happen. (what a long sentence. having the ability to write so much without using a period could make me a lawyer)

fuck 'em. I say the greedy bastards are reaping what they've sewn. you can only rape the consumer so much then they fight back.

You create a black market by trying to control the product too much. It is wrong that these bootleg shops are in business, but the RIAA indirectly created them.

Shmoo, of Electric Gypsy
Support Local and Independent Music!

compmores right. In asia, with its very high counterfit piracy rate (through the term is used losely - *everyone* knows those discs are fake) online pay-distribution would be impossible. Even in the countries with lower piracy rates its almost impossible to compete with free p2p.

In some of those places, copyright infringement is actually used for producing tourist goods. I remember on Rhodes I saw parody teeshirts such as "Dopemon" (pokemon on dope). If you tried selling those back home you would be attacked by a pack of lawyers, along with the manufacturer. We all brought posh branded watches for £5 each. Ok, only three of the four worked when we got back. But its part of the tourist experience.

Let's put this a little more in perspective:

The average Chinese monthly wages range from $12 to $34 US*


The current ridiculous price of $0.99 per song would be 1/12 of their monthly wage or the equivalent to $139 if compared to an American worker with a monthly salary of $1667 / $20,000 annually...

Does anyone else see a problem here?????

I don't think there is any one particular piece of music worth that amount!!!

*(U.S. Department of State 1997 Human Rights Report :China)