It came as a shock to a record company alliance to learn that one of its members, EMI, had teamed up with China's largest search engine, Baidu.com, to launch a free online music service. Baidu had been considered the "enemy" because of alleged rampant music copyright violations.

On January 16, Baidu's chief financial officer Wang Zhansheng and Michael Hwang, President of EMI Music China, signed a comprehensive agreement on digital music cooperation, under which Baidu is authorized to provide all of EMI's Chinese songs for netizens to listen to online free of charge. Since Baidu and EMI will have advertising on the service, they are expected to make money from the deal.

The two sides will further explore the free download model in the future. From now on, new EMI recordings will appear on Baidu's website at the same time as or even prior to distribution in the market, said Hwang.

"We will both benefit from the cooperation," said Li Yanhong, Board Chairman and CEO of Baidu.com. Baidu's popularity is expected to help EMI's songs and singers become more widely known, thus generating more profits at a time when traditional record companies are facing great difficulties.

From enemy to partner

In 2005, EMI's Push Typhoon Music label filed a lawsuit against Baidu.com for music copyright violation, and Baidu paid 2,000 yuan per song to Push to compensate for economic losses. Later, seven international record companies, including EMI, Universal, Sony and Warner, took Baidu to court for the same reason, seeking 1.67 million yuan in compensation. But Baidu won the case this time.

"Baidu has paid attention to this issue and understands the lawsuit against us," said Liang Dong, Vice President of Baidu at the time of the Push Typhoon lawsuit, acknowledging that free access to the mass of unprotected copyrighted content has hampered the healthy development of the record industry. "As the largest Chinese language search engine, Baidu has the obligation to fix it," Liang noted.

In China's Internet world, one can download almost any song from any music company easily through search engines and other channels just with one mouse click.

But Internet companies in China have come around to the notion of copyright protection and try to run a legal digital music business and avoid music piracy. In March 2006, the first and largest Chinese legitimate music download website, www.top100.cn, was officially launched in Beijing. It is the largest Chinese online music store, selling around 1 million tracks to more than 100 million Internet users and potentially 400 million mobile phone users in China.

Baidu.com, which has more than 60 percent of China's online search market, actually has been expanding its entertainment offerings in an effort to stay competitive in an industry where other Chinese websites combine search features with entertainment and games, industry analysts said.

In October 2006, Baidu launched a venture with Viacom Inc.'s MTV Networks to distribute music videos and other programming online.

"It's a win-win situation for both the search engine and the digital copyright holder," said Baidu's CFO Wang.

Both Baidu and EMI agreed that their venture might also help to reduce China's rampant music piracy by creating a legitimate alternative to websites that offer unlicensed music downloads for free.

Bowing to the Internet

"It is the milestone lawsuit that Baidu won against the seven record companies that has brought record companies to a reflection on the times and environment they are now living in, and it led them to see the real great potential of the digital music business," said Baidu's marketing director Ren Xuyang.

Some Chinese Internet industry insiders think that the traditional record companies began to bow to Internet companies because in the digital music era they can't do without Internet search engines. According to iResearch, a leading IT research company in China, the value of China's digital music business surpassed 4 billion yuan in 2006. On the other side, Hwang of EMI confessed that traditional record sales have been shrinking by a large margin.