Rupert’s a China bear

Rupert Murdoch is a man who usually gets what he wants. But for much of the last 20 years, one country in particular seems to have got the better of the veteran businessman. As Bruce Dover, author of Rupert’s Adventures in China, puts it, Murdoch “was forever in search of a good bargain.” But China has turned out to be no pushover, driving a pretty hard bargain of its own.

Last week News Corp sold a controlling stake in three Chinese television channels to China Media Capital (CMC), a private equity fund backed by the Shanghai Media Group and China Development Bank, both state-owned.

The television channels include general entertainment channels Xing Kong and Xing Kong International, as well as an MTV equivalent called Channel [V]. News Corp will also sell a majority stake in the Fortune Star Chinese movie library, which has hundreds of Chinese-language titles.

The sale is the clearest step yet of what has been a gradual retreat by News Corp from the China scene. Financial terms of the deal were not available, but the Wall Street Journal reported that News Corp will likely retain a stake in the venture of just under 50%.

“James Murdoch [Murdoch’s son] doesn’t believe that they can build a business in China – this is a clear sign that they aren’t interested in China anymore, but they can’t say that,” an industry insider told the Financial Times.

The sale may come as a surprise, given Murdoch’s phenomenal success in other countries like Australia, the US and the UK. But industry observers have noted preparations for a strategic climbdown for a while. Last year, News Corp reorganised its pan-Asia Star TV business into separate Star India and Star Greater China units. The company also downsized its regional headquarters in Hong Kong.

Murdoch first entered China in 1993, paying $950 million for Star TV, the satellite network owned by Richard Li, son of Hong Kong billionaire Li Ka-shing. His initial idea was to exploit Star’s satellite technology to beam Fox-style programming into Chinese homes (lucky them). TV advertising revenues were estimated to be over $3.4 billion in China at the time, with a negligible share going to foreign broadcasters.

But his relationship with Beijing quickly got off to a rocky start. Briefly forgetting his political audience, the media mogul declared in a speech that satellite-television networks – like the Star TV venture he had purchased – “have proved an unambiguous threat to totalitarian regimes everywhere.”

They proved to be nine of the most expensive words of Murdoch’s extensive career. The reaction was swift; a ban on the sale of private satellite dishes and a block on most mainland cable systems from carrying the channel. Murdoch, realising his mistake, began a decade-long quest to appease the Chinese leadership. First he dropped the BBC World channel from Star TV’s menu of channels. The British broadcaster had offended Beijing with a controversial documentary about Chairman Mao Zedong. Murdoch said at the time: “The BBC was driving them nuts. It’s not worth it.”

Then publishing house HarperCollins, also owned by News Corp, dropped a book written by Chris Patten, Hong Kong’s last British governor and no favourite in Beijing. News Corp also paid a hefty advance for a syrupy biography of Deng Xiaoping, then the paramount leader, written by his daughter. It also entered into a joint venture with the Party mouthpiece, the People’s Daily, for an online news site.

Murdoch’s was looking for a particular outcome: an audience with Jiang Zemin, then China’s president, in which to lobby for an end to the satellite ban that was costing Star TV so much in foregone revenue. The two finally met in December 1998, and the Chinese leader, a film fan, got a special treat, sitting down to an exclusive screening of Titanic, made by Murdoch’s 20th Century Fox.

Maybe Jiang was a sucker for a tear-jerker. But all that News Corp goodwill seems to have started paying off – sort of – when in 2002, Xing Kong (a Star TV franchise) was given permission to sell programming to cable providers in Guangdong province. Company executives hoped the new “landing rights” would be expanded to the rest of the country. Hopes were raised further in 2004 when Star TV was allowed to launch China’s first fully foreign-owned advertising company. Beijing later also gave the green light to foreign investment in TV content production.

Progress, then. But not, apparently, to the extent Murdoch would have liked. As Dover writes: “Persistence was never Murdoch’s weak suit; it was patience he could lack.” And by then it was running thin. Pushing the legal boundaries, Star TV tried to expand its distribution by striking a backdoor deal with Qinghai Satellite TV, a provincial broadcaster.

Using the remote Qinghai province as a base, News Corp then made efforts to distribute content nationwide. Beijing quickly caught on, and the State Administration of Radio, Film and Television (SARFT), the country’s media watchdog, forced Star TV to close down its operation within a few months. Dover – formerly a senior executive at News Corp –reckoned that the Qinghai fiasco probably cost Star TV another $30 to $60 million.

A month after the Qinghai deal soured, Murdoch, clearly fed up, admitted that he had “hit a brick wall”. He accused the authorities of being “paranoid” and of wanting foreign investors out of the media industry. Despite all News Corp’s efforts, the regulatory landscape seemed to have altered very little.

Rupert’s China odyssey wasn’t a complete write-off, nonetheless. While courting the Chinese leadership, he met and married Wendi Deng, his current wife (see photo). She became a key player in the company’s China strategy, although rival executives were not always complimentary about her efforts. Dover believed that Deng’s understanding of the industry’s opaque politics was limited, for example, and that she lacked personal connections. “She teamed up with the new stepson [James Murdoch] to initiate and advocate Chinese internet investments nearly all of which were later written off as total losses,“ he writes.

But the recent deal with CMC suggests that Murdoch is turning to a new chapter in his broadcasting adventures, and as a minority shareholder. That is some departure from the early 1990s, when News Corp, Viacom and Time Warner all had high hopes of becoming more dominant players.

Instead, the wheel seems to have turned full circle. Beijing is now promoting an investment drive overseas from China’s media firms, with hopes of expanding the presence of state television and other government-controlled media abroad.

Perhaps the best metaphor for Murdoch’s experiences is an anecdote from Dover’s book that describes the mogul’s unfortunate experience on the night of the Hong Kong handover in 1997.

The Australian was one of 4,000 VIPs invited to the official ceremony marking the change in sovereignty. Bored by the political speeches, he left early. But crowd control measures meant he was dropped off by a taxi in a Kowloon street rather than at the door of his waterfront hotel. The magnate walked around in the rain for two hours trying to find his accommodation. Finally arriving drenched and bedraggled at reception, he then had trouble getting past hotel security. Dover was called down to vouch for his identity.

Murdoch saw the funny side, but was rueful about his experience. He couldn’t seem to make himself understood to the locals, he complained, especially when he asked them for directions…

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