* Baidu vows quick action to resolve matter
* Potential impact on stock depends on punishment
* U.S. says deep links create "notorious market" for
* Baidu to launch licenced music search in May
* Baidu shares jump 54 percent this yr vs 6.3 percent rise
(Adds analyst's quotes, Baidu comment)
By Melanie Lee
SHANGHAI, April 25 China's Ministry of Culture
will punish Baidu Inc for providing illegal music
downloads, a move that poses near-term risk to the firm's
soaring stock price.
Xinhua, China's official news agency, reported on Monday
that the government will punish 14 websites that have provided
illegal music downloads, including Baidu, China's top search
Xinhua reported that an official said the websites continued
to provide that illegal downloads despite repeated warnings not
to. Details regarding the punishment were not released.
"We are aware that songs require approval and have sought to
comply with previous notifications from the Ministry of Culture.
But search engine indexing is a continuous process and some
files may have reappeared in results," said Kaiser Kuo, a Baidu
spokesman, in an emailed statement to Reuters.
"Baidu will now take quick action to remove links to any
files that have been identified by the ministry," Kuo said.
Analysts said the move by China's Ministry of Culture may
rattle Baidu's share price in the near term as uncertainty over
the extent of the punishment lingers.
"There have always been legal issues with Baidu music," said
Dick Wei, a Hong Kong-based analyst with JPMorgan, adding that
the impact on Baidu would be clearer once the exact punishment
In January last year, a Beijing court cleared Baidu of
copyright infringement and said the search engine did not break
"This will have an impact on their stock price. I think
investors in the United States will react on this," said Fiona
Zhou, an analyst with Shanghai-based consulting firm Pacific
The legal risks to Baidu's various businesses have always
been its Achilles heel. In 2008, China's CCTV reported that
Baidu accepted money from shady medical practices. The report
led to broker downgrades and a plunge in the firm's stock price.
Baidu shares have risen 54 percent this year, outpacing the
6.3 percent rise in the Nasdaq .
Over the past few months, Baidu has been involved in a
dispute with a group of authors over its Baidu Library product.
The authors say Baidu reproduced their works without permission.
Baidu subsequently apologised to the authors and took down
the infringing material. The firm also said it would launch a
licensed music search service in May. [ID:nL3E7F61B5]
Earlier in the month, Baidu reached an agreement with the
Music Copyright Society of China (MCSC) to pay fees to the MCSC
for every song downloaded using Baidu Ting. The licensed music
service would be supported by advertising.
Baidu's Mp3 music search has been criticised by the United
States as being a "notorious market" for piracy over its ability
to provide "deep linking" to steer users to allegedly-infringing
material hosted on third-party websites.
(Reporting by Melanie Lee; Editing by Jacqueline Wong and Matt