Global media titans hit China wall, take local route

After years of banging their heads against China's bureaucratic Great Wall, global media giants like News Corp are getting the message: Beijing doesn't want them owning its airwaves.

That realisation has led to a subtle shift in the way the global titans do business in a market once hyped for its 1.4 billion potential viewers, with many compelled to get into bed with local partners, toning down their once-ambitious plans.

"The major theme is, the government is focused on promoting its local media to a scale and profitability that it can withstand competition," said Vivek Couto, an analyst at Media Partners Asia. "You can't do business in China as a majority owner: full stop."

The sobering new view came into focus this week with the announcement by News Corp, whose chairman Rupert Murdoch was once one of China's biggest cheerleaders, that it was selling control of its Chinese TV channels to a well-connected local private equity group.

"China's been a tough market for a variety of reasons including a very regimented market," said Tuna Amobi, an equity analyst at Standard & Poor's. "Then there's the bureaucracy which means it takes a very long time to get anything done."

Foreign media officials and industry watchers say Beijing, obsessed with information control and a desire to protect domestic media, has erected numerous hurdles to limit their presence.

China now limits foreign-owned channels to affluent Guangdong province for mass viewership. And even there, only News Corp's Xing Kong is a top 10 channel with 3-4% share, while channels backed by Viacom and Time Warner own just a sliver of the market after a decade on the air.

For all its efforts, News Corp generates just $40-$50 million a year in the market, while Viacom and CETV, the Time-Warner backed TV station, do about half that, according to estimates by media consultancy Media Partners Asia.

Analysts have said the News Corp retreat was financially negligible for the media giant, with China making up well under 1% of its $30 billion in 2009 revenues and a similar amount for the others.

News Corp chief Rupert Murdoch's wife Wendi Deng, who is originally from China, has played a role in seeking out new opportunities there but analysts have said without a local control partner even that link has limited advantage.

Officials from most of the media companies declined to comment on their China strategies for this story.

The foreign companies' experience in many ways parallels that of global Internet companies in China that faced similar issues, and likewise could have a similar ending, analysts said.

Google became the latest victim earlier this year, engaging Beijing in a spat that saw it ultimately shutter its China-based search service.

Before that, both Yahoo and eBay found the going against local rivals Baidu and Taobao, respectively, too tough. Amazon.com and Expedia also have little to show from their strategic investments in the market.

After running into their own Chinese wall, many of the Internet companies began to realise that local partnerships were the way to go, starting around five years ago.

Before going it alone in China, Google initially tried to buy Baidu in 2005. Yahoo put its lot in with Alibaba Group, owner of Taobao and B2B marketplace operator Alibaba.com, when it paid $1 billion for 40% of the group, also in 2005.

Another global player, South Africa's Naspers, has made a tidy profit in through its 34.5% holding in Tencent, China most valuable Internet company, whose shares have risen 17-fold in the since 2005.

The News Corp example could show that local tie-ups are the way to go, with foreign firms yielding control to Chinese partners to satisfy Beijing officials wary of foreign influence, said Media Partners Asia's Couto.

Before News Corp's deal, Time Warner went a similar route when it sold control of CETV in 2003 to Hong Kong's Tom Group. Many of the major media companies now also make money in China by selling programs to the likes of CCTV and Shanghai Media Group, China's top two broadcasters.

Disney has also found a niche in merchandising, running a chain of English language schools and in plans to build a Disneyland with the Shanghai government.

The less problematic India market is also attracting more attention from global media giants these days, though most insist they are committed to China for the long haul.

"Our view has always been to take a collaborative long-term view firmly based upon respect of Chinese culture," said Indra Suharjono, managing director of Viacom's MTV Networks North and Southeast Asia.