Monday, September 7, 2009

Is China Ready to Hold Accountable Infringers of Foreign Copyrights?

China's Ministry of Culture ("MoC") implemented on August 26, 2009 new regulations for online music. In what might be the first in a series of MoC rule changes, online music ventures are now required to obtain MoC approval in order to legally distribute imported online music products in China, including audiovisual files and mobile distributions.

Such new regulations may impact China's 338 million Internet users, as well as search engine and music services in China, including Sohu's SoGou, Alibaba/Yahoo! China, Google and Baidu, which was described in IFPI's 2009 Digital Music Report as "the biggest single violator of music copyrights and by far the greatest obstacle to legitimate digital commerce in China."

Barron's Tech Trader Daily blogger Eric Savitz says analysts disagree on the impact of China's new set of rules on "deep-linking" search engines such as Baidu. Savitz and other bloggers such as Caitlin Cimpanu of Softpedia cite Pali Research analyst Tian Hou's blog report that music searches represent 80% of Baidu’s traffic. Therefore, the new regulations may obligate Baidu to drastically change its business practices by linking only to licensed music services.

On the other hand, Savitz observed:
"UBS analyst Wenlin Ly... says Baidu believes the worst case scenario would be to remove the MP3 search button from its main page ... [and] MP3 search is now under 10% of query traffic."
The true Baidu music search traffic figures may fall between Hou and Ly's estimates. Leena Rao of Tech Crunch reported:
"According to comScore, Baidu had 145 million unique visitors in July of 2009 worldwide (with more than 95 percent of those coming from Asia), while its MP3 search engine attracted 47 million uniques, which is only 32 percent but still significant. For July, Baidu was ranking fifth amongst most visited search engines worldwide, behind Google, Yahoo, Bing and Ask.com."
Whatever the figures, music search and "deep links" compelled Baidu to become a licensed online music service when it obtained from the MoC a newly required "Internet culture license," according to spolkspeople for both the MOC (see the JLM Pacific Epoch blog) and Baidu (see the Wall Street Journal).

We must wait to see whether search engines such as Baidu comply voluntarily with other new MoC regulations, and whether China enforces such regulations in 2010. As The Wall Street Journal pointed out, the MoC is not responsible for enforcing copyright protection.

In the meantime, I endeavored to analyze Google's English translation of the MoC's Chinese language document dated September 4, 2009. [Is there an English language statement from the MoC of which I have failed to locate a copy?] According to my haphazard analysis of the Google-translated MoC document, online music services - including Baidu's deep linking service - must:

(a) Subject content to MoC "Internet Literary Review" with the goal of "purifying the online music market in China" by "strengthening the ban on obscenity, pornography, violence, superstition, and undermining national customs and other harmful social morality music"

(b) Submit "signed import contracts (agreements)" for MoC verification of compliance with "strict requirements" (e.g., "the authorization period of imported network music should be more than one year"). Such contracts which are not directly signed by Mainland China businesses are invalid.

(c) Deem online music from Hong Kong China, Macao Special Administrative Region and Taiwan to be imported

(d) Submit for MOC review by December 31, 2009 imported music that was previously distributed online in China

The MoC is now ambitiously obliged to review during the next four months untold multitudes of content including lyric translations for hundreds of thousands of songs, as well as license agreements and other documents. Is this possible? As one who analyzes music licenses professionally, I suspect China may underestimate the tasks at hand: censoring content and vetting worldwide copyright ownership and license agreements. Therefore, the process will continue well beyond 2010 and/or it will be unthorough.

In addition to announcing the new regulations described above, the MoC saught to:
  1. Further clarify the definition of "online music" as:
    (a) "music products" that are "not material entities..." and are "...digitally transmitted through the information network..." which includes "...the Internet, mobile communications network, the fixed communications network can be achieved via a variety of interactive, real-time communication, sharing of common information network."

    (b) including "not only the usual sense of the songs, music and other forms of digital music products, but also ... the content of the performance of music accompanied by images of the MV [music videos], Flash and so on."

  2. Set forth innovative and clear review procedures and requirements
    (a) The MoC introduced an online music registration system through which online music ventures may request MoC approvals

    (b) The MoC offers a "rapid 'review of access' system" to provide expedited 3-day approvals in certain cases

    (c) The MoC has adopted certain procedures to eliminate duplicate reviews of music content

  3. Clarify the responsibilities of online music ventures:
    (a) "The enterprise must establish a system of self-examination"

    [As an auditor, I caution the MoC against relying solely on music service ventures like Baidu to comply voluntarily with MoC regulations.]

    (b) "Users [who]... upload their own innovations of the network and performing music is not" subject to content review... "Domestic online music business units, especially in providing Internet users create their own compilation and performing services such as online music upload business units should be strictly in accordance with 'Interim Provisions on Administration of Internet Culture,' the provisions of Article XVII of the online music content to enhance the review, ensure that the provision of the legality of online music content." [sic]
This leaves me with dozens of questions, such as:
  • How do you think China's new rules will change the music market?
  • Will reportedly legal Chinese music services like Orca Digital and Google's Top100.cn become profitable?
  • Will Google China increase its search market share dramatically?
  • Will foreign territorries such as Hong Kong, Taiwan and the USA collect billions of dollars in copyright royalty payments from China?
  • Will Baidu and other reported purveyors of unlicensed music find a way around the new regulations?
  • If you are a music copyright holder, have you any deals directly with China?
  • Does anyone disagree with this on grounds of censorship?
  • Is this a "tax" or "disincentive" for music services to import music?
  • Will fewer regulations stimulate demand for domestic Chinese music?
  • What is popular in China's music markets?
The posts on this blog confer no rights or warranties. The opinions expressed on this site are my own and may not represent those of my firm. © 2009, Cedar Boschan. To request permission to reproduce, please contact boschan@royaltyauditors.com.

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