Music 2.0 - Exploring Chaos in Digital Music

One of the claims that Baidu makes is that it is the unwitting search engine that has no means to verify the legality of the music on third party sites it links to, but a new report on The Register shows that Baidu may have a little more to do with it than it lets on.

Where Baidu is infamously known for its illegal mp3 search, the signs are that its shenanigans are darkly extending beyond the music space. A backlash against China’s No.1 search engine, Baidu is brewing on multiple fronts, most of which are a reaction to Baidu’s dubious practices, some of which are illegal and others downright unethical and despicable

With around 70% market share in search in China, Baidu has seemingly actualized the nightmare scenario that others have warned is within Google’s power to unleash with its dominance and influence in the West. Whereas Google is at least guided by its unofficial “Don’t Be Evil” ethos, Baidu in China is unfettered by any such principles.

The Feudal Backlash

Reports in China are revealing that other websites are hitting back at Baidu, and these include heavyweights like Alibaba, Sohu and leading social networks, 51.cm and China’s Facebook clone, Xiaonei who have all announced that they are blocking Baidu from indexing their sites. As Media reports,

“While these portals and social networks assert their decision to block Baidu is based on users’ rights to privacy, analysts say much of their motivation comes from dissatisfaction at Baidu’s domineering web presence.”

Added Paul Denlinger of China Business Strategy,

“I find this excuse a real stretch. Since when has anybody worried about user privacy in China before? What guidelines do they use for protecting user privacy? This sounds much more like a desire to dial back the power of Baidu and its search.”

Whereas sites were willing to tolerate some of Baidu’s machinations, the straw that seemingly broke the proverbial camel’s back was Baidu’s announcement last week of its move into e-commerce and directly challenge not only Alibaba but other players too.

Rose-Tinted News Filter

Already in true Big Brother fashion, Baidu has been known to call up editors of news websites to take down unflattering news reports about it, with the unsaid retribution for non-compliance being a downgrading of news links to said news site on Baidu’s search – which would have disastrous advertising revenue consequences for the news site. Search de-linking of news negative to Baidu has proven to be de rigueur behaviour by Baidu.

And, it has been rumoured that non-subservient sites have been the unfortunate beneficiaries of Denial-of-Service attacks soon after….connect the dots, and the recognized pattern of a street thug manifests.

This clever maneuver and subversion of the truth is why readers and analysts have been unable to more easily find out about Baidu’s dubious modus operandi.

Update 17 Sep 08: More chillingly, the Chinese internet is abuzz with reports that Baidu had suppressed negative news on the developing tainted Sanlu baby milk powder scandal prior to Sep 12 for a purported fee of RMB 3 mil. If indeed, this was true, one shudders to think of the deadly consequences of their actions - however, Baidu itself has released a statement denying this, but their prior cut-throat behaviour of omitting news items certainly clouds the issue of the truth of the matter. It’s not our place to debate this particular incident further but more information on the matter can be gleaned from other search engines. (end of Update)

“Music Search” Fraud via Mysterious Websites?

Baidu’s rise to power first started with its illegal mp3 search engine which now brings 30%-40% of its entire search traffic. It is on the strength of this habit forming music search activity via Baidu that has not only led to 85% of all Internet users in China accessing music but upon which Baidu draws its traffic and reaps the benefits via advertising – a lucrative move which earned Baidu more than RMB 1 billion in 2007.

Where Baidu’s apologists have stated that it is simply a neutral search engine and it is not their responsibility to figure out if the so-called third party sites they link to are purveying illegal music, a small number of Chinese news sites and The Register report that

“a network of mysterious sites with closely related domain names contributed more than 50 per cent of the search links returned by Baidu. The songs hosted on the mystery sites were unreachable except through the Baidu search engine. Furthermore, infringement notifications resulted in unlicensed songs simply moving from one of these domains to another.

With Baidu’s illegal practice of deep-linking to these mysterious sites, as the screen shot of the process below shows, the user is not even brought to the third party mystery site hosting the illegal music file, and the download action appears superimposed upon the Baidu search window itself.

