FDI ruling puts spoke in Murdoch's China plans

MUMBAI: Rupert Murdoch had put big bet on China, a market which he fancied would soon take over as the fastest-growing in the world with its sheer size of eyeballs.

Just as he was planning to step up further investments, the Chinese government has decided to tighten control of foreign participation in the local TV industry.

On 12 July, China's broadcast regulator State Administration of Radio, Film and Television (Sarft) came up with a regulation that puts a serious spoke in Murdoch's China script. Sarft's aim: to ban city and provincial broadcasters from co-operating with multi-national media companies on joint venture channels and equity alliances.

According to the regulation, local TV and radio stations should not rent their channels to foreign companies and also should not cooperate in funding and operating radio and TV channels with foreign organisations. It also bans any co-operation with foreign companies in the broadcast of regular and live programmes.

Other kinds of co-operation with foreign companies should first be approved by Sarft's provincial branches, China's official Xinhua News Agency reported. Four months ago, Sarft issued a circular to make clear that foreign companies should not be involved in operating TV and radio channels, although it allowed foreign companies to set up joint ventures in TV, film and radio programme production.

How does this impact Murdoch's News Corp? Qinghai TV, a provincial broadcaster, has abandoned plans to partner with News Corp in an equity-based TV alliance to broadcast nationally Chinese-language programming, local reports said.

According to Hong Kong-based Media Partners Asia (MPA), Sarft apparently has refused to approve the transaction, leaving News Corp in a fairly precarious position. "On a consolidated basis (excluding Phoenix and ESPN-Star Sports), Star, we estimate, is losing around $10-15 million a year in China. However, our estimates indicate that it could deliver total operating profits of $109 million in FY 2005, driven substantially by cash flow in India," the report says.

Star has legal penetration only in Guangdong ($300 million TV ad market) with 100 per cent owned Xing Kong and 37.6 per cent-owned Phoenix Satellite TV, according to MPA.

Sarft's regulation will have a negative impact on foreign investments in China. It may be recalled that Murdoch had, as part of an earnings conference call in February, said: "We've just taken an investment in a new venture which we'll be talking about more, where we'll have 50 per cent, I think, of a prime-time channel, which will have access to well over 100 million homes. That's yet to come."

The scenario has now changed. And the bad news Murdoch hears from China could turn out to be good for India. The question we are asking is: Will he up his investments in India, realising that China may have bigger growth opportunity but is a very tough market to crack with regulations that hinder growth? Or will he continue his dogged pursuit? Perhaps, he will let us know soon.

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