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 Blacklisting Baidu

2008-06-03   Forbes


Hong Kong - The music industry is trying to put a face on online piracy in China, and punch that face squarely in the nose.

Leading international and Chinese record companies joined hands Tuesday to announce an unprecedented alliance to take on Baidu.com (nasdaq: BIDU - news - people ), China’s dominant search engine.

They are calling on businesses to stop advertising on Baidu.com and vowed Tuesday to collectively lobby the National Copyright Administration of China to take action against the Nasdaq-listed company.

The industry alliance blames Baidu for facilitating more than half of digital music piracy in China--the world's largest Internet market by number of users--and by one estimate as much as 80%.

Singling out Baidu as “the largest and most incorrigible purveyor of pirated music in China,” Qu Jing Ming, director general of the Music Copyright Society of China, said the alliance “realize that in order to establish a healthy business environment it is not enough to depend just on legal means but also through business and administrative initiatives, public opinion and other methods so that eventually we will marginalize and blacklist pirating organizations.”

Qu is being joined by the International Federation of the Phonographic Industry, or IFPI, which represents the leading Western record labels, and the China Audio-Video Copyright Association, which oversees copyrights for karaoke products.

International heavyweights Universal Music, EMI and Warner-Chappell Music are participating in the effort, along with their Chinese counterparts Linfair Music, Linfair Music Publishing, Seed Music, Taihe Rye Music, R2G, Zhu Shu Fang Music and Yue Lin Music. Together, they represent more than 80% of the Chinese music market and a significant portion of international mainstream music.

The recording industry claims Baidu has given Chinese Web surfers access to links for unlicensed music streaming and downloading via its Web site, and earned significant advertising revenues due to the massive online traffic it has enjoyed as a result.

Baidu has so far managed to stay above the legal fray, despite several rulings against smaller competitors.

In 2006, seven international music labels, including Sony BMG, EMI, Warner Music and Universal Music, lost a lawsuit accusing Baidu of culpability for illegal downloading and sharing of music.

However, in a landmark ruling in December, Beijing’s final appeals court found Yahoo! China guilty of facilitating mass copyright infringement, though the court has had difficulty enforcing its ruling.

That ruling helped to encourage a slew of fresh actions against Baidu this year, including a lawsuit filed by global music labels in early February.

China’s Music Copyright Society sued Baidu in February, followed in May by China's largest digital music distributor, R2G.

However, such actions have so far failed to focus official attention on Baidu or bring it to the negotiating table.

Turning away from China's lethargic court system, IFPI succeeded last month in holding Zhongsou, one of China's top five search engines, accountable for copyright violation by presenting its case directly to the Copyright Bureau of Hebei province. The local authority confiscated three computer servers from Zhongsou and slammed it with a penalty of 100,000 yuan ($14,388.50). It was the first administrative penalty against a digital music copyright violator.

The recent headway made by IFPI was built on small legal victories against lesser offenders across China. China's largest digital music distributor R2G, said it has won lawsuits against six small illegal music downloading Web sites in the last two years, winning not just damages but also prodding four of them to switch to legitimate business practices and pay copyright fees.

Illegal downloading has thrown the Western music industry into a tailspin of declining revenues, and China is no different. The Music Copyright Society of China's publishing revenue shrunk to only a few million yuan for the full year of 2007, down 90% from 2005, concurrent to a period of explosive growth in Internet usage in China.

“If we cannot hold Baidu accountable, there would be no hope for the future development of China’s music industry,” said Wu Jun, CEO of R2G.

Meanwhile Baidu is sitting pretty, reporting a 71.5% increase in first-quarter profit.

 
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