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China's biggest search engine, known for illegal downloads, makes music deal

China's biggest search engine, known for illegal downloads, makes music deal

By Dan Levin, New York Times | Updated: 15 June 2012 13:48 IST

Highlights

Baidu announced a major licensing deal with three of the world’s largest music companies that would allow users to legally download and stream free music

Baidu, the dominant Chinese Internet search engine, on Tuesday announced a major licensing deal with three of the world's largest music companies that would allow Chinese Web users to legally download and stream hundreds of thousands of songs free.

The agreement between Baidu and One-Stop China, a joint venture between the Universal Music Group, the Warner Music Group and Sony BMG, will shut down access to a vast amount of pirated music and promises to broadly reshape the way China's 450 million Web users gain access to online music. The country has long been a haven for pirated content. Baidu has been one of the chief conduits to it, much to the consternation of record labels, publishers and artists both here and abroad.

Under the two-year deal between Baidu and One-Stop China, the three music labels will license over 500,000 songs, about 10 percent of them in Mandarin and Cantonese, which will be stored on Baidu's servers and available for free streaming and download on the site's ad-supported MP3 search page and social music platform, Ting.

Baidu will pay a fee to the labels for each time a song is downloaded or played in a stream. It will also share revenue from online ads if that revenue exceeds a certain amount, as well as provide promotional support for the labels. The companies declined to disclose financial details of the agreement.

With Baidu taking up the costs, this deal keeps music free -- but legal. The International Federation of the Phonographic Industry, which represents global music companies, estimates that 99 percent of the music found online in China is illegal, much of it available through Baidu. Although China has more broadband connections than the United States and a rapidly growing middle class, the global recorded music industry's revenue in the country for 2009 was worth just $75 million, compared with $4.6 billion in the United States, according to the federation. So making money from music downloads and streaming in China will have an outsize impact for the labels, since digital sales accounted for 76 percent of the country's legitimate music revenue in 2010, compared with just 29 percent globally, where CD sales remain dominant.

As part of the deal, on Monday the labels and Baidu agreed to a settlement endorsed by the Beijing Higher People's Court ending all outstanding litigation. For years, the American and Chinese music industries have singled out Baidu for criticism, saying the company has enabled users to steal vast quantities of copyrighted music, accusations that spurred a number of unsuccessful lawsuits.

In February, the United States trade representative named Baidu as one of the world's 33 "notorious markets" for piracy and counterfeiting, centering on Baidu's practice of "deep linking," or providing search results that direct users to unlicensed songs on other Web sites. Although American search engines have long been forced to abandon such practices, Chinese courts had ruled that deep linking was legal because the music was not stored on Baidu's servers.

Despite those favorable court decisions, Baidu has now agreed to remove all deep links to music belonging to the three labels, though a small amount of other independently loaded music may remain available. "We've never wanted to stand there and thumb our noses at the recording industry," said Kaiser Kuo, Baidu's director of international communications. "This is a watershed moment. It's a great way for us to deliver the best possible user experience by providing free and high-quality music and brings obvious tangible benefits to all parties involved including the labels, artists and advertisers."

Later this year, as part of the agreement, Baidu plans to introduce a premium fee-based service which will allow paying users to download music onto any computer, tablet or mobile device from a virtual storage locker.

Mr. Kuo added that music search was profitable but had never been a source of major traffic. He said it accounted for a high of 30 percent in 2004 and was now less than 10 percent.

The big label licensing agreement is the company's latest move toward a more legitimate business model since its rival Google began directing mainland Chinese Web users to its Hong Kong site in March 2010.

In late March this year, Baidu announced it had deleted 2.8 million written works from its online library service, Wenku, in an effort to appease Chinese authors who demanded compensation, arguing that the company allowed pirated content on the site's servers for free download. The move came days after China's National Copyright Administration stated that it was investigating the company for copyright infringement of books.

A few days later, Baidu said it would pay a fee to songwriters belonging to the Music Copyright Society of China, the country's official performing rights organization, each time one of their songs was downloaded or streamed through Baidu. Last year the organization won a rare lawsuit against Baidu over the company's providing unauthorized lyrics to 50 songs on its servers.

Other Internet and media companies in China have signed contracts with music labels, with varying degrees of success. China Mobile made over $2 billion from its licensed ring tone service in 2009 alone, giving record companies a cut of the purchase price. Google in China offers more than a million songs for free through download and streaming and shares ad revenue. But at 84 percent, according to iResearch, an analytics firm based in Shanghai, Baidu's share of the Chinese Internet search market dwarfs that of Google and other rivals. Its agreement with Universal, Warner and Sony BMG, which account for most of the global music market, is expected to give the industry a brighter outlook in China after years of frustration.

"We're delighted with this because it means Baidu is genuinely partnering with us to move China's legitimate music market forward," said Max Hole, chief operating officer of Universal Music Group International, speaking on behalf of One-Stop China in a phone interview.

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