Google's China Music Search Faces Tough Market - Analysts

BEIJING (AFP)--Google Inc.'s (GOOG) new China music search feature will solidify its foothold in the world's biggest Internet market, but massive music piracy could spoil hopes of catching up to market leader Baidu Inc. (BIDU), analysts said.

The U.S. Internet giant on Monday officially unveiled the China-only service, offering free downloads of licensed songs - a field dominated by Chinese rivals like Baidu.

Through an online ad revenue-sharing program and a partnership with a Chinese Web site, Google can distribute more than a million songs from over 140 music companies including Warner Music Group Corp., Sony BMG Music Entertainment, Universal Music and EMI Group.

"Google's sense of direction is improving in China, where entertainment is a more important element on the Internet," said Liu Ming, a Beijing-based analyst with research company BDA China.

This "will enable Google to better compete against local search engines like Baidu," he said.

China has the largest online population in the world - nearly 300 million at the end of 2008 according to Chinese figures.

Thanks partly to a music search service that drives up user traffic, Baidu holds about 70% of the search market - three times Google's share, experts said.

Google China president Kai-Fu Lee said at the new service's launch in Beijing that it completes the company's offerings in China.

"Today marks a historic moment for Google because we become complete by adding a music search to our service," he said.

But Google's move looks unlikely to have a dramatic impact, experts say.

"It will bring quite big pressure on Baidu. But it will be hard to change the market share position in the short term," said BDA China's Liu.

Music companies have long accused Baidu of providing pirated music and filed a series of lawsuits against the company, demanding millions of dollars in compensation.

Baidu, however, has said it only posts links to Web sites offering music downloads and has won previous rulings, while others are still pending.

The International Federation of the Phonographic Industry says up to 99% of all music downloads in China were illegal, costing record companies billions of dollars in lost revenue annually.

Analysts said Google's approach may represent a promising new blueprint for record labels in piracy-plagued markets like China.

"That's the future of the music industry. They have to offer free music online in order to fight against the piracy problem," said Elinor Leung of Credit Lyonnais Securities Asia in Hong Kong.

But Google will have little impact unless it can offer something close to the vast choice available in pirated music downloads, said Wei Guichuan, an analyst with CCID Consulting in Beijing.

"Users will not care too much whether the music is legal or not," the analyst said. "They will go with anything that meets their needs."