China curbs Baidu healthcare ads business after student's death

Mon May 9, 2016 11:02am EDT
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By Paul Carsten

BEIJING (Reuters) - Chinese regulators have imposed limits on the number of lucrative healthcare adverts carried by Baidu Inc (BIDU.O: Quote) following the death of a student who underwent an experimental cancer treatment which he found using China's biggest Internet search engine.

Baidu's Nasdaq-listed shares fell more than 3 percent in morning trade on Monday following the move. Healthcare accounts for 20 to 30 percent of the company's search revenue, analysts at Nomura and Daiwa said, while search revenues represented some 84 percent of the web services firm's total sales in 2015.

Baidu's shares have dropped almost 14 percent since the controversy over the death of student Wei Zexi erupted at the start of the month.

The new rules mean the company must clean up in-search healthcare adverts and the positioning of paid-for search adverts of any kind cannot only be based on the highest bidder, said a statement from the internet, industry and health regulators which was posted on the website of the Cyberspace Administration of China.

The number of such adverts must also account for no more than 30 percent of a page of search results, the statement said.

"If they do enforce that, it would likely significantly cut into revenues," said Mark Natkin, managing director of Beijing-based Marbridge Consulting.

A spokeswoman for Baidu said it accepted the regulator's decision and it would implement the requirements placed on it following the investigation.

"This overhaul will affect Baidu's short-term interests," the company said in a statement.   Continued...

Baidu's company logo is seen at its headquarters in Beijing December 17, 2014. 
REUTERS/Kim Kyung-Hoon