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News Corp. to Sell Star China Assets' Control to China Private Equity Fund

News Corp. agreed to sell a controlling stake in Star China TV assets including Xing Kong and Fortune Star Chinese movie library to China Media Capital, a private-equity fund formed last year with government backing.

Billionaire Rupert Murdoch’s News Corp. also sold control of Xing Kong International and Channel [V] Mainland China as part of the agreement with China Media Capital, or CMC, the companies said today in an e-mailed statement. They didn’t disclose terms of the sale.

News Corp. is pulling back from China after government restrictions and a lack of intellectual property protection limited U.S. media companies’ ability to make money in the market. A year ago, the New York-based company scaled back its regional operations in Hong Kong as it turned its focus to India, where advertising growth has outpaced other News Corp. international cable operations.

“The agreement with CMC recognizes the value we have created in Star China and enables us to continue to grow it for the future,” James Murdoch, chief executive officer of News Corp. Europe and Asia, said in the statement.

The investment is the first for China Media, which was established in April 2009 with backing from the National Development and Reform Commission. The fund manages 5 billion yuan ($739 million) in assets and calls itself the first private equity fund focused on media in China. The fund, backed by Shanghai Media Group and China Development Bank, raised 2 billion yuan in June, saying it expected to generate at least a threefold absolute return in the next three to five years.

Based in Beijing

Jack Gao, Star China’s CEO, will head the new company, which will be based in Beijing with offices in Shanghai, Guangzhou, Chongqing and Hong Kong. New York-based News Corp. appointed Gao to run Star, its Asian satellite broadcasting unit, in 2006.

News Corp. rose 1 cent to $14.11 at 9:33 a.m. New York time in Nasdaq Stock Market trading.

The company faced government restrictions in China where private ownership of satellites dishes is prohibited except through special approval for hotels and government and foreign institutions. Foreign satellite channels can be distributed only in hotels that are three stars and higher and other approved organizations, according to News Corp.’s annual report.

“Not for lack of trying, but its success to date in Asia -- the quickest-growing media market -- has been somewhat limited,” Alan Gould, an analyst at Evercore Partners in New York, wrote in an Aug. 2 report. “Politically, China has been a difficult market to crack, and most of the effort appears focused on India.”

‘Very Slow’

On a September 2009 conference call, News Corp. Chairman and CEO Rupert Murdoch said that “in China, as far as media goes it’s going to be very slow” for regulatory changes. In a speech in Beijing the following month, he said China needs to tighten intellectual property protection so that media may expand, and he called on the nation to allow more competition.

In August 2009, News Corp. reorganized its broadcast operations in Asia into three units and scaled back the size of its regional operations in Hong Kong. The heads of broadcast in India and China began reporting directly to James Murdoch, Rupert Murdoch’s 37-year-old son.

About 85 percent of News Corp.’s revenue comes from the U.S., Canada and Europe, according to Bloomberg data.

Xing Kong and Xing Kong International are general entertainment channels, while Channel [V] Mainland offers music programming, according to the statement. The Fortune Star Chinese movie library offers 757 Chinese-language titles.

News Corp.’s remaining operations in China include Star Movies, National Geographic Channel, Chinese WSJ.com, MySpace China and 50 percent ownership in ESPN Star Sports.

--Edmond Lococo. Editor: Dave McCombs, John Lear

To contact the reporters on this story: Sarah Rabil in New York at srabil@bloomberg.net; Edmond Lococo in Beijing at elococo@bloomberg.net

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