Google, Record Labels Launch China Venture

Seems a lot of China’s citizens have download illicit tracks. Illegal music sites have dominated that country’s Internet landscape to such an extent that some Chinese artists have refused to record any more songs unless something is done about music piracy.

“This is the first really serious attempt to start monetizing online music in China,” said Lachie Rutherford, president of Warner Music Asia and regional head of the International Federation of Phonographic Industries.

Google’s new service will include 1.1 million tracks, including the full catalogs of Chinese and Western music owned by Warner, EMI, Sony and Universal. The new service will be operated by Top100.cn, a 3 ½-year-old Chinese Web site partly owned by Google. The plan calls for the site to sell advertising on its download page and split revenues with music companies.

To summarize, it’s a free, advertising-supported music site operating in a communist country. What could go wrong? Well…

On this side of the Pacific Ocean, the much talked about, ad-supported SpiralFrog closed its doors in March. SpiralFrog’s business plan called for users watching advertisements in exchange for music downloads. With a debt reported to be more than $34 million, the company went dark on March 19.

The new Google service in China will rely on banner ads to pay the labels, with about half of any revenue from banners going to record companies while Top100.cn gets the remainder. Google stands to benefit from increased traffic on the site, as well as selling its search ads on top of the page, according to the Wall Street Journal.

China has the world’s largest online population, and the Chinese government estimates more than 300 million of its citizens are Internet users. Despite all those people constantly pointing and clicking, online commerce is still in its infancy in China even though most of the country’s Web surfers are looking for music, games and other forms of entertainment.

One of the sticking points for operating the new service in China is a condition that’s sure to haunt Google and the labels in the States – mainly that providers abide by Chinese censorship and withhold songs that are banned by the government.

“When you’re in the music business in China you know you have to follow the regulations,” said Rutherford. “We wouldn’t give files to people in China (in situations) where a song has been banned.”

Google is no stranger to what is permissible in China. The Chinese government recently prevented its citizens from accessing Google’s YouTube, and has been known to block videos considered to be critical of government.

The new service is not China’s first online music operation. EMI launched a free streaming service with the country’s top search engine, Baidu, in 2007. The service also sells downloads for a small fee.

However, the lure of free, albeit, illicit music can be awfully strong. There have been plenty of pirate sites serving up free music in China for almost as long as that country’s citizens have had Internet access, even though the government has tried to halt their illegal commerce. So far it looks as if Google and the labels may have come up with a better mousetrap.

Kai-Fu Lee, Google’s Greater China president, told the Journal that, during the service’s testing phase, users either listened to streams or downloaded music about 1.5 million times per day. Now he hopes the number will grow to be “many, many times that.”

Click here for the Wall Street Journal article (subscription may be necessary).

Click here for Associated Press’ coverage.