China To Crack Down On Online Piracy -- Does It Matter?

Harvard's Digital Media in Asia Blog just did a post on China's soon to be enacted online piracy law (July 1, 2006, actually), entitled, "China Stiffens Penalties for Online Piracy." 

These new regulations are aimed at stopping illegal downloading of movies and music over the internet and they mandate fines of up to $12,000 for such acts.  It appears the regulations will apply to online search engines that link to illegal MP3 files, but Digital Media in Asia believes the regulations lack sufficient teeth to have much impact:

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.

Sony BMG Music Entertainment, Warner Music Group Corp., EMI Group Plc and Universal Music Group sued Baidu, China's most- used search engine, last year for allowing free downloads of their music.

Digital Media then suggests that the major entertainment companies who were the force behind the enactment of these laws ought to be figuring out how to collaborate with the search engines instead of working against them:

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.

I do not know enough about this particular business to know whether Digital Media's suggestions make sense, but this is, in many ways very similar to Warner Brother's recent decision to greatly reduce the price of its DVDs in China so as to better compete with the knockoffs and to Adobe Software's policy of selling its software for less in China than in the United States. 

With DVD's selling on the streets of every major Chinese city for around $1 a piece and with CDs selling for even less, and with online pirating even more difficult to police, one has to wonder how much impact these not so tough new regulations will have on pirated entertainment in China.