May 1 will be a pivotal day for the music industry, the day a pay-per-stream fee system will replace the current flat-rate program for online music streaming services.

While online music distributors fear that the government-led change will dry out the industry, customers are anxious about whether it will result in a price hike.

According to the Ministry of Culture, Sports and Tourism’s March 19 blueprint, online music streaming service providers such as Melon, Mnet and Bugs Music should pay 3.6 won to copyright holders every time a consumer streams a music file through their system. The price was based on the fact that an average user of the flat-rate system (about 6,000 won a month) listens to about 1,000 tunes a month.

Currently online music service providers and copyright holders split their profit 60:40, giving around 1,800 won-2,400 won to music producers. Under the new plan, should streaming service subscribers listen to fewer than 1,000 music files a month, the streaming sites will still guarantee 40 percent to the producers. 

“More people are using smartphones and online streaming service has become a huge trend. The March 19 guideline is expected to guarantee reasonable and acceptable profits to music producers who have constantly complained that the unlimited access to music prevents them from receiving their rightful income,” said Chung Nae-hun, a ministry official.

But the plan has invited criticism and resistance from online music service providers.

Online music streaming market leaders Melon, Mnet and Soribada claimed that they have lost customers since the administration earlier this year adjusted the profit sharing ratio of 6-4 among distributors and music providers from the previous 7-3 or 8-2 system.

Industry insiders said Melon, the nation’s largest online music file distributor, had lost 10 percent of its subscribers and suffered a 30 percent slowdown in new membership since it raised the monthly streaming fee to 6,000 won from the previous 3,000 won in line with the rule. In order to minimize their loss of customers, many online music services are providing special discounts through June.

Streaming service providers say they will lose money if a customer streams more than 1,000 songs a month.

“In order to make up for the loss, we will probably have to increase the membership fee once again. But I don’t think we can risk that,” an online music streaming service worker said.

Industry insiders fear that the higher price will drive music lovers to the black market, joining the estimated 4 million downloaders of illegal music.

Moreover, rumors are spreading that similar services from other countries might advance into the Korean market. Microsoft, Spotify and Pandora are successfully running similar businesses while Google, Apple and Twitter are expected to launch similar services by the end of the year.

“If they arrive in Korea, the damage will be massive,” the online music streaming service worker added.

The Korea Copyright Commission abruptly launched a committee to look into the issue but several major companies have refused to participate, claiming that the government has unilaterally decided on the project and is pushing for something that is far from what they can afford.

“We are currently in talks. Some companies have agreed to talk before the new rule is implemented,” said Kim Jung-mook, a KCC official.

Subscribers are also anxious about whether there will be another price hike. Kim Sung-hwan, a 24-year-old Melon user, said he would consider turning to the black market once again.

“Yes, I am not proud of it. But if the company keeps raising fees, then I don’t think users have many options,” he said.

It seems that the plan will not benefit the music producers much, either. According to Dongbu Securities, digital music file sale accounts for 6-8 percent of the music producers’ total sales, and streaming accounts for 30 percent of it. This means that the new rules will have less impact on their profit than expected, the securities firm said, adding that the sales growth will be a marginal 1-2 percent in the initial stage.

“But in the long run, it should make music industry more attractive,” the company said in a report.

Musicians are welcoming the new plan. Jang Ki-ha and Faces, one of the most popular alternative rock bands here, recently released its digital single through www.hyundaicardmusic.com with a very unique approach. The band requested downloaders to decide the amount of money they would like to pay for the music ― from 10 won to 1 million won.

“In order to support the new streaming system, we have decided to leave our price tag blank. Please, pay whatever you feel our music is worth,” said Jang, the leader of the group.

By Bae Ji-sook (baejisook@heraldcorp.com)