Internet & Tech

Video nasty

Baidu’s boss in falling out with fellow tycoons

BAIDU/

Richest and best looking: Robin Li

In addition to being classed as China’s best-looking chief executive (a worthy category in Forbes China’s annual rankings), Robin Li was named the country’s richest man last week. The Bloomberg Billionaires Index said that Baidu’s founder saw his net worth increase last year by $4.8 billion, or 65%, to a little over $12.2 billion. That edged him just ahead of Dalian Wanda’s chairman Wang Jianlin in the Bloomberg polling.

The surge in Li’s wealth was fuelled by Baidu’s share price, which has jumped over 68% this year alone. The company, which reported a 42.3% year-on-year increase in revenue in the third quarter to $1.5 billion, now has a market valuation of $59 billion.

So it sounds like all must be fine and dandy for the web mogul? Not entirely.

Last week fellow internet tycoons including Ma Huateng, Victor Koo and Charles Zhang (chief executives of Tencent, Youku Tudou and Sohu, respectively) were spotted at a gathering to celebrate the launch of the Chang’e 3 lunar probe. But Li was conspicuously missing from the party. It’s not clear whether CCTV – the event host – invited him. But if Li had shown up, the small talk might have been a little awkward.

That’s because Tencent, Youku Tudou and Sohu filed a joint lawsuit against Baidu last month. They say that the search engine has been providing access to pirated content, and thereby infringing copyright laws. Also participating in the action is the China Film Copyright Association and the Motion Picture Association of America, as well as a few film studios. Together they are seeking compensation of Rmb300 million ($49.4 million).

“We will persevere. We represent justice and righteousness. The side that represents the truth is always going to be vulnerable but I believe that if we stick with it, we will see results,” Charles Zhang, Sohu’s boss, told Global Entrepreneur in what sounds like rather an emotional interview.

Qian Hao, an internet analyst, took a more hard-headed view. The lawsuit reflects an immutable truth, Qian wrote on his weibo: namely, that commercial interests will always prevail. That is to say that firms like Sohu are upset because Baidu’s actions are costing them money.

The biggest complaint against Baidu is that software like Baidu Yingyin, its media player, directs users to pirated content, harming the sites which have paid to show it. This hurts the profits of licenced content providers as they rely on huge traffic to attract advertisers.

“One third of our traffic flow was stolen,” Sohu’s Zhang laments. “That led to a drop in ad sales and we couldn’t even cover our costs.”

According to The Economist, the online video industry had revenues of Rmb9 billion last year but few firms were profitable. One reason is that bandwidth can be expensive. Another is that the costs of licencing content have been going up.

Earlier this month Tencent grabbed headlines when it won the bidding war for the online broadcasting rights for the third season of The Voice of China, the popular singing competition (see WiC162). Industry insiders believe that it paid at least double last year’s fee for the privilege, shelling out Rmb200 million to win the rights.

Sohu is also said to have spent as much as $100 million on buying content rights last year, while its rival Youku Tudou also paid $200 million for exclusive content during the same period, says Sootoo, an IT site.

That helps to explain why the video sites – once staggeringly laissez-faire in how they regulated their online material – are becoming some of the staunchest defenders of legal copyright.

The joint action against Baidu is also a strategic move designed to counter its aggressive expansion into online video, says Ding Chenling, a columnist for Forbes China. Earlier this year Baidu purchased a rival site called PPS for $370 million, merging it with its own iQiyi service to create China’s second largest online video provider behind Youku Tudou.

Worries about Baidu’s potential dominance may also have been sparked after its roll out of an internet TV product in partnership with manufacturing powerhouse TCL in September.


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