by : Business, May 2009

In China, It’s the Year of the Google

In China, It’s the Year of the Google

On March 30th, Google announced the launch of a long-rumored, legal music downloading service available exclusively to mainland China. The service, called Google Music Search, will allow internet users the freedom to search within and legally download files from an online catalogue of over 1.1 million copyright-protected songs. Files located within the expansive database will be proffered through a downloading portal administered by Top100.cn, a Chinese company headquartered in Beijing. Google will not charge users for the service, instead agreeing to split advertising revenue generated by the site with 140 participating music companies, including industry behemoths Universal Music, Sony BMG Music Entertainment, EMI Group, and Warner Music Group. Top100.cn says it plans to pay for its own hand in distributing the copyrighted material by selling ad space on its site, as well.

 

Google, which has struggled mightily thus far in its effort to expand market share in China, acknowledged the move to be an aggressive power play. China’s dominant search engine, Baidu, continues to attract a significant majority of all search queries within the country, reportedly around 62%, while its biggest competitor, Google, still attracts a mere 28% of traffic. Google hopes its new role as China’s first fully legal music downloading hub will give it a boost in its efforts to catch Baidu, which owes much of its current popularity to illegal downloading. With approximately 300 million of its 1.3 billion citizens already online, China is by far the world’s largest individual internet market, and by many accounts, its most larcenous.

 

The International Federation of the Phonographic Industry (IFPI) estimates that nearly 99 percent of all music downloads in China are of an illegal nature. Baidu has been widely accused of abetting this behavior by providing the use of unlicensed music files to its users, and by offering links to illegal downloading portals. The Chinese search engine, which has so far declined comment on Google’s recent moves, is already facing multiple lawsuits, among them those filed by IFPI, Music Copyright Society of China (MCSC), Universal Music, Sony BMG’s Hong Kong division, and Warner Music Hong Kong. There exists little optimism, however, that any punitive ruling against Baidu would actually alter China’s entrenched culture of illegal file sharing.

 

Resigned to the sheer magnitude of online theft in China, record labels and publishers had grown skeptical of the profit potential offered by the immense market. It appeared unlikely that the world’s most populous nation would ever provide an opportunity to boost, even partially, the record industry’s woefully sagging revenues. Thus, when over a year ago Google approached major music companies in the United States with the idea for a new, advertising-derived earnings model, the industry was eager to bite. The ad-based business model, which at one time would have been considered to be an embarrassing concession, has proven more attractive to music companies than continuing to earn no money at all.

 

Finer points of the deal remain ambiguous. Google and its participating partners have not commented on the exact breakdown of the revenue sharing plan, nor have music companies made clear what royalties artists and songwriters expect to gain through the new model. Yet on the whole, morale seems high among the industry’s major players. Chief Executive Officer of IFPI John Kennedy recently spoke enthusiastically of the deal, saying, “The launch of Google Music Search is fantastic news for artists, composers and producers as well as consumers across China.” The move ushers in a brave new age for music companies and has, for better or for worse, contributed significant precedent to the necessary evolution of the record industry.

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