Beijing — Internet search colossus Google Inc., on Monday began formulating its new music search service in China offering free downloads of licensed songs by renowned artists including more than 140 other independent labels, while sharing advertising revenue with major music labels in an attempt to counter a market plagued with online piracy, Google said in a statement distributed at a briefing today in Beijing.
Google asserted that the long-awaited ad-funded music download service is the “key missing piece” for its China operations.
The new venture by the Internet giant and record-label associates, which formally began operating from Monday after seven months of testing, will be free for Chinese users only. The service empower users to download and save songs from record companies such as Warner Music Group Corp., Sony Corp., Universal Music Group, EMI Group Ltd., and offering songs by artists including U2, Beyonce and Kanye West in a market filled with almost 300 million Web users.
Lee Kai-Fu, president of Google in greater China, said one reason Google hindered in the mainland search market was because it did not offer music downloads, the missing piece to its strategy in a market where it trails leader Baidu.com Inc.
“We are offering free, high quality and legal downloads,” Lee said in a statement. “We were missing one piece … we did not have music.”
The service proffers downloads of some 350,000 songs — from Chinese and foreign artists — a number that will rise to 1.1 million in the coming months, said Gary Chen, chief executive of Google’s partner www.Top100.cn, a Chinese music website co-founded by basketball star Yao Ming.
Google and its associates anticipate that the service will attract users away from Google’s Chinese competitors, especially Baidu Inc., which has a dominant share of search revenue in China. Baidu and other Chinese search sites have generated significant traffic through specialized search pages that help users find and download unlicensed music tracks from the Web.
“I can not overstate how important” the new Google service is, said Lachie Rutherford, president of Warner Music Asia Pacific and Asia chairman of the International Federation of the Phonographic Industry (IFPI), which is making its entire global catalog available in China as part of the deal. “This is the first serious attempt to start monetizing the online market in China.”
Rutherford said Warner Music would be open to using a free, advertising-funded model like the Google one for online music in other markets besides, although Google says it currently has no plans to extend the service beyond China.
It will collect revenue from advertising on pages that enable users to download or stream licensed music from more than 140 labels, including the world’s four biggest: Warner Music Group Corp., Vivendi SA’s Universal Music, EMI Group Ltd., and Sony BMG Music Entertainment, a joint venture of Sony Corp. and Bertelsman AG.
Users will be able to search by musical scalings such as the level of “beat” in a song and “instrumentality,” as well as by artist and song name.
IFPI said last year that more than 99 percent of all music files distributed in China are pirated, and the country’s total legitimate music market, at $76 million, accounts for less than 1 percent of global recorded music sales.
“Ensuring that users have access to legal sources of music is the cornerstone for our development of Google Music Search,” said Lee.
The new service will draw away users from illegal download sites because the music and service will be of a higher quality, said Warner’s Rutherford.
“It is really a case of innovate or die for the music companies in China,” said Duncan Clark, chairman of Beijing- based research company BDA China Ltd. “It is hard to get the younger generation to pay for music.”
Google is has also partnered with Top100.cn, a Chinese Web site in which Google owns a stake. Executives would not say how big that stake is. Record companies will take roughly half of any revenue from banner ads placed on the page users see when they are downloading or streaming songs, with Top100.cn taking the remainder. Google could benefit from increased traffic on its Chinese site, and can sell its trademark search ads on the search page.
Top100.cn Chief Executive Gary Chen said the Google music service now has 350,000 songs available, and will have over a million within a few months. Lee of Google said that users were downloading or streaming songs around 1.5 million times a day by the end of the service’s testing phase, and he hopes the number will eventually be “many, many times that.”
Rutherford of Warner Music said the Google China service would also allow advertisers to accurately target specific demographic groups in a country where a state television monopoly and diffuse local ad markets have made that task difficult for many advertisers.
Downloads of unlicensed music and videos are quite enormous in China, the world’s biggest Internet market by number of users.
While Google dominates the global web search market, in China Baidu holds more than 60 percent of the market, more than double Google’s share.
In a statement Monday, Baidu said it is “constantly looking into ways to further the development of China’s digital music space,” and “will continue to evolve our model to best serve users and content producers.”
China had 298 million Internet users at the end of 2008, according to the government-backed China Internet Network Information Center. It crossed the U.S. to become the world’s biggest Web market in terms of users in the first half of last year. As many as 71 percent of Web users in China have downloaded music, according to IFPI’s 2008 annual report.
No financial details were disclosed.