Baidu, China's largest search engine, signed an agreement with a joint venture owned by Universal Music, Warner Music and Sony Music to distribute songs through its mp3 search service, ending years of legal wrangling over charges that Baidu abetted piracy.
Baidu signed the deal with One-Stop China for its music catalogues and new releases that can be streamed or downloaded from Baidu's servers. Baidu also launched, Ting, a social music platform.
Music studios have accused Baidu of abetting piracy via its mp3 search that provided links for users to download pirated music.
Under the terms of the deal, Baidu will remunerate music content owners on a per-play and per-download basis for all tracks delivered through its mp3 search service and its Ting platform.
Our partnership with One-Stop China marks an exciting new beginning. I'm confident that Baidu, the Chinese music fans, recording artists, and the record companies alike will all benefit from this win-win partnership, Baidu's Chief Financial Officer Jennifer Li said in a statement.
Baidu said the agreement with One-Stop China was accompanied by a conciliation agreement endorsed by the Beijing High People's Court that ended outstanding litigation between all parties involved in the deal.
Kaiser Kuo, a spokesman for Baidu, said the company is in the process of uploading the music catalogues onto its servers but the firm will not be conducting a clean-up of the mp3 search site, meaning links leading to illegal music will remain for now.
Currently, a search for popular music titles on Baidu's mp3 search brings up a mix of legal and illegal download links.
Analysts said although the deal is incrementally positive, it could see Baidu paying more for content and the firm may not be able to generate revenue from Ting in the near term.
I think there will be a higher cost involved and I'm not very sure they can generate the revenue, said Wallace Cheung, a Hong Kong-based analyst with Credit Suisse.
China is the world's biggest Internet market by users with over 470 million netizens. Searching for music is one of the top activities Chinese users do whilst online. There were 362 million online music users in 2010, according to government data.
The deal is significant for the music studios who have seen little profit in China where piracy is endemic and pirated movie DVDs and music recordings are sold for under a dollar.
Earlier in the year, Baidu signed an agreement with the Music Copyright Society of China (MCSC) to pay fees to MCSC for every song downloaded using Ting.
Baidu also recently removed hundreds of thousands of infringing links from its Baidu Library product after a group of Chinese authors accused the search engine of not respecting copyright laws.
China's search market grew 62 percent in the second quarter to 4.3 billion yuan, with Baidu capturing 75.9 percent of the market.
(Reporting by Melanie Lee; Editing by Ken Wills and Vinu Pilakkot)