- The Washington Times - Sunday, October 2, 2005

SHANGHAI (AP) — Like thousands of other tech-savvy young Chinese, Samuel Ying regularly checks in at Baidu.com to top off his music collection from its links to more than 4 million MP3 files.

“The site [allows] me to choose the sort and size of the music files and the speed to download them,” said Mr. Ying, 23, a salesman for an international consumer products company in Shanghai. “Compared with other tools, it’s got more options.”

The MP3 search page’s popularity has helped turn Baidu into China’s biggest search engine, accounting for nearly half of all queries. It leaves domestic and international competitors such as Google Inc., which last year bought 2.6 percent of Baidu, in the dust.

The problem, though, is that many, probably most, of those MP3 links connect to pirated copies of copyrighted music, and the music companies aren’t happy that something so successful is helping rip off their songs.

Last month, a Beijing court ordered Baidu to block links to pirated copies of songs copyrighted by record company Shanghai Push and compensate it $8,395.

Baidu is appealing, but it already is being pursued by four other music industry giants and their local subsidiaries over near-identical claims. Universal, EMI, Warner, Sony BMG and local subsidiaries are seeking $206,000 in compensation.

Baidu said it merely provided a search function, not downloading services, and therefore wasn’t violating copyrights.

“We believe that the district court order was based on a misunderstanding of the search-engine technology and, therefore, is without merit,” said Baidu attorney Li Decheng.

That could be a difficult case to make, though, after court decisions in the U.S. and elsewhere allowed lawsuits to be heard against Internet file-sharing software developers such as Grokster.

Although China’s enforcement of intellectual-property rights is lax — rampant compact-disc piracy already limits artist revenues to concert and television appearances — Baidu’s U.S. stock-market listing makes it vulnerable there, where enforcement is much stricter.

“Baidu may have difficulty claiming to be just a neutral search site,” investment bank Piper Jaffray analysts Safa Rashtchy and Aaron Kessler said in a report last month on the company. “We believe this to be a significant risk.”

Still, the MP3 search may be too lucrative a feature to give up without a fight.

Baidu, co-founded by current Chief Executive Officer Robin Yanhong Li in January 2000, has grown rapidly along with China’s Internet population, which passed the 100 million mark in August.

It now connects to more than 740 million Chinese language Web sites and myriad other online media. More than 41,000 advertisers give it a steady source of revenue.

With Baidu’s popularity soaring among both Internet users and advertisers, Piper Jaffray expects revenues from sponsored searches in China will reach $1 billion in annual revenues from just $134 million now. Daily searches by Chinese Internet users are expected to jump from 360 million this year to 816 million in 2007.

MP3 searches already account for a significant portion of those searches — about 20 percent for Baidu, compared with 10 percent for pictures and just 1 percent for news.

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