Modern Sky Founder Shen Lihui Wants to Build a Consumer Company That Starts With Music

"Money can't control me, and I don't want to become its slave. However much money we take, we are still the ones in control." -- Shen Lihui

Casual shorts, an old T-shirt, black-framed aviator sunglasses: Modern Sky founder Shen Lihui turned up to meet QDaily dressed as he always is.

Eighteen years ago, Shen founded Modern Sky to put out records for his own band, Sober, in which he was the lead singer. He arrived just in time for the tail end of the record industry's glory days. As the industry declined, his business failed too. At its lowest point, Modern Sky owed more than 2 million yuan and had only three employees left.

In 2007, ten years after he started the company, Modern Sky held its first Modern Sky Music Festival, and festivals became a new line of business. That year the company put in more than 3 million yuan and lost more than 1 million. Shen says the loss felt great, because it showed him how strong the demand was.

On May 1, 2009, the first Strawberry Music Festival took place. Modern Sky went on to make "Strawberry" the largest music festival brand in China. In 2014 Maggie Cheung took the Strawberry stage, and that year Strawberry festivals around the country drew about 700,000 people. Modern Sky's festival business now includes the Modern Sky Music Festival, the Strawberry Music Festival and several smaller festivals. Shen says Modern Sky's revenue was nearly 200 million yuan in 2014, will probably reach 300 million yuan this year, and will hit 1 billion yuan within three years.

He says the festivals feed his vanity and his sense of achievement, and jokes that, as a Taurus, he is rather "greedy for money." In 2011 Modern Sky took nearly 10 million yuan in investment from Tiantang Silicon Valley, and in 2014 it raised 100 million yuan in a round led by the China Culture Industry Investment Fund. "A new round of funding will be announced very soon."

On the day of the interview, the Chengdu Strawberry Music Festival was a week away. "I don't have to manage any of the process. I just show up when it's time," Shen says. After several years and more than a hundred festivals, his team can now run each one efficiently, he says, and he can finally make time for what he wants to do.

Shen calls Modern Sky a toy, and says he wants to keep trying new things. During the interview he said several times that Modern Sky will become a global company, not just a Chinese one. Last October the Modern Sky festival went to New York's Central Park, and this year the company will speed up its expansion abroad: on August 28-29, it will take the Modern Sky festival to Helsinki, Finland. "That's really exciting," he says. Modern Sky, he says, wants to go looking for something different.

Shen wants Modern Sky to become a consumer company that starts with music. So it has used its festivals as a base from which to move step by step into neighboring businesses. At the end of April, ModernSky Lab, a new arts center business under Modern Sky, opened its Beijing location on a trial basis. If all goes well, Shen says, there will be 20 of them within three years.

He believes that "in this era, technology is rock 'n' roll, and Steve Jobs and Mark Zuckerberg are the real rock stars of our time. They used technology to overturn the world's old rules of the game." Modern Sky is doing the same thing, he says, only with music. "Modern Sky has competitors in every segment, but we haven't met a company that competes with us in all of them. We have no rivals."

Shen says it is hard to define what kind of company Modern Sky is: it is a music company, an internet company and a consumer company all at once. He even compares it to an operating system, in which festivals, concerts, artists, video and ticketing are the applications and venue operations are the hardware.

What we want to know is how exactly Modern Sky plans to break the music industry's entrenched rules. What will Shen do next? Here is what he told us.

Without the first 10 years, we couldn't have done a festival well

QDaily: You have said that Modern Sky's first 10 years were a complete commercial failure. Things only started to get on track with the first Modern Sky Music Festival in 2007, and then the Strawberry festival suddenly took off in 2009.

Shen Lihui: The first ten years really weren't a success, but we didn't waste the time either. I didn't found Modern Sky for business reasons. I did it because I loved music and wanted my own band. We started doing festivals after 2007 because youth culture had taken off across China, and because the people who had been our listeners since we started in 1997 had grown up and gained more of a voice. Put the other way around: without those first 10 years, we couldn't do today's festivals well.

QDaily: You could say the Strawberry festival is a product of how young people consume today.

Shen Lihui: Yes. Young people in the internet age badly need offline places to meet, and that demand is what produced the festival boom. Young Chinese today are more open than in any earlier era, and more willing to take in new things.

QDaily: In the nearly 18 years since you started in 1997, there must have been times of confusion and doubt.

