There's a battle of the bands taking place in China this week, as Google (NASDAQ:GOOG) launches free, ad-supported music downloads. Through its partnership with China's Top100.cn, Google will initially offer 350,000 songs for free from all of the major music studios.
If the selection appears skimpy, it's probably because major labels like Warner Music Group (NYSE:WMG) and Sony (NYSE:SNE) may be reluctant to make their entire catalogs available. Even if the alternative in China is typically piracy -- with legitimate sales accounting for just 1% of the music files being downloaded in the country, according to the International Federation of the Phonographic Industry -- the labels want to tread cautiously.
It's still a great move, as the industry realizes that a sliver of ad-sharing revenue is better than no revenue at all. However, why did the market take Baidu's (NASDAQ:BIDU) stock down 5% on the news? Does the market really believe that Baidu will sit idly if Google begins to gain traction here?
Baidu still commands roughly twice the market share of China's search queries as Google. One would expect Baidu to be an even more attractive partner for the record labels in delivering ad-supported downloads.
Baidu has been under the ethical heat lamp for its practice of assisting in illegal downloads. Baidu doesn't host the renegade music files, but its thorough search engine points users to third-party sites where the MP3s are available.
This has made Baidu a litigation magnet. Several labels bonded together to sue search-engine sites such as Baidu and Sohu.com's (NASDAQ:SOHU) Sogou last year, after a legal victory in China against Yahoo! (NASDAQ:YHOO).
Either way, the labels have to realize that Baidu would be a better ally than an enemy. And now that Baidu has been caught with its hand in the cookie jar, following last year's fiasco over running sponsored ads for unlicensed pharmaceutical companies, Baidu realizes that its shareholders start to hurt if the company doesn't embrace white hat techniques.
So it's OK to see Google give legal music in China a shot. Big G is really just the opening act. Hopefully, Baidu won't be too cocky in waiting to come out as the headliner. Impatient audiences can fairly quickly turn against the main attraction.
