Baidu: Addicted to Piracy 百度：沉溺于盗版

By newsdoug on March 16, 2012

Baidu (Nasdaq: BIDU) may be China’s undisputed Internet search leader, but new reports circulating about an abrupt collapse of talks over a new video partnership illustrate just how dependent this company is on less-than-ethical business practices like piracy and stealth advertising for its rapid growth. Chinese media are reporting that Baidu has ended discussions that would have brought online video to its service through a new partnership with LeTV (Shenzhen: 300104) after Baidu refused to LeTV’s condition that it eliminate pirated video from its video search site results. (English article) While other major Internet sites seem to be making a real effort to eliminate pirated music, video and other copyrighted material from their sites, Baidu has made some high-profile announcements to try to convince people it is making similar moves, while quietly allowing pirating activity to continue unabated on its sites. The company announced a major new initiative last year to offer legal music over its site in a tie-up with several major record labels, only to add it had no plans to simultaneously close its older popular music sharing site where piracy is so rampant that the major global music labels filed a lawsuit against Baidu several years back. (previous post) This latest development just underscores how addicted Baidu is to piracy, one factor that has helped it to triumph in the domestic search market over global players like Google (Nasdaq: GOOG) and Yahoo (Nasdaq: YHOO), ,which actively police their sites to keep off pirated material. This addiction to piracy is just one of Baidu’s less-than-ethical practices. The other big one is its reported willingness to manipulate search results for anyone willing to pay for such services. That includes not only giving advertisers high placement in search results without telling web surfers that such high placement was paid for, but also reportedly other things like conveniently removing negative news from search results for any individual or company that is willing to pay. So why does Baidu engage in such practices when clearly they go against international standards? The answer is simple: because it can, and because such practices are one of the main drivers for the high growth rates have made Baidu stock a darling of investors. I have no doubt that Baidu will continue to engage in such practices, and a smart, well-funded competitor like Google or Tencent (HKEx: 700) should take advantage of the situation to launch a campaign to inform the public and steal some of Baidu’s traffic. But that looks unlikely to happen anytime soon, meaning Baidu will continue with its current practices for the foreseeable future until someone — be it consumers, a rival or the government — finally steps in and says “enough is enough”.

Bottom line: The break-up of talks for a online video tie-up between Baidu and LeTV underscores Baidu’s dependence on piracy as a major driver of traffic to its site.

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