Shen Lihui: Of course. From 2000 to 2005 were especially hard years for Modern Sky. We went from cassettes to CDs and then ran into the internet. We owed a lot of money, and in the end only two or three people were holding the company together. That was when I started working as a producer. I spent hours every day in the recording studio listening to music, which was really a way of escaping reality. Fortunately, the company's finances gradually improved.

QDaily: How much did you lose on the first Modern Sky festival in 2007?

Shen Lihui: We put in a little over 3 million yuan and lost nearly half of it, a bit more than 1 million.

QDaily: That was no small sum for Modern Sky at the time. Why did you keep going?

Shen Lihui: Modern Sky has been through a lot of this. We have always been doing something other people thought was a mistake. Purely as business, music publishing and records after 1997 were a terrible industry. We had caught the tail end of the record industry's glory days, and records only got worse after that. By rights, you should have stayed away from that industry.

Most musicians are selfish and don't think that far ahead. After the first festival in 2007, an investor would have said that holding a second one the next year was very irrational, since none of the companies that had put on festivals were making much money. But for the Modern Sky team, there was no debate about doing festivals. You could say it was our own sense of satisfaction, and our vanity, that made us feel we should keep going.

The internet gave us a chance

QDaily: After the original-music talent show Chinese Good Songs became a hit in 2014, some people said original music in China was coming back to life. What do you think?

Shen Lihui: Original music really is back at full strength. More and more independent musicians are holding concerts. Some even play the Workers' Stadium, sell tickets at 880 or 1,000 yuan, and sell out quickly, as well as some big-name stars. That is how it should be.

But television is the most conservative industry of all. It is the frog slowly boiling in warm water, the least sensitive to change. Especially since the internet arrived, television has grown older and older. People at TV stations have told me that their satellite channels reach middle-aged and older viewers, that they have to cater to those viewers, and that the more they do, the older they get.

Clearly, rock, indie music and folk were already popular offline before the people who make television got the idea for shows like Chinese Good Songs. For the music industry, that is still lagging behind.

QDaily: Today TV screens are full of music talent shows. Even as they are hyped, they are constantly criticized.

Shen Lihui: I don't think there's any need to criticize them. That isn't their responsibility. But some TV companies take themselves far too seriously and say they have come to save the music industry, which is completely wrong. The essence of a talent show is the show, and a show lives on ratings, which makes it very short-sighted, because it always has to guess what the audience likes. Talent shows were like that 10 years ago and they are like that today. Television will never produce real music, and it will never be the mainstream of the music industry. In the American and European music industries, talent shows don't matter that much either.

We criticize them because we expect too much of them; that is a habit of thought. We should lower our expectations. A TV production company has to follow the rules of the TV business, so it can't overturn anything. The risk is too great.

Of course, you could say TV music talent shows keep evolving, from picking idols to picking voices to picking songwriters. But does that matter? Not at all. I think within five years, the talent-show music business may gradually be pushed to the margins.

QDaily: Modern Sky's story is also the story of China's music industry, from the record era to the internet era. In a sense, many independent musicians were lifted up by the internet.

Shen Lihui: Yes. Moving music onto the internet gave some independent musicians new opportunities, and in turn gave companies like Modern Sky even bigger ones.

Modern Sky is a record company, so it should hate the internet more than anyone, because the internet makes everything free. The internet wrecked some of the big traditional record companies, such as Warner and Sony. Those companies had money. They could sign the biggest names, and they could sway radio, the media, televised award shows and so on. If we had kept playing by their rules, an independent label like ours would never have had a chance. They were always buying the number one spot on the charts and buying awards. But once the internet made music free, all those rules were reset to zero, and nobody was making money. When the market was completely broken, that was the opening for a company like Modern Sky, and of course for independent musicians too. The distance between listeners and musicians has shrunk enormously.

QDaily: The music industry has been overturned and remade again and again over these years. Put simply, what Modern Sky does now is sell music as youth culture. What if that gets overturned too? Does that worry you?

Shen Lihui: The music industry is very complicated, with a very long industry chain. It is not like film, whose logic is simple and basically revolves around the box office. If the box office is good, you're fine; if it isn't, you're finished. The music industry is more fragmented: records, live shows, songwriting, artist management and so on are split into many separate segments. When copyright and records were overturned, the other segments still did well, and the same will be true in the future. You can overturn one segment, but not the whole chain. So once you become a company that spans the industry chain, a company that is more of an ecosystem, you are very hard to overturn. And Modern Sky happens to be one.