This begets the question of why any third party site (mysterious or otherwise) would risk prosecution for hosting illegal music files with no recourse to any revenues from advertising or other means when it can only be accessed via the Baidu mp3 search engine where the only beneficiary of this process seems to be Baidu. That the mysterious sites are actually closely related domains following a pattern and the illegal music files are moved around in an organized manner which as The Register noted,

“reduces Baidu’s administrative cost of policing infringement…Baidu can claim that it has complied with the take-down notice without removing the offending sites from its search index. …The net effect is that the MP3 song file in question is always available on Baidu’s MP3 search engine, despite any number of take-down notices by content owners, and Baidu’s MP3 search users are always gratified - keeping Baidu’s traffic flowing. Whoever the manipulator of these domain names turns out to be, the contents infringes PRC Copyright Law Article 47(1), and the hoster therefore bears direct and primary liability.”

With the common wisdom in the market being that music search engines in China with the exception of Google are actually secretly hosting the mp3 files in question, it is no surprise that the Hebei Copyright Administration and legal authorities finally managed to catch Baidu’s smaller rival music search engine Zhongsou in the act of hosting illegal music files on its servers. Employing laborious investigation to track down the servers and network of domains which were registered under false names of individuals, the copyright authorities had to then seize the evidence against initial ISP resistance.

It all points to a scenario where Baidu is allegedly hosting music files illegally but managing to mask this due to its superior technology proficiency which unfortunately it seems to be channeling into unethical, if not illegal practices. Just last month, Baidu announced that it is using Solid-State Drive storage, to replace its mechanical hard drives and though there are efficiency benefits, it would also serve to mask any incidences of Baidu’s hosting of illegal files. There are also indications that Baidu is actively blocking copyright monitoring agencies URL’s and denying them access from monitoring music search URLs by revising URLs with decoy codes.

Is Google Running Scared From the Truth?

There is every reason to believe that Google China with its undeniable knowledge of the search space knows exactly what is going on with regards to the true state of illegal hosting of files by other music search engines in China but chooses not to publicly state its views. Baidu has already played the nationalistic card once against Google with their campaign of claiming to know the Chinese language and users better than a foreign company like Google. With Google also facing accusations by American activists of collusion with the Chinese government, they are certainly caught between a rock and a hard place, and until they exercise the nuclear option of authoritatively revealing the truth about the illegality of music search engines in China, their recent attempt at introducing a limited legal music search engine is unlikely to change the force of habit of existing Baidu music downloaders.

Exploiting The Den of Thieves

International companies like Motorola, Nokia, Samsung, Lancome, Estee Lauder, Adidas, Puma,  Coca-Cola, Nissan and Nikon who themselves are intellectual property owners and are acutely aware of Baidu’s dubious legally challenged state with regards to music IP but yet they choose the duplicitous route of advertising on Baidu.

These advertisers are blatantly capitalizing on a thieves den and marketing directors of each of these companies are disingenuous if they claim not to realize the infringing nature of the environment which generates the traffic they crave. In certain cases, there is also the situation where the advertisers are averse to making any statements announcing a pullout of display ads from Baidu for fear of Baidu playing the nationalist card against them. Invariably, advertising dollars are certainly feeding the Baidu music piracy beast.

Blood Money

Baidu’s apologists will again claim that there are other Chinese or international companies that likewise cross the line into dubious territory, but Baidu’s chosen path dictates that its practises should be subject to greater scrutiny as The Register points out,

“Baidu’s decision to trade its shares on NASDAQ was a conscious decision to distinguish itself from the scrabble of Chinese internet entrepreneurs. A New York stock listing brings legitimacy - as well as blue chip investment. In turn, this raises questions of due diligence: the JP Morgans are simply investing somebody else’s money. Ironically, a significant portion of Baidu’s institutional shareholders and mutual fund investors are American companies, including blue chip investors such as US investment companies like Morgan Stanley, JP Morgan, Fidelity and Goldman Sachs.”

