CCTV Criticism of China's Baidu May Mask Competition Issues

Series of shows slamming Chinese search company coincides with network's own search engine launch.

SHANGHAI -- Increasing scrutiny into China's top search engine company Baidu by state media is highlighting the fierce competition developing between traditional and new media over lucrative advertising dollars.

The barrage of criticisms could also signal Beijing's intention to toughen its anti-monopoly stance against Baidu and tighten regulations in the Internet sector as a means to enforce its official line, analysts said on Thursday.

"The impact of the new media is increasing rapidly and the ad spending on online portals and especially on search engines is rising almost 100 percent every year," said Autumn Zhu, an analyst with technology consultancy RedTech Advisors.

"But for old media like TV and print, the growth is flat."

Baidu has about 80 percent of all search market traffic in China, a nation with almost half a billion Internet users. It has been building its market share since Google Inc.'s high-profile exit from China this year after a fallout with Beijing over censorship.

Shares of Nasdaq-listed Baidu, which has a market value of nearly $50 billion, fell around 10 percent in the first two days of the week, partly on concerns over possibile fall-out from the criticisms. They edged up 0.8 percent on Wednesday.

Baidu earned 7.9 billion yuan ($1.2 billion) in online marketing revenue last year, up 78 percent from 2009, closing in on state-owned China Central Television (CCTV) that will book 12.7 billion yuan in prime-time advertising for this year, according to local media.

"Search engines have the most robust and developed online advertising platform. For sure they (new and old media) are fighting for ad dollars," said Zhu.

The state broadcaster, which recently launched a search engine of its own in a testing phase (search.cctv.com), ran a report on Monday accusing Baidu of having lax approval processes on its paid advertising platform that allows for fraudulent websites to flourish.

On Tuesday, it ran another report slamming Baidu for not policing its message board product Tieba for "slanderous" remarks. CCTV has also launched a website critiquing Baidu's bid ranking system.

Baidu declined to comment.

Duncan Clark, chairman of BDA, an Internet and technology consulting firm based in Beijing said Internet technology was a more pervasive threat for television stations because of their ability to steal influence and viewers from old media.

"It's more about relevance and particularly for young people, it's pretty dramatic if you look at the decline of TV viewership among young people," Clark said.

China's search market grew 62 percent in the second quarter to 4.3 billion yuan, with Baidu capturing almost 76 percent of the market, data from Beijing-based technology firm Analysys International showed.

CCTV has run negative stories on Baidu before. Last year, it accused the search engine of promoting counterfeit drugs and in 2008 it said Baidu sold links to unlicensed medical sites with unproven claims for their products, triggering a slide in the firm's shares and hit its fourth-quarter earnings.

CCTV has also run reports this year exposing counterfeit goods sold on Alibaba Group's Taobao, the country's top e-commerce website.

While the near term impact on Baidu shares is likely to be limited, a protracted campaign could indicate Beijing's desire to rein in the Internet sector and assert some control in one of the few industries in China that is highly privatised and with substantial foreign ownership.

The troika of Chinese Internet companies, Baidu, Tencent and Alibaba Group all have large foreign stakeholders.

"It seems like every few months there is a 'clean up the Internet' campaign and this may be part of something bigger," said Bill Bishop, an Internet commentator based in Beijing.

"If the government decides to invoke the anti-monopoly law and put regulations around advertising business then that will probably have a deleterious impact on Baidu's business," Bishop said.

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