China's 470 million internet users will soon be able to legally download more than half a million songs including hits ranging from Lady Gaga's Boys Boys Boys to Frank Sinatra's My Way.
The landmark deal between Baidu, China's version of Google, and three of the world's largest record labels ends a six-year legal battle about "notorious" piracy in the world's most populous country.
Under the terms of the deal, Sony, Universal Music and Warner Music will receive an undisclosed fee every time one of Baidu's millions of users downloads or streams a track online.
The deal comes after the record labels and US officials accused Baidu – which is by far China's biggest search engine handling almost 80% of the country's internet traffic – of "deep linking" customers to third-party sites that host pirated music. The US trade representative accused Baidu of providing a "notorious market" sustaining piracy in the world's largest internet market.
The International Federation of the Phonographic Industry estimates that at present 99% of online music in China is pirated. The rampant piracy has made it very difficult for music and film companies to make money in China. The global music industry collected $75m (£47m) in China in 2009 compared with $4.6bn in the United States, according to the IFPI.
Frances Moore, chief executive of the IFPI, said Tuesday's deal was an "important step forward".
Under the two-year deal between Baidu and One-Stop China, which represents the three record labels, more than 500,000 songs will be stored on Baidu's server and made available to stream or download. The companies refused to state how much money the labels will collect from each download. The labels will also collect a share of associated advertising.
The deal, which requires Baidu to remove its links to sites carrying pirated material, ends a legal case pending at Beijing's Higher People's Court. Jennifer Li, Baidu's finance director, said: "Baidu, the Chinese music fans, recording artists and the record companies will all benefit from this win-win partnership."
Kaiser Kuo, Baidu's director of international communications, said: "We've never wanted to stand there and thumb our noses at the recording industry. This is a watershed moment. It's a great way for us to deliver the best possible user experience by providing free and high-quality music and brings obvious tangible benefits to all parties involved including the label, artists and advertisers".
About 10% of the songs will be in Mandarin or Cantonese.
Baidu's shares, trading on the Nasdaq in New York, have more than tripled since Google's partial withdrawal from China in January after a dispute about government censorship in the country.
Earlier this month Baidu signed a deal with Microsoft to provide English-language search results, but they will be censored to meet the Chinese government's demands regarding controversial subjects, such as political dissidents, Taiwan and pornography.
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