Over the past decade, the music industry has had a dramatic facelift with the mounting influence of the Internet, music-playing mobile phones and MP3 players. Meanwhile, the record companies are losing their grip on music publication and distribution. Sales of the traditional music industry have been declining consistently in recent years and many of the major record companies are approaching the bottom.

At the same time, the global digital music business is soaring. According to the International Federation of the Phonographic Industry (IFPI), an organization that represents the interests of the recording industry worldwide, global digital music sales in 2006 doubled those of 2005, reaching some $2 billion and accounting for 10 percent of overall music sales. IFPI also predicts that digital music sales will continue to grow rapidly and in 2010 will make up one quarter of total music sales.

One of the world's four record giants, EMI has not been doing so well in the digital music era. In 2005, EMI's digital music income accounted for less than 4 percent of its total. But the company is determined to catch up. With the digital music market exploding, EMI is sure to maintain its market share, EMI Group Chairman Eric Nicoli said in early 2006.

EMI did try hard to find new channels such as the Internet and mobile phones to expand its music business. In January 2006, EMI reached an agreement with the leading interactive entertainment media company in China, Shanda Interactive Entertainment Ltd., to cooperate on a digital music service.

Under the agreement, the Shanghai-based Shanda will offer its users music content from EMI through home digital entertainment devices and an online portal.

Hwang of EMI Music China said at the time that EMI is very optimistic about the future of the digital home and wireless service market in China, as consumers are more likely to enjoy music on mobile and personal entertainment devices in an era when music consumption is becoming more digitized.

Doubts remain

"Baidu's huge popularity in China has established the company as a powerful partner for foreign firms seeking exposure to the nation's large and growing Internet audience, which should make it a stock worth watching in the years to come," said Alyce Lomax, an analyst with the Motley Fool, a U.S.-based company that provides financial advice.

It remains unknown whether other record companies will accept such a cooperative business model as many of them are still worried about the persistent contradictions between them and the search engines. One music industry insider doubted that Baidu would stop providing illegal MP3 download links to songs other than the authorized content from EMI.

According to Feng Chujun, General Manager of wanwa.com, one of China's leading music and entertainment sites, such a cooperative model is merely transitional. After all, what a record company wants is to sell its songs to listeners, instead of getting a share of advertising revenues. "The biggest reason for Baidu and EMI to shake hands is piracy, which leads record companies to lose a lot of money in China's digital music business," Feng explained.

It's an inevitable trend that the record industry is finally embracing Internet companies, but the piracy concern hampers the depth and strength of their cooperation, said Shen Lihui, CEO of leading Beijing independent label Modern Sky.

"Anyway, this is a primary attempt to make the music legally digitalized. Whether it is a success or failure in the future, it offers at least a reference for cooperation in the digital music era in China," said Feng.