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EMI Signs Deal With Baidu, Will Drop Lawsuit Appeal
By John Liu and Janet Ong,

EMI Group Plc., which lost a copyright infringement lawsuit against Inc., will drop its appeal and work with the Chinese Internet search site to win advertising by offering free online samples of its music.

Baidu will sell online ads for a section of its Web site featuring streaming samples of EMI's Chinese-language music, the Beijing-based company said in a statement today. EMI and Baidu will share the ad revenue, they said, without providing details.

The agreement with Baidu, which has triple the market share of closest rival Google Inc. in its home market, may help London- based EMI boost sales in China, where 90 percent of music is pirated. EMI, Sony BMG Music Entertainment and other companies have been in talks with Yahoo! Inc.'s China unit on ways to distribute music in the country, while guarding against piracy.

"A traditional business of making people pay for music downloads is not going to work in China," Florian Pihs, assistant vice president at Beijing-based research company Analysys International, said by telephone. "Using music to attract users has more potential."

Baidu and EMI, the U.K. record company that signed the Beatles, will also explore setting up a music-download service that is free for users and generates revenue through advertising, Baidu said. Unlike downloadable files, the streaming music EMI offers with Baidu can't be saved to users' computers.

EMI is also talking to other Internet companies in the Asian nation about similar partnerships, Michael Hwang, chairman of the record company's China unit, told reporters at a press conference in Beijing. The company signed an agreement with state-owned Shanghai Media Group two months earlier to sell music over the Internet and cell-phone networks.

Dropping Lawsuit

EMI is planning to drop out of an infringement lawsuit brought against Baidu by record companies on claims the Web site violated copyright by offering links to illegally copied music on non-affiliated sites. The suit was filed in September 2005 by companies including EMI, Sony BMG Music Entertainment, Warner Music Group, and Universal Music Group.

A Beijing court ruled in November that Baidu had not infringed copyright because it provided online links and not direct downloads of pirated music. The International Federation of Phonographic Industry, which represented the record companies in the case, said it would appeal the ruling. EMI's Hwang said today that his company wouldn't take part in the appeal.

Sales of pirated music, which account for 90 percent of China's market, are worth $400 million annually in the country, according to the music federation.

Legal Precedents

Yahoo China began talks with record companies after the music federation threatened to sue the Web site last July because it offers links to illegally copied music on non-affiliated sites. Corp. took over Yahoo China in August 2005 when the Chinese company swapped a 40 percent stake for Sunnyvale, California-based Yahoo's China unit and $1 billion.

An Internet company could still be sued and lose an infringement case in China for providing links because the nation's legal system is not based on case law and legal precedents, according to Jasper Zhang, a partner at Zhong Lun Law Firm in Shanghai.

EMI's digital music sales rose 78 percent from a year earlier in the six months ended Sept. 30, compared with a 5.2 percent decline in total music revenue. EMI said Jan. 12 that sales for the year to March 31 may drop by as much as 10 percent.

China, the world's second-biggest Internet market after the U.S., had 132 million Internet users on Dec. 31, the official Xinhua News Agency reported. Sales of online ads may rise to 11.8 billion yuan ($1.5 billion) in 2008 from 5 billion yuan last year, according to the Internet Society of China.

Baidu had a 57 percent share of the Chinese search market in the third quarter of 2006, Google had 16.4 percent and Yahoo! Inc.'s China unit had 13 percent, according to Analysys.