China and India the key to massive Murdoch bid for Time Warner
Media mogul sees huge emerging Indian and Chinese middle classes as key factors in his efforts to take over control of Time Warner
Rupert Murdoch's plan to buy Time Warner would help the Twenty-First Century Fox chairman make larger inroads into China's fast-growing market, one that Western media moguls are finding hard to crack.
Time Warner's board has rejected Murdoch's US$80 billion offer, but the Fox chairman is expected to continue the chase.
A deal would create a giant with more than US$37 billion a year in revenues in the United States and Canada. It would also nearly double the revenues Fox generated from the emerging media markets in Latin America and Asia-Pacific.
"He sees three billion new consumers coming into the market and a rising middle class in China and India, and mobile devices and strong demand for content," said Mario Gabelli, chief executive of Gamco Investors. "He's going to be able to create Netflixes of his own."
Last year, Fox generated 42 per cent of its revenue outside the United States and Canada. The company's Asian revenues, including those from Japan and China, grew by 40 per cent, to US$2.1 billion, over two years.
Time Warner's collection of cable channels would complement Fox's programming in key territories.
In Latin America, where Fox faces large local players, Time Warner's Turner unit operates Chilevision, a large broadcaster in Chile, and also shows its TNT entertainment channel, Cartoon Network and locally tailored regional channels such as the kids channel Tooncast.
Turner offers three well-regarded channels in India, POGO, Cartoonito and Toonami, which could help Murdoch's Indian programming giant Star India, which broadcasts 44 channels in seven languages.
HBO was likely to be Fox's big draw in foreign markets. The pay channel, with a history of hit programmes such as The Sopranos and Game of Thrones, has about 84 million subscribers outside the US, beaming its shows into more than 70 countries, and sells programming from HBO and Cinemax into 150 countries.
In China, with Time Warner in the fold, Murdoch would be able to focus on profiting from what movies and TV shows the government would allow.
In January, he sold Fox's 47 per cent stake in Star China TV, which owns three 24-hour Putonghua channels, and in October sold off Fox's remaining stake in Chinese TV company Phoenix Satellite Television. These moves come in the face of restrictions on foreign ownership of China media assets.
"Murdoch is not unique. The Chinese government says, 'We cannot let these people control our media'," said William Yu, an economist at the University of California, who specialises on emerging Asian economies.
A Fox spokesman had no comment.
Doug Young, a professor at Fudan University, cautioned against overestimating the potential in China. He said: "Taking two studios and combining, you'll get a company with twice as many growth prospects in China, but in terms of either having many assets in China, it's just a market for licensing and selling."
Still, the China potential is alluring. Consulting and audit firm EY estimates revenue from China's media and entertainment industry will reach US$138 billion by next year, from US$59 billion in 2010. The country already has embraced streaming video and EY sees advertising revenue jumping.
Its mobile web users, the most in the world, are expected to hit 750 million by 2017, according to data from China-based consultancy iResearch.
China limits to 34 the number of films foreign companies can import annually. Cinema ticket sales there last year grew 27 per cent, to US$3.6 billion, second only to the US$10.9 billion US market. Transformers: Age of Extinction, a movie distributed by Viacom's Paramount studio, has so far sold more tickets in China than the US.
With its muscular films such as the Harry Potter and Lord of the Rings fantasy franchises, Time Warner's Warner Brothers studio gets frequent quota approval.
"China is a great market and we've all wanted to be there for years," said former Viacom president Frank Biondi. "But for all the upside, there is the obvious downside that the government controls everything, what gets put into movie theatres, what's put on TV."