Sweet harmony

The long dispute between music labels and search engines may come to a satisfactory conclusion for all parties as Google Inc recently launched a new service in China that enables users to search and download licensed music for free.

The new service, on which Google has been working with Chinese domestic music company Top100.cn, enables Chinese users to use Google's search page to find tunes by singers, song titles or albums and download the music from Top100.com.

Google will share the advertising revenue generated by the search traffic with label companies and Top100.cn, in which Chinese NBA star Yao Ming has investments. The service will be limited to China, according to the company.

"The Internet should not be the enemy of the music industry," says Lee Kai-fu, president of Google China. "In our cooperation with Top100.cn, we are trying to strike a balance among players in different industries and to work out a business model in which everybody wins."

According to research firm CNNIC, 84.5 percent of China's 253 million Internet users listen and download music from the Internet, making it the most popular application among Chinese net surfers.

Google's major competitor Baidu Inc has had a similar service for years, and it makes up an estimated 30 percent of the search engine's traffic. But Baidu lacks support from major music labels and as a result has been involved in several lawsuits during the past few years.

"The cooperation between Google and Top100.cn proved that the Internet can help the development of digital music," says Qu Jingming, secretary general of Music Copyright Society of China (MCSC), which launched a lawsuit earlier this year against Baidu. "The deal is expected to create a legal online music market that may benefit consumers, Internet companies as well as music labels."

Internet vs music labels

With the rise of the Internet and digital music, music labels are being forced to transform their business model from selling CDs to selling digital music via the Internet.

But online music piracy, including illegal music downloading and music sharing through P2P (peer to peer) software, has made it difficult for record companies to compensate for their losses as CD sales decline. According to Nielsen SoundScan, US album sales for the entire industry fell 11 percent in the first six months of the year due to illegal downloads and piracy.

In China, the music industry is also in a slump. According to figures from IFBI, the global music industry association, the turnover of China's legal music industry reached 528.2 million yuan in 2007, a decrease of 10.4 percent over 2006.

Although the sales revenue of digital music in the country reached 242 million yuan, 62 percent of it came from ringtone sales from mobile phone users. Revenue from music downloads in China only accounted for 4 percent of the country's digital music industry.

"The low penetration of credit cards and online safety has thwarted the development of online music in China, but the biggest problem in the country is the rampant of online music piracy," says IFBI in its latest report.

In China, there are hundreds of small and medium-sized websites that provide illegal music downloading. The MP3 search service provided by Baidu has made it even easier for Chinese users to search these sites and web links to download songs. It's one reason why Baidu has become the most popular search engine in the country.

Although the world's major record companies including Sony BMG, Warner Music and Universal Music, have launched lawsuits against Baidu Inc, they seldom win as the search engine claims that it only provides web links, rather than downloading services, and it is the music downloading sites that should be held accountable for the piracy.

That has lead to a disparity of record companies when it comes to dealing with Internet companies. EMI Music, for example, announced last year that it would form a strategic partnership with Baidu Inc for online music streaming services.

On the other hand, the US digital music distributor IODA (Independent Online Distribution Alliance), tied up with Chinese digital music distribution firm R2G earlier this month to offer paid music downloads on R2G's website.

"I think in the next ten years, the free music downloading services and paid-music downloading services will co-exist in China," says Chen Ge, CEO of Top100.cn.

"The free business model will cover 90 to 95 percent of the users while the paid music downloading services will be backed by the rest users who have higher incomes and a demand for quality music."