A reading of Baidu’s quarterly transcripts reveals that investors and analysts have conveniently chosen not to investigate the situation further despite the multiple legal lawsuits, one of which is an outstanding US$ 9 mil case brought on by the IFPI and major labels. With the possibility of fraud by Baidu, the failure by investors to undertake a more thorough due diligence of Baidu’s practices raises the question of negligence and the resulting riches that Baidu’s blood money has brought them, though not quite fully a matter of complicity, does point to a morally deficient but financially beneficial state that their inaction has brought about.

It is also laughable that the US Patents & Trademark Organization (USPTO) in China states that one of its missions is to advise the Chinese government on Chinese laws with regards to intellectual property while looking the other way as American institutional investment holders, mutual fund investors and venture capitalists pour money into and profit from legally suspect companies like Baidu. The US WTO action against China with regards to intellectual property infringements should likewise examine further the role of American financial interests in sustaining the very structures and channels that enable music piracy in China instead of adopting a myopic focus on the symptoms rather than the source.

The perpetuation of investment advice into these type of companies by offshore analysts who do not benefit from on-the ground experience in China and seeing first-hand the realities of dubious practices are doing the market – and truth - a huge disfavor. Neil Portnow, President of NARAS, the organization behind the Grammy awards who was in Beijing last month and after meeting the CEO of Baidu exhibited his limited knowledge on the subject with his pronouncement,

“Authority and impartiality are also the chosen rules by which the Grammies always abide by - Baidu’s Music Charts having wide recognition in the market can truly be called the Chinese Grammy.”

If the NARAS President believes that Baidu exemplifies impartiality at the level of the Grammies, then it certainly does not bode well for the Grammies’ reputation.
Rick Aristotle Munarriz of The Motley Fool especially would also do well to temper his enthusiasm of Baidu with a closer examination of the facts and realize that Baidu is not only not a neutral search engine but also loses legal immunity via its actions. The question that these investors and analysts should be asking and investigating is “who owns these mysterious music websites that Baidu is conveniently indexing and linking to?”

Update 18 Sep 08: David Wolf of Silicon Hutong/ Seeking Alph offers up some very sound advice for evaluation of partner companies in his posts “Being the Change: The Ethics of Baidu” and Baidu Report Raises Important Ethical Questions,

“At what point, we need to ask, does it become unethical to deal with a company that appears to be actively violating the law? Do you take a zero-tolerance approach? Do you wait for a criminal indictment? Do you do your own due-diligence? Or do you simply shrug your shoulders and say “I really don’t care what kind of people I do business with, as long as my company makes out on the deal?
These are not easy questions, but they are an example of the kind of issues a company needs to deal with in advance of doing business in China, or failing that, right now.” (end of Update)

The Last Post

With a looming war between Baidu and Alibaba, and also the escalation of Google vs Baidu on the music search front, it is inevitable that Baidu will be playing dirty, but for a NASDAQ-listed company that counts Morgan Stanley and Fidelity as its mutual fund investor and shareholder, it needs to clean up some of its more dubious practices especially with regards to profiteering from its illegal music activities.

One of Baidu’s more successful services has been “Baidu Zhidao” (Baidu Knows) and in keeping with the spirit of the service, it knows where the bodies are buried which we can only call ‘mysterious websites’ – the question is, does the trail of blood lead back to Baidu?

Disclosure: Maths’ involvement with Baidu lies bleeding in an unmarked grave on an unknown mystery site

Required Reading:

1. China’s Nonstop Music Machine- The Register
2. Baidu’s Deeplinking To Mysterious Sites, Who Owns Them - OneTwo Music
3. Baidu’s Ploy To Divide & Conquer Labels in China - Music2.0
4. IFPI Wrongly Blames Chinese Law for Baidu Loss But Wins Yahoo Case - Music2.0
5. Being The Change: The Ethics of Baidu - Silicon Hutong
6. Kidney Stone Gate: Baidu Denies Censoring Search Results - chinaSMACK

Credits:
All Images by Ghostbones except for Thirty Pieces of Silver courtesy of Devil To Pay

As the flame from the glowing beacon of communism in China was put out on Sunday, the abhorrent censorship practised by the hegemenous Great British empire reared its ugly head even before the Olympics has reached Brown British soil.

