CCTV's Baidu exposé hints at the start of 'Search Wars II'

Baidu has responded via television to CCTV's barrage of criticisms, explaining that advertiser fraud on its website was the result of individual misbehaviour and did not reflect company policy.

"The company will pay more attention to the issue and conduct an internal investigation," the TV statement said. "Baidu will seriously deal with any behavior that violates corporate regulations."

Over the past week, CCTV's exposé on Baidu's approval processes allowing fabricated advertisers on its paid platform later spread to disclosures of Baidu’s bidding system for keyword advertisements.

This smells of a repetition of history. Back in 2008, a similar investigation by CCTV led to the revamp of Baidu's advertising system known as Phoenix Nest. Baidu then rejigged Phoenix Nest to douse criticism about a lack of clear separation between sponsored and ‘natural’ search results.

Fraudulent advertising is not an issue unique to Baidu, with Google also being a victim to fraudsters in the past.

However, this time round, the negative coverage has coincided with CCTV’s soft launch of its own search engine. The beta version went live on 15 August without any public announcement. 

David Wolf, chief executive of marketing strategy firm Wolf Group Asia told Campaign that CCTV is launching its own search engine because Google's earlier withdrawal from the Chinese market creates an opening among both users and advertisers for a competitive offering. "With TV spend in China in relative, if not absolute, decline, CCTV wants to get into the online game in as many ways as possible," he said.

CCTV and Baidu are not alone: Xinhua and The People's Daily have also thrown their hats into the ring with their own search engine versions - Jike and Panguso - though they have had little success in encroaching Baidu's throne so far.

James Roy, senior analyst at China Market Research explained to Campaign these search engines when compared to Baidu do not deliver appropriate results, especially in Chinese language searches. "Every search engine other than Baidu in China is a back-up search engine," Roy said.

Statistics show Baidu to be the undisputed leader of China's internet search engine market, with a lion's share of 75.9 per cent in a market size of US$676 million (RMB4.32 billion), as of the second quarter of 2011.

Interestingly, the CCTV blast also occurred ahead of its upcoming annual auction of advertising slots on 8 November.

In the broadcasting realm, CCTV may still be ruling the roost, but its reign may be diminishing in the fierce battle for eyeballs and advertising proceeds.

In 2010, Baidu earned US$1.2 billion (RMB7.9 billion) in online marketing revenue, up 78 per cent from 2009, driven by increases in both the number of active online marketing customers and revenue per customer.

That is a close runner-up to CCTV which booked US$1.9 billion (RMB12.7 billion) in prime-time advertising space for this year, amounting to an increase of 16 per cent from 2010.

Indeed, Zhou Wei, CFO of media-focused ad agency Charm Communications told Campaign the results of CCTV's upfront advertising auction are typically a barometer for the confidence level and health of the media industry in China. He said Charm had noticed a willingness among a majority of domestic advertisers to include online advertising in their media planning, rather than merely TV ads.

In the wider scheme of things, this highlights a tussle between traditional media and new media.

"The impact of 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, the growth is flat."

Media forecasting firm MagnaGlobal expects ad revenues this year to rise by 18.8 per cent to US$28.8 billion (RMB182 billion) in China, making it the world’s third largest advertising market. The money is apparently pouring into online advertising, which is estimated to grow by 24.6 per cent in 2011-2016, as opposed to 18.9 per cent for broadcast television advertising over the next five years.   

Duncan Clark, chairman of technology consulting firm BDA told Reuters the internet is a more pervasive threat for television stations because of their ability to steal influence and viewers from old media. "It's pretty dramatic if you look at the decline of TV viewership among young people," Clark said.