Baidu Opens Gates for Music Industry in China

Bloomberg reports this morning that China’s largest search engine, Baidu.com (NASDAQ:BIDU) has reached an agreement where it will pay major recording studios in the US to legally offer downloads of popular hits to users through its mp3 and streaming services. Sony (NYSE:SNE), Warner Music Group (NYSE:WMG), and Universal Music Group will all receive “undisclosed sums” for the rights to works of artists on their labels. Baidu had been a target of litigation by music industry leaders as it was alleged to have become a hotbed of pirating activity. According to one music industry group the piracy rate among Baidu users was, “virtually 100%,” with another adding, “China (NYSE:FXI) has a long way to go yet [in combating piracy], but the deal serves as a good baseline to work from. Baidu will need to show sustained commitment over the coming few years before this deal can be seen as a proper watershed.”

Today’s agreement may not end the campaign of Chinese digital piracy, but will at least offer users a legal option, similar to Apple (NASDAQ:AAPL) iTunes, that may help deter illegal file sharing. Spokespeople for Baidu said they expect the new deal to trigger a “precipitous drop” in file sharing and piracy among users. The company’s stronghold on a growing internet-connected Chinese demographic should not be underestimated, as it remains one of the few nations in the world with a domestic search engine that’s more popular than Google (NASDAQ:GOOG). Baidu currently accounts for 75% of search engine usage in China, compared to Google’s 17%, likely due to in some respect to tensions between the Chinese government and valley-based Google over the government’s requests to block content.

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The music studios had previously lost copyright infringement lawsuits against Baidu.com in Chinese courts. Today’s deal marks a sign of easing tension between U.S. entertainment leaders and Chinese corporations, and could pave the way for other young media companies such as Pandora (NYSE:P), Spotify, and satellite radio leader Sirius-XM (NASDAQ:SIRI) to broker deals with leading Chinese businesses.

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