As part of the 8-minute segment accorded to The Great Britain’s London Olympics during the closing ceremony of the Beijing Olympics, overzealous and partisan organizers tried their best to present The Great Britain in a more positive light to counter accusations of repression during its continuing 500-year rule over long-suffering lands. The Great Britain, which had for a long time closed up the borders of its empire, which roughly spanned half the known world is attempting to use the Olympics to open up beyond the Hadrian’s Wall. After centuries of laddish-level intellect amongst the serfs and peasants brought about by the debilitating effects of the Agricultural Revolution, the counter-revolutionary Brown Guards effected the Education Revolution starting from 1966 when millions of drunks, druggie peaceniks, football hooligans and tramps were sent to Oxford and Cambridge to be educated aganst their will. 1966 is also celebrated by the party cadre as the birthdate of the Brain of Britain established to propagate education as the opium of the masses.

As a prelude to its coming out party in 2012, The Great British Olympic Ministry pulled off a shock selection in Beijing with suspected Battle of Britain German sympathiser Jimmy Page planted in the role of guitar-playing bus conductor. Page has rarely been seen in public since his anthemic “Whole Lotta Love” was used by protesting students demanding freedom from education during the violent crackdown by the counter-revolutionary Brown Guards at Trafalgar Square in 1979 as part of the so-called ‘The Wall’ riots. The Olympic Ministry (which also acts as the Propaganda Ministry) was intent on making a public spectacle of Page as they neutered “Whole Lotta Love” by first removing an inch, and then a mile by obliterating the entire third verse. To complete the humiliation, Page was paired with Brain of Britain dropout Leona Lewis whose only qualification to sing the song was that she could just about wear the pants on the shortened bit that Percy would otherwise have had to go to great lengths to pull off.

In true fashion, the 3rd verse celebrating the right to procreate or thereof was censored - which the more populous Communist countries like China obviously have greater freedom to enjoy - and human rights observers suspect that this was carried out by the dreaded Great Censor of Britain and government owned station, BBC Radio 1. At the same time, we are still checking slow-motion video replays and search engine cache documents for proof of the state-run organ, the BBC’s Top of the Pops Lip-Synching Department’s involvement in Leona Lewis’ performance.

In order to match the splendour of communist China’s magnificent Olympic ceremony, The Great Britain’s Olympic Ministry dumped initial director choice Steven Spielberg at the last minute for his suggestion of the use of a little yellow taxi entrance into the Bird’s Nest stadium. Instead, The Great London Bus being slightly bigger was sent in as a show of strength to impress Rows 1-23 of the North Stand of the Bird’s Nest before it transformed into an 80’s style Rose Parade float. Michael Bay, has already issued an official denial that despite the attempted similarity to his Transformers movie he was absolutely not involved and it is rumoured that he will refrain from any involvement with The Great Britain until Ireland is free. The London segment carried on with sinister Riefenstahl overtones with the use of oppressive umbrellas symbolising the tyranny of the English weather which the all powerful Great British government controls.

Censorship, lip-synching and demonstrations of weather control are just some of the portentous manifestations that The Great Britain exhibited in just an 8-minute segment. How much more oppressive democratic control do we need to experience before we call for a boycott of the London Olympics? London’s cadre representative of The Great Leader of The Great Britain, Boris Johnson ominously promised everyone “a big party” in 2012 as long as they joined the ruling party.

London was awarded the Olympic Games after promises to the IOC that it will allow greater communistic freedom to its citizens which we all ulimately hope will lead to the adoption of communism and freedom of Northern Ireland, Wales, Scotland, Falklands, Gibraltar, St Helena and Ascension Island, Tristan da Cunha, Pitcairn Island, Anguilla, Antarctic Territory, Bermuda, British Indian Ocean Territory, British Virgin Islands, Cayman Islands, Montserrat, Pitcairn Islands, South Georgia & South Sandwich Islands, Turks & Caicos Islands, Bradford and other oppressed parts of the empire.

