Fox-Time Warner deal would give Murdoch new heft in China

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(Reuters) – Rupert Murdoch’s plan to buy Time Warner would help the Twenty-First Century Fox chairman make larger inroads in China, a fast-growing market that media moguls are finding hard to crack.

Time Warner’s board rejected Murdoch’s $80 billion offer, but the Fox chairman is expected to continue the chase.

A would create a giant with more than $37 billion a year in revenues in the United States and Canada. It would also nearly double the revenues Fox generates from the emerging media markets in Latin America and Asia/Pacific.

“He sees 3 billion 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, the CEO of GAMCO Investors, in an interview with Reuters Insider, “He’s going to be able to create Netflixes of his own.”

Gabelli owns shares of both Fox and Time Warner.

Last year, Fox generated 42 percent of its outside the United States and Canada. The ’s Asian revenues, including those in Japan and China, grew by 40 percent, to $2.1 billion, over two years.

Time Warner’s collection of cable channels would compliment Fox’s programming in key territories.

In Latin America, where Fox faces off against 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 behemoth Star India, which broadcasts 44 channels in seven languages.

HBO would likely be Fox’s big draw in foreign markets. The channel, with a history of hit programs such as “The Sopranos,” has around 84 million subscribers outside the United States, 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 more squarely profiting from what movies and TV shows the government allows.

In January, he sold Fox’s 47 percent stake in Star China TV, which owns three 24-hour Mandarin channels, and in October sold off Fox’s remaining stake in Chinese TV Phoenix Satellite Television. These move come in the face of restrictions foreign ownership of China media assets.

“Murdoch is not unique. The Chinese government , ‘We cannot let these people control our media,'” said William Yu, an economist at UCLA’s Anderson School of Management, who focuses emerging Asian economies.

A Fox had no comment. In recent earnings calls and conferences, Fox Chase Carey has stressed the ’s strategy of selling off assets it couldn’t own.[eap_ad_1]

“Long term, I still think that you ultimately want to either own and operate or monetize,” he said at a UBS media in December.

Doug Young, a professor at Fudan University Journalism School, cautioned against overestimating the potential in China. “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,” he said.

Still, the China potential is alluring. Consulting and audit firm EY estimates from China’s media and entertainment industry will reach $138 billion by 2015, from $59 billion in 2010. The country already has embraced streaming video and