But I still have a sense of crisis. Modern Sky is growing this fast because I'm afraid it will collapse, so I have to run very fast. Of course, running fast also brings some instability.

Turning Modern Sky into one big toy

QDaily: At the end of April, ModernSky Lab, Modern Sky's new arts center business, opened its Beijing location on a trial basis. What are the plans for ModernSky Lab?

Shen Lihui: We plan to open three stores in three Chinese cities this year, and if things go well, 20 within three years. In future, any city where we can hold a Strawberry festival can have a ModernSky Lab.

ModernSky Lab is Modern Sky's offline channel, with shops, consumption, art exhibitions, talks and so on. We are very different from a live house. A live house opens at night and closes during the day. We don't. We want a center where art and other fields cross over and mix, where all sorts of odd people can hang out, and that creates a new scene in the city.

Besides music products, we will make many other products. We are making T-shirts and other creative things, and we will sign foreign designers to help us develop them. We are working out whether to open a ModernSky Lab in New York and Helsinki. Eventually we will have stores all over the world. It will look like nothing more than an independent music company opening its own shops, but it will connect to a lot of cool things and create more crossovers.

QDaily: You have big ambitions.

Shen Lihui: Yes. My appetite is much bigger than it used to be.

QDaily: Festivals of all kinds are flooding into more and more second-tier cities. What are Modern Sky's plans there?

Shen Lihui: Our city plan is closely tied to the economy and consumer spending of Chinese cities. Music companies used to not think this way. They felt that as a music company, all they had to do was sell artists to concert promoters, which is B2B. But Modern Sky does B2C. All our products have to connect directly with consumers, so Modern Sky has to build its own channels. We have to become a true consumer company, and then use ModernSky Lab stores to reach more young people and show them where this stuff comes from.

Besides Shanghai and Beijing, Strawberry will be held this year in Wuhan, Xi'an, Chengdu, Changsha, Xiamen and even Mianyang. After that come Harbin and Dalian in the northeast, and Kunming, Chongqing and others in the south. This year's target for Strawberry is about 16 to 20 cities, maybe 10 more stops next year, and eventually about 40.

QDaily: What are the main partnership models for the festivals?

Shen Lihui: In one, Modern Sky puts up all the money, as with big festivals like Beijing Strawberry and Shanghai Strawberry. In another, we split the investment one-to-one with a partner. In the third, the partner puts up all the money, which is less common.

QDaily: Modern Sky has also bought some small festivals, such as the Zhangguan Lidai festival in Xi'an and the Wubaili City Music Festival in Yunnan. What kinds of companies do you want to acquire?

Shen Lihui: Festivals should be diverse. They can't all turn into Strawberry. There need to be local festivals that start from different places. Musically, we value independent music in specific genres, such as festivals devoted to heavy metal, jazz, electronic music or folk. We will also make some acquisitions of businesses that complement ours, such as ticketing companies and talent agencies, and we may take stakes in some performance venues.

QDaily: Modern Sky recently launched ModernSky Now, a platform for live-streaming music performances. But many people go to festivals for the feeling of being there. Will people pay for ModernSky Now?

Shen Lihui: On the internet side, Modern Sky has always lacked a way in for users. We have set up two: one through ticketing and one through video.

Some of the video is paid for now, but most is free. ModernSky Now's content has three parts. First, turning Modern Sky's existing content (festivals, concerts, artists) into video. Second, original video made specifically for the platform. Third, bringing in partners, including a lot of content from abroad and from elsewhere in the music industry.

I think online users should outnumber offline users by about 10 to 1. Modern Sky drew about 1 million offline attendees in total last year, so we should have 10 million viewers online. When we reach 10 million users offline, we should be reaching 100 million online.

ModernSky Now has gained 300,000 users in a month, which is fairly fast, and we hope to reach 1 million soon. We are preparing a separate financing plan for this video subsidiary. In the long run, Modern Sky's video won't just be about broadcasting performances. We will make many original video programs rather than simply moving offline content online. We are using our offline resources as a lever to serve more users. We are also thinking about doing other things later, such as e-commerce.

We also hope these moves will widen what people imagine Modern Sky can be. ModernSky Lab is one link, ModernSky Now is one link, artists are one link, festivals are one link. With every link connected, Modern Sky will be tightly tied to traditional music, the internet, new media and users. You could say I have turned Modern Sky into one big toy.

QDaily: Are you really turning Modern Sky into an internet company?