The Great Britain has announced that it will reduce democratic controls and promises greater communist freedom to its citizens by 2012. Ping Pong is indeed coming home!

Recent actions by Apple in and related to China have highlighted a conflicted approach especially with regards to the music business namely that of Apple’s retail push of its iPod, and its Songs for Tibet album promotion initiative.

Songs for Tibet on iTunes

China-based consultant, David Wolf has written an extremely incisive article entitled Apple’s Bipolar China Disorder onSeeking Alpha with a contrarian view to everything else that has been written on the subject he aptly describes as,

Apple (AAPL) starts selling an album called ‘Songs for Tibet’ on its iTunes Music Store (iTMS), and it does it right in the middle of the Beijing Olympics. Coincidence, or passive-aggressive middle finger to China?

A bit of background first.
The ‘Songs for Tibet’ album first started selling on iTunes from Aug 5th, and right from the start of the Beijing Olympics, iTunes Music Store deigned it fit to place it at the top Recommended New Release.

As of Aug 19th, with a huge flurry of bipolar comments accompanying this album on iTunes and in China , few of which were about the music itself, and a statement from the organization behind the album, the Art of Peace Foundation that 40 athletes had downloaded the album, access to iTunes was promptly blocked in China, presumably by the authorities.

The Associated Press reported Apple China spokeswoman, Huang Yuna explaining it as, “We are aware of the logon problems but we have no comment at the moment”. Further to that, as pointed out by Business Week, amidst the flurry of comments on iTunes Music Store, an Apple spokesperson posted the following statement,

My name is Bryan and I understand that you have not been able to connect to the iTunes store for the last couple days and that you are concerned that it would be an issue with China blocking the iTunes store. I’m sorry to hear that and I’m happy to assist you with this today.
ITunes is not being blocked in China from our end, but access to the iTunes Store IS restricted in some areas in China. This would also explain why it’s happening to your friends there as well.
I would advise that you contact your ISP about this matter. Please also note though that accessing the US iTunes Store outside of the geographic region of the United States is not supported, and that attempting to access it while in China is at your own risk.
The iTunes Store Sales and Service Policies are available for you to review

Much as the subject is volatile, multi-dimensional and nuanced, I will concur with David Wolf’s approach and look at the business issue and steer clear of getting into a debate over the politics. Here are a few observations of Apple’s recent actions.

The Internet is global, and the US iTunes Music Store has been made accessible within China for purchase of music provided the user has appropriate credit card and accounts in place. It is thus duplicitous of Apple to claim that access outside of the United States is not supported, and at the very least we do know that other users globally are able to see what is offered on the US store and comment on it, if not buy it. As such, the issue is not that iTunes’ role as a retailer of the Songs for Tibet album or timing is being questioned. But it is more its conscious decision to place the album in the most prominent position available on iTunes right at the start of the Olympics which seemed premeditated and any claims of it being based solely on musical merits seem disingenuous as has been clearly obvious to all - and as events have borne out - it has been a lightning rod for provocation and political views as manifested by comments on iTMS and elsewhere with the music now being relegated to a secondary role.

Interestingly, the iTunes Music Store access was restored in China on Saturday, with the observation that Apple has relegated the ‘Songs For Tibet’ album from its previously prominent position to deeper within the store.

Update: We have confirmed that the whole album plus the accompanying video is available for download in China.

It has to be noted that the accompanying media hubris claiming that it was media pressure that has resulted in the restored access of the album in China is both disingenious and self-serving as it could also well be Apple’s act of reducing its hitherto overt promotion of the album that is the reason - but in the absence of a formal explanation by either Apple or the Chinese authorities, this remains a matter of conjecture. (David Wolf tries to present a chronological and balanced analysis of the whole issue in his long article Apple’s China Debacle: The Corporation as an Agent of Social Change)

In fact, the collateral damage as a result of the iTunes issue had also resulted in access to it on Amazon in China being blocked too, and at the time of writing, the digital album is available while access to the CD version is still blocked.

