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Beijing watchdog sniffing out online music pirates

Singapore's Straits Times by Clarissa Oon  Aug 27, 2005

BEIJING - CHINA'S piracy-infested online music market could spawn a new breed of digital rights agents attempting to clean it up.

 The pioneer in this field is Beijing firm R 2G . Founded at the end of 2003, it recently managed to pressure China 's largest search engine, Baidu.com, into dropping thousands of links to pirated music files.

 While R 2G is currently the only known firm doing digital rights management for international and domestic record labels, analysts say they expect several more companies to duplicate its business model.

 R 2G functions both as an agent for licensed digital content and a piracy watchdog.

 It markets content from record label partners to Internet service providers, and tracks pirated copies which appear online as well.

 Right now, a large slice of its revenue comes from marketing ring-tone downloads of hit songs, which are all the rage with Chinese mobile phone users.

 The company's co-founder and chief operations officer, Ms Scarlett Li, tells The Straits Times that the pie of music-related mobile value-added services, including ring-tones, is worth 2 billion yuan (S$400 million).

 This is based on last year's figures provided by telecoms giant China Mobile .

 Record labels are currently getting only a small fraction of that amount - less than 50 million yuan - due to piracy and accounting issues, when they should be getting a 50 per cent share, says Ms Li.

 Chinese mobile phone users pay between one and three yuan per ring-tone download from licensed WAP sites.

 R 2G eventually hopes to move into MP3 downloads as well, a market which Ms Li says could be worth as much as 3 billion yuan but still remains 'completely untapped'.

 'It's all pirated content at the moment, and any service provider who charges for licensed MP3s will lose money.'

 Once the MP3 market has been cleaned up, R 2G hopes service providers can start to offer paid music, although probably at much cheaper rates than in the United States, where users are charged about US$1 (S$1.70) or eight yuan for each music download.

 The Beijing firm's partners comprise international labels like Universal Music Publishing - part of Universal Music Group - and leading Chinese music producers. For mobile phone downloads, R 2G has reached agreements with more than 50 Internet service providers, including major ones like Sina, tom.com and Ten Cent.

 CCID Consulting, a Beijing-based IT and telecommunications consultancy, estimates that some 20 million people in China use MP3 search engines regularly, with the number growing at a rate of more than 20 per cent a year.

 More than 1,000 Chinese websites now offer MP3 services, nearly double the number in 2002.

 Ms Zhang Linqiang, an analyst with CCID, tells The Straits Times: 'Most of these sites are offering free MP3 links to boost traffic and create buzz, not to earn revenue.'

 Following Baidu.com's scrapping of pirated MP3 links last month, another Internet portal Netease.com said last week that it was suspending its online music-search service because of copyright concerns.

 However, R 2G and industry observers say the battle against the pirates is far from won.

 Among other things, they say much depends on China 's willingness to enforce tougher intellectual property rights laws.

 A special report issued earlier this year by the International Intellectual Property Alliance, a multi-sector watchdog group, said China is still not doing enough to reduce piracy levels in all industries.

 However, R 2G 's Ms Li says the authorities have so far been very supportive of its efforts.

 The company was invited to help draft new government regulations for copyright protection on the Internet.

 The new rules, implemented from June, state that service providers can be sued for copyright infringement, have their income from such activities confiscated and be fined up to 100,000 yuan.

 Apart from dealing with the law, watchdog companies face the challenge of frequently upgrading their technology to keep up with the pirates, says Associate Professor Peter Yu, the director of Michigan State University 's Intellectual Property and Communications Law Programme.

 However, he and other experts says R 2G will thrive as entertainment industries in the US and Europe use similar companies to help fight Internet piracy.

 Nanyang Technological University Associate Professor Randolph Kluver tells The Straits Times: 'R 2G is stepping in to fill a role that international media companies have long sought, an 'insider' helping to identify instances of piracy, and then working to stop it.'

 He says other Chinese technology companies could well end up changing their business models to compete with it.

 Prof Kluver notes: 'Right now there is tremendous fluidity in Chinese technology companies, and many companies, even those like Baidu and Sina, will go where there seems to be potential.'


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