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Rupert Murdoch’s News Corp (Nasdaq: NWSA, NWS) ended its stormy love affair with Chinese television late last week, when it sold its last remaining major asset to a private equity firm. The company’s gradual withdrawal over the last 3 years underscores the difficulty that many western media firms still face in China’s TV market despite rapid changes over the last year. Domestic and foreign companies alike need space to act more commercially in a streamlined regulatory environment for China to develop a truly world-class industry that can someday challenge the dominance of Hollywood.

Murdoch and many other western media firms were once extremely bullish on China, coveting the potential of its huge TV audience of 1.3 billion potential viewers. But those companies were ultimately marginalized due to their failure to understand the market’s complexities, with the result that few have made any major headway and many like News Corp may now be leaving altogether.

News Corp announced its final departure from China’s TV market when it said late last week that its Star Entertainment unit had sold its remaining 12.15 percent stake in Phoenix Satellite Television (HKEx: 2008) to TPG, a major US private equity firm. (Phoenix announcement; TPG announcement) Based on Phoenix’s latest share price, the sale would have been worth about $220 million.

The sale marks the end of News Corp’s slow divestiture from Phoenix, which was News Corp’s last remaining major TV asset in China. The company still owns 20 percent of Bona Film, a movie maker and theater chain owner, which is worth less than $100 million.
News Corp and Phoenix were 2 of the first major foreign media firms to enter the China TV market more than a decade ago, when they were among 4 overseas companies granted landmark licenses to operate channels in southern Guangdong province. But despite high hopes at that time, the companies were never able to expand far beyond Guangdong, where they faced competition from a wide range of channels from around China and also from popular Hong Kong TV stations.

After years of unsuccessful trying to expand its business, News Corp started selling its Phoenix Satellite holdings. In 2006 it sold 20 percent of its original 37.5 percent stake to China Mobile, and it sold another 5.3 percent earlier this year. In 2010, News Corp also sold a controlling stake in its wholly-owned China TV channel to a domestic consortium that included Shanghai Media Group, China’s second largest broadcaster.

Among the other 2 original foreign TV licensees, Time Warner (NYSE: TWX) sold a controlling stake in its China channel in 2003, and the other channel operated by MTV is still a marginal player in the market.

News Corp and the other firms decided to exit China after failing to understand China’s complex regulatory environment and conditions that traditionally saw most markets dominated by smaller local players. As a result, their size remained small and most never achieved the scale they would need to become profitable. In the last year, however, major changes have occurred that have started to create some major domestic media companies.

Last week, two of Shanghai’s top media groups formally merged to create a major new company, as part of a national drive to consolidate the industry. At the same time, a fast-growing group of private firms like Baidu (NASDAQ:BIDU) and Alibaba have launched a range of new smart TV products this year that deliver their content over the Internet and can compete with traditional TV operators.

With a strong field of domestic players now starting to emerge, Beijing should encourage the big foreign media companies to take a second look at the China TV market, allowing names like News Corp and Time Warner to bring their expertise to the sector. For their part, the foreign media firms should also learn from their previous experience and be better prepared for a new try at the market. A good dose of commercialism would also be helpful, preparing domestic players for competition of the regional and global marketplaces.

Consumers would gain from these kinds of trends by getting access to a wide variety of compelling programs and other content. The industry would also benefit by becoming more commercial and competitive, helping it to create strong programs and other content for not only China, but also for export to the rest of the world.

Bottom line: New changes in China’s TV landscape could presage growing competition and an eventual relaxation of regulatory oversight.

Source: Murdoch's News Corp Exits China TV