China imposes stiff penalties for online piracy

New regulations go into effect July 1 in China targeting distributors of unauthorized content online. The regulations, which carry a maximum administrative fine of approximately US$12,000, target search engines like Baidu, which are the backbone of online file sharing in China, as millions of users can search the various Chinese search engines for links to thousands of unauthorized copies of songs and movies.

Bloomberg.com quotes one analyst as saying that “Baidu will be under a lot of pressure to stop offering links to illegal MP3 files and may have to stop their MP3 search service.” Stop offering links to illegal MP3 files? I don’t see it. Providing links to unauthorized content is a cornerstone of Chinese search engine revenue–not just for Baidu, but for all the Chinese search engines. A $12,000 fine is not going to intimidate any search engine; they’ll just chalk it up to the cost of doing business.

But they’re painted into a corner, and effectively, copyright owners have forced their hand. These search engines want to go legit and play ball with copyright owners. But if Baidu were to give up its MP3 links, as the analyst quoted above suggests, they’d be committing suicide. The other Chinese search engines would gladly take Baidu’s share of the music search traffic, administrative fines and all. Copyright owners are not going to win a shoving match with search engines.

But, in the words of Obi Wan Kenobi, “You can’t win. But there are alternatives to fighting.” For example, search engines have offered to give copyright owners a portion of their ad revenue in return for licensing the content, but the major entertainment companies will have none of it. Some Chinese record companies–like Taihe Rye, a successful domestic Chinese label–recognize that online piracy is a fact of life and business, so Taihe has made special arrangements with Baidu to clamp down on pirate links for the first two weeks after a new release. This allows Taihe to capture the majority of its expected revenue from a release while not eviscerating Baidu’s revenue or market share. $12,000 fines won’t do it. Frankly, even bigger penalties are unlikely to have much effect. But copyright owners have alternatives.