Baidu to Pay Record Labels for Beyonce, Gaga Music in China

Baidu Inc., owner of China’s most popular Internet-search engine, agreed to pay record labels to offer songs by artists including Beyonce, Lady Gaga and Frank Sinatra, ending a six-year dispute over piracy.

Sony Corp. (6758), Universal Music Group and Warner Music Group Corp. (WMG) will receive undisclosed fees for allowing their content to be downloaded for free to users of Baidu’s Ting and MP3 services, the Chinese search-engine operator said in a statement today. The four companies will end all outstanding litigation, according to the statement.

The deal paves the way for the Chinese company to ease concerns that led the U.S. Trade Representative to call Baidu a “notorious market” for helping sustain piracy. For the record labels, the accord allows them to capitalize on the world’s biggest Internet market, where almost all music downloads are estimated to be illegal.

“China has a long way to go yet, but the deal serves as a good baseline to work from,” said Ed Peto, managing director at Outdustry, which represents western music companies in China. “Baidu will need to show sustained commitment over the coming few years before this deal can be seen as a proper watershed.”

Bidu rose $4.43, or 3 percent, to $151.25 at 10:04 a.m. New York time in Nasdaq Stock Market trading. The shares have increased 58 percent this year.

The Beijing-based company, which handles about 80 percent of the country’s Web-search traffic, expects the agreement to lead to a “precipitous drop” in the piracy rate, spokesman Kaiser Kuo said.

“This is a mutually profitable deal,” Kuo said by phone today. Record companies will benefit from sales of advertising linked to their music, in addition to license fees, he said.

Chinese Piracy

China has a music piracy rate of “virtually 100 percent,” the International Federation of the Phonographic Industry said in its 2011 report released in January.

One-Stop China -- a venture between Universal Music, Warner Music and Sony Music -- will license its catalogs and new releases, including songs in Mandarin and Cantonese, to Baidu, according to the statement.

Vivendi SA (VIV)’s Universal, Sony and Warner Music previously lost rulings in Chinese courts when seeking damages from Baidu for copyright infringement.

Baidu was named in the U.S. Trade Representative’s “notorious markets” list published in March for helping sustain piracy and counterfeiting. Google Inc., Baidu’s closest competitor in China’s search-engine market, started a music service in the country in 2009.

Baidu “won’t lose money” from the agreement with One-Stop China, as sales of advertising will more than offset the cost of license fees, Kuo said.

Google, owner of the world’s most-popular search-engine, accounted for 18.9 percent of revenue generated in China’s search-engine market during the second quarter, declining from 19.2 percent three months earlier, according to research firm Analysys International. Baidu’s market share increased to 75.9 percent from 75.8 percent, the researcher said.

Baidu is adding services and bolstering partnerships with technology companies including Microsoft Corp. to lure Web users in China from domestic rivals Tencent Holdings Ltd. (700) and Alibaba Group Holding Ltd.

To contact the reporter on this story: Mark Lee in Hong Kong at wlee37@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

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