Baidu Faces the Music

In a decision that is no doubt music to Baidu's (Nasdaq: BIDU  ) ears, the No. 1 Intermediate Court of Beijing has ruled in its favor in a lawsuit stemming from illegal MP3s downloaded as a result of searching on China's leading search engine.

The International Federation of the Phonographic Industry will naturally appeal the ruling, in hopes of curbing the rampant piracy that has long plagued the world's most populous nation.

Going after the search engine instead of the illegal downloading sites may seem like a peculiar strategy. Stateside, the legal attacks were aimed at peer-to-peer file-swapping networks like Napster and Grokster, before ultimately moving on to the individual users. For the most part, domestic search heavies like Google (Nasdaq: GOOG  ) and Yahoo! (Nasdaq: YHOO  ) escaped intensive scrutiny despite typically serving as the launching pad for searches for the files or network sites.

To Baidu's disadvantage, much of its site activity stems from song searches. According to Alexa.com, 15% of the traffic at Baidu takes place at the mp3.baidu.com subdomain. That may not seem like a lot, but Baidu is China's most popular online destination, and the fourth-most visited site in the world.

Still, the initial ruling dovetails nicely with Baidu's recent agreement with Viacom's (NYSE: VIA  ) MTV, in which Baidu will stream music videos as both a premium and free ad-supported service. China's five major labels are all on board with the revenue-sharing deal. The move may be the kind of olive branch that ultimately gets Baidu and the labels working together to cull new revenue streams, instead of going for each others' throats in the courtroom.

That would be the ideal situation, because the Internet revolution -- like China's economic boom -- is still in its infancy. Working with Baidu is bound to be more lucrative than working against it. In musical terms, why go for a solo project when the future sounds better harmonized?

Baidu was singled out toRule Breakersreaders in last month's issue and has already gone on to soar 29% higher. Yahoo! has been recommended toStock Advisorsubscribers. What two new picks were singled out this week? A free trial subscription will clue you in.

Longtime Fool contributor Rick Munarriz has been a fan of China's growth stocks for several years now. He does own shares in Baidu. He is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.The Fool has a disclosure policy.


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