Shen Lihui: You could put it that way. What people call "internet thinking," our industry calls the "rock 'n' roll spirit." In this era, technology is rock 'n' roll, and Steve Jobs and Mark Zuckerberg are the real rock stars of our time. They used technology to overturn the world's old rules of the game.

We should embrace the internet with an open mind. Modern Sky has put all of its artists on every internet music platform. Open internet platforms can bring artists to the front, instead of the old practice of buying chart positions. We have also acquired the concert ticketing app POGO, which combines ticketing with social networking.

QDaily: What kind of original programming do you have in mind?

Shen Lihui: Not just music shows. We will develop content related to youth culture. Film and television, we will move into all of that. It's only a matter of time. Don't you think China's film business is missing a company like Modern Sky? We may be the first to go from a music company into film.

QDaily: Will you get into music talent shows?

Shen Lihui: Yes. We are talking to some TV stations, such as Hunan Broadcasting System.

What happens when the company gets big

QDaily: What is Modern Sky's revenue right now?

Shen Lihui: This year revenue will be around 300 million yuan, with profit of about 50 million. Our profit has nearly doubled every year. Last year revenue was nearly 200 million yuan and profit was 20 million. Festivals account for about 60% of revenue; the other 40% comes from copyright, artist management, concerts and so on.

QDaily: Where does the Strawberry festival's revenue mainly come from?

Shen Lihui: The Beijing and Shanghai festivals already bring in close to 50 million yuan each, with tickets making up 70% and sponsorship 30%. In cities like Beijing and Shanghai, sponsorship may fall to 20% in future, with tickets above 80%. The founder of Summer Sonic, Japan's biggest festival, once told me that their two days bring in 450 million yuan, 10% from sponsorship and 90% from tickets.

QDaily: What do you expect a single festival to earn?

Shen Lihui: Within three years, Strawberry festivals in cities like Beijing and Shanghai will bring in more than 100 million yuan.

QDaily: How big is the team now?

Shen Lihui: At the end of last year we had only 70 people, and in half a year it has grown to more than 200. Artist management has more than 20 people, production 20 to 30, live video streaming more than 30, ticketing more than 20...

QDaily: How big do you plan to get?

Shen Lihui: Modern Sky will open 20 ModernSky Lab arts centers, and each needs 20-30 people. I never imagined Modern Sky would have 1,000 people, but by that math we will get there soon.

QDaily: How do you manage more than 200 people?

Shen Lihui: To be honest, I don't know many of them. Each segment has someone in charge, and I hardly need to step in.

QDaily: How many independent musicians does Modern Sky have under contract?

Shen Lihui: About 50, including Xie Tianxiao, Zuoxiao Zuzhou, Peng Tan, Second Hand Rose, New Pants, Zhang Qiang, Supermarket, Re-TROS and Song Dongye. We are about the company with the most signed musicians.

QDaily: Modern Sky seems to keep reinventing itself. New Pants and Supermarket represent a clean, fresh urban style, while Cangying (Fly) and Zuoxiao Zuzhou are their complete opposite, with underground, alternative roots. How do you balance so many people with such different styles?

Shen Lihui: Lots of people say they don't know what Modern Sky is trying to do, that there are too many musical styles, that some of the music is just unlistenable. I get scolded a lot. But I like this contradiction. The world should be contradictory, and through constant efforts at balance, the contradiction can reach a kind of harmony.

QDaily: How does Modern Sky choose its artists?

Shen Lihui: When we choose artists, we are really taking samples. We are recording and sampling the present era, so the more samples you take, the more slices of the era you have. When you look back on an era, these people let you reconstruct its culture, starting from its sound.

QDaily: Besides large festivals like Strawberry, Modern Sky also runs some independent, smaller festivals, including Beijing's Impact City Sound festival and Xi'an's Zhangguan Lidai festival. What do these small festivals give Modern Sky?

Shen Lihui: Smaller niche festivals are slow, careful, more handmade work. Sometimes we need real scale, and sometimes we need something very different that captures a niche market. Modern Sky has to balance the two.

How Modern Sky goes global

QDaily: Modern Sky is also going abroad. In 2014 you put up a stage in New York. Why did you decide to enter the US market?

