Mogul’s quiet retreat marks end of the affair

By Kathrin Hille in Beijing and Kenneth Li in New York
© FINANCIAL TIMES

The timing of Rupert Murdoch’s quest to take full control of British Sky Broadcasting is perhaps a fitting end to the News Corp chairman’s nearly two-decades-long love affair with China.

No single action by Mr Murdoch poisoned his China expansion plans as much as his celebratory speech in 1993 to toast the turnround of BSkyB.

“Advances in the technology of telecommunications have proved an unambiguous threat to totalitarian regimes everywhere,” Mr Murdoch said then – the same year he purchased a majority stake in Star TV in Hong Kong.

“Fax machines enable dissidents to bypass state-controlled print media. Direct-dial telephony makes it difficult for a state to control interpersonal voice communications. And satellite broadcasting makes it possible for information-hungry residents of many closed societies to bypass state-controlled television channels.”

References to fax machines unintentionally evoked images of the student-led democracy movement in China in 1989, whose participants had organised their actions by fax. News coverage of the crackdown was beamed around the world via satellite by CNN.

By the time the Chinese government banned individual ownership of satellite dishes a month later, Mr Murdoch had realised he had made a mistake and embarked on a quest to appease regulators.

By 1994, he had agreed to pull the BBC World channel from Star after a controversial documentary about Mao Zedong. “The BBC was driving them nuts. It’s not worth it,” he said at the time.

This perceived kowtowing to China continued to haunt Mr Murdoch – he was still criticised for it during his battle to take over Dow Jones three years ago. But over the next decade, News Corp strove to get something in return.

In 2002, Star TV was granted approval for its new local unit, Xing Kong, to broadcast in Chinese to some selected areas and households in Guangdong, the province adjacent to Hong Kong.

At the time, Star TV executives were quite clear that they hoped the company’s “landing rights” could be expanded to the rest of the country.

But that never happened. Although hopes were raised further in 2004 when Star TV was allowed to launch China’s first fully foreign-owned ad company and Beijing later moved to allow foreign investment in TV content production, Mr Murdoch started hitting one brick wall after another.

In 2005, Beijing probed one of Star TV’s agents for allegedly providing access to the company’s satellite channels to people not authorised to receive it.

The same year, a deal with Qinghai Satellite TV, a provincial state-owned broadcaster, which could have opened a back door for News Corp into the nationwide market, was shot down by central government regulators.

That was when Mr Murdoch started running out of patience. A month after the Qinghai deal soured, he accused the Chinese government of being “quite paranoid”.

The next year, News Corp started a quiet retreat. First, it halved its stake in Phoenix Satellite Television, a Hong Kong-based network controlled by Chinese magnate Liu Changle, by selling 20 per cent of the company to China Mobile, the state-owned telecoms operator.

Bruce Dover, a former News Corp executive, recounted in his book ‘Rupert Murdoch’s China Adventures’ how Mr Murdoch had signalled his cooling feelings for China as early as the spring of 2007.

“We don’t do very well in China,” Mr Dover recalled Mr Murdoch telling analysts. “We are very modest. All I would say is that nobody, none of the American media companies or British media companies have made any impact there yet … It is a very difficult market for outsiders.”

Last year, News Corp restructured its Asian Star TV business, reorganising into one Indian and one Greater Chinese company while making sharp job cuts at its Hong Kong office. The move shifted the company’s focus in Asia from China to India, a market in which it has been doing much better.

Analysts say News Corp’s step to cede majority control in Xing Kong confirms this strategy.

Vivek Couto, executive director at the research firm Media Partners Asia, said: “It makes sense, given that business in China was less than $50m at the peak and revenues in India are more than ten times that figure.”

Revenue from Star India was estimated at $530m in the year ended June 30, about 80 per cent of the total the group generated in Asia and about 10 times that of China, Mr Couto said.

Under the restructuring last year, Star India’s chief executive, Uday Shankar, began reporting directly to James Murdoch rather than to the former regional headquarters in Hong Kong.

Star India has faced challenges from growing competition in the crowded India market, particularly in the flagship Hindi general entertainment sector, in which global rivals such as Viacom have launched joint venture channels.

But it has continued to grow aggressively, revamping its Hindi general entertainment channel, Star Plus, and launching new channels in India’s regional languages.