To put it into perspective, as access to the album is restricted to expatriates in China, this is very much an exercise in preaching to the converted and much of the hardheaded Western media spotlight seems to be misguided and only serves to harden and close up the locals to the issue.

The many foreigners working in China have a relatively clearer view of the issue - whether one likes the situation or not - and this has been articulated best by David Wolf,

I am sure there were valid marketing considerations behind the decision to sell ‘Songs for Tibet.’ I’ll even grant the (specious) possibility that there was a good business reason to do so during the Olympics. If not, Apple was certainly within its rights to make a political statement. But Apple - and its shareholders - must recognize that its own actions are sabotaging its efforts to build a market in China right as those efforts are showing fruit. Such a bi-polar approach to this market is not sustainable. Apple management needs to choose between developing China as a market or the freedom to engage in random acts of passive-aggressive panda-punching.
Making that choice, as much as real estate and labor expenses, is part of the cost of doing business in China.

iPods Feed on Music Piracy in China

Apple’s recent opening its first Apple store in Beijing on 19 July and its stated aim of opening more of the same throughout China reiterates its ambitions to make up for lost time and sell more of its products in China including its iPods which have yet to dominate China as it has in Western markets. As mentioned before here on Music2.0 even though Steve Jobs has spoken out against piracy by describing it as stealing and has positioned the iTunes-iPod pairing as Apple’s legal product offering, the fact is that in China, without iTunes access for local consumers, Apple is well aware that it is music piracy that is feeding the sales of iPod.

By claiming the higher moral ground and invoking the theories of karma against piracy and merits of the iTMS as an important complementary platform for the iPod, it is disconcerting to note that Apple then proceeded to market and distribute it in China based on the Winona Ryder-esque advertising platform of having a “1000 songs in your pocket” when the source of the music is clearly dubious - especially in the absence of iTMS. Even though there are other device manufacturers that operate similarly in this environment, Apple is held to a higher standard of their own choosing and thus seem to be courting bad karma in China.

Even if we were to give Apple some Brownie points and cut them some slack for trying, it is only in 21 countries where it has launched the iTunes Music Store as opposed to the many more countries where it has seen it fit to expend energy and resources to distribute the iPod. In huge swathes of the world where the iPod is distributed, there are no iTunes Music Stores or in the case of China, barely any viable legal music stores currently.

Will the Real Apple Stand Up?

Part of the conflict in Apple’s approach with regards to China could possibly be best explained as another example of parochial head office-centric policies handed down by supposed global companies that are inimical or incongruent to its satellite markets in which it also has interests in.
In fact, a prime example of this was best illustrated coincidentally by the actions of Apple’s global agency TBWA via a couple of unrelated ad campaigns. While TBWA China was preparing an Adidas ad expressing support for China’s Olympic success, TBWA France contrived to run an ad critical of China’s human rights purportedly for Amnesty France. The furor generated in China by the latter ads, possibly to the horror of the unsuspecting TBWA China team led to TBWA Worldwide hastily disowning the contentious ads and blaming a lone rogue person as the fall guy though conveniently, no mention of returning the Cannes bronze Lion award it won was ever mentioned. (Update: The Cannes committee has since seen it fit to withdraw the award)

But yet as shown by Apple’s willingness to sell iPods in countries with no iTMS or sources for legal music and with it a tacit acknowledgement that its iPods are repositories for pirated music, Apple has shown that it is flexible enough to suspend its policies and philosophies for profit outside its home market.

As Apple now embarks on its negotiations with China’s mobile carriers for its much vaunted iPhone to conquer the lucrative Chinese mobile market, both it and other holier-than-thou self-styled “don’t do evil” type companies have to realize that the Internet exposes inconsistencies in policies and with the world being far from a homogenous market not just in terms of buyer profiles but also socially and politically, as David Wolf summarized it,

“Apple has just learned that the choices you make across your business can affect your prospects in China. Success in China does not mean avoiding such conflicts, but in dealing with them intelligently and proactively.”

And these hard choices will ultimately end up as the cost of doing business in China – or not.