Shen Lihui: Going to the US was a very emotional decision. In 2006 Modern Sky opened an office in New York, staffed by just one American, named Michael. We didn't even know why we needed a US office, but for the first Modern Sky festival in 2007, Michael helped bring the band Yeah Yeah Yeahs to China, so it was of some use. Back in 2000, Michael had asked whether we should do a Chinese music festival abroad, and I said no. After May Day in 2014, Michael came to me again and asked whether we could hold a Modern Sky festival there. I thought, let's do it, it would be fun anyway. Mainly we wanted to present Chinese art, design and creativity, and only a festival could give those art forms more of a voice. When Omnipotent Youth Society's "Qinhuangdao" rang out in New York, I knew we had become part of that city, and that Chinese culture had made its way into the American market.

QDaily: How big is the US team now?

Shen Lihui: Four people, soon to grow to about 10.

QDaily: Where will you go next?

Shen Lihui: This year Modern Sky added Seattle and Helsinki. We are now considering Paris and London, and we have long planned to take Strawberry to Thailand.

At the New York Modern Sky festival, half the audience was Chinese and half American. In Helsinki I expect more than 90% will be Finnish, with very few Chinese. In Paris and London it will probably be half and half again. And in Thailand I expect 90% will be Chinese, which gives us a real buzz.

We need to find some thrills. It's important that what you do feels interesting to you. A company is not a machine, and we want to create things that excite everyone. When Modern Sky chooses which countries to enter, we basically don't analyze how the market will respond. That's not how we work. It's enough that we find the idea interesting.

QDaily: Would Modern Sky consider buying assets overseas?

Shen Lihui: Yes. Consolidating overseas is already common in other industries, but it hasn't happened in music yet. In China our acquisitions will focus on entertainment broadly; abroad, on music itself.

Who are Modern Sky's competitors?

QDaily: As you see it, who are Modern Sky's competitors?

Shen Lihui: Modern Sky has nothing to compare itself with. It has competitors in basically every segment, but we haven't met a company that competes with us in all of them. For example, we have five record-company rivals, five festival rivals, five venue-operation rivals. Or take our video streaming: LeTV and Tencent have become our competitors, but we are different from them. They are platforms; we are both a platform and content. We also distribute content to them, so we compete and cooperate at once.

QDaily: So you are working hard to build out the industry chain.

Shen Lihui: What we can do is become more vertical, more irreplaceable, more specialized. The more we work as an industry chain, the harder we are to copy or overtake. A pure talent agency or record company will struggle to survive. Plenty of people only do concerts and festivals, and they have no obvious advantage.

QDaily: The number of music festivals in China has exploded in recent years. Is there a bubble?

Shen Lihui: I often say "the worst of times is over, and the best of times has not yet come." That fits China's festivals now very well. The Chinese festival market is still at an early-to-middle stage and is not saturated.

What Modern Sky plans next

QDaily: What is the biggest problem Modern Sky needs to solve in 2015?

Shen Lihui: People. We are growing too fast, and we need more people.

QDaily: What is the most important thing for you this year?

Shen Lihui: Modern Sky has a lot of new businesses this year, and the most important thing is getting them on track. Take ModernSky Lab: although we are about to sign Shanghai and New York, we still need the one store already open in Beijing to finish working out its kinks. Or take ModernSky Now: we have to close its first round of funding this year.

QDaily: Will festivals remain a large part of Modern Sky's business?

Shen Lihui: Yes, at least 50%. This year Modern Sky will also focus on concerts and indoor theater shows. We will have 100 concerts and more than a thousand live house shows.

QDaily: By that reasoning, Modern Sky should be about to raise its third round of funding.

Shen Lihui: Yes, it will be done very soon, and I can tell you it is a very large sum.

QDaily: Many musicians look down on moving from talking about music to talking money with capitalists.

Shen Lihui: Lots of people ask me why I take capitalists' money. To me, whatever exists has its reasons.

Early on, Universal wanted to buy us, and I refused. We felt we might be worth a lot, but we didn't know how to put a number on it. We used to say, "We're awesome, and you can't quantify our value."

In 2011 I took nearly 10 million yuan from Tiantang Silicon Valley. Honestly, we didn't badly need that 10 million at the time. I just wanted to see how capital viewed Modern Sky and how they played the game. So Modern Sky's first round of funding was pure curiosity. Of course, their methods made a lot of sense, and we copied them, using capital's playbook in our own talks with other companies: we want to buy a stake in you.

Some people say musicians are all lunatics, unreasonable and impossible to manage. Others say capitalists stink of money and only care about cash, and that we musicians shouldn't deal with them. As for me, I can move between the two quite comfortably.

What I want to stress is that this money can't control me, and I don't want to become its slave. However much money we take, we are still the ones in control.