News Corp Makes New Play for China 新闻集团入股博纳影业集团

Rupert Murdoch isn’t giving up on China’s difficult media market despite his numerous setbacks there, with word that his flagship News Corp (Nasdaq: NWSA) is buying 20 percent of Bona Film (Nasdaq: BONA), one of the nation’s few privately held movie distributors. But if past experience is any indicator, this latest tie-up could also be doomed for disappointment due to the nature of the investment. Murdoch was once one of China’s most bullish media investors, seeing huge potential in its market of 1.3 billion viewers. But the company, now at the center of an unrelated hacking scandal in Britain, largely abandoned the market 2 years ago after many failed ventures, mostly caused by News Corps’ own overzealousness and Beijing’s equally strong reluctance to open the sensitive sector. The main difference this time seems to be strong signals from Beijing that it’s finally preparing to liberalize the sector, including a big new opening to foreign investment. Let’s look at the actual news, which says that News Corp will acquire the stake from Bona’s chief executive. (English article) No other terms were given, but based on Nasdaq-listed Bona’s latest market value, that would translate to a purchase price of about $75 million. From an investor’s perspective, this deal does indeed look like an interesting play into a sector that could soon see rapid expansion. China’s movie market is already the world’s second largest after the US, with the majority of revenue coming from US films. What’s more, the market could soon be set for big new growth, following China’s relaxation earlier this year of a strict quota that previously only allowed the import of 20 foreign films each year. Under the new quota, the number will rise to 34, or about 40 percent higher than the previous total. If ticket sales rise by a similar amount, that could translate to nearly a $3 billion box office next year, a healthy boost from the $2.1 billion for 2010. This latest tie-up follows a number of previous failures for News Corp, including its operation of a TV station that never gained an audience and which it sold a couple of years ago. Other News Corp investments in Internet company NetEase (Nasdaq: NTES) and Phoenix Satellite Television (HKEx: 2008) were successful in terms of financial returns, but were also largely failures in helping News Corp gain access to China. Frankly speaking, this latest tie-up looks most similar to the earlier Phoenix one, which saw News Corp also sign on as a strategic minority investor, only to be largely ignored by the company’s charismatic founder and chief executive Liu Changle. I suspect the same will happen in this latest tie-up, since founders of Chinese companies often like to run their own shows and don’t seem to like listening to so-called strategic investors, regardless of how much experience those investors bring. If that’s the case, look for another frustrating tie-up for News Corp in terms of expanding its China presence, though it will probably earn a nice return on this modest investment.

Bottom line: News Corp’s return to China with a new investment in a film distributor is likely to earn good financial returns, but will ultimately end in frustration in terms of as a strategic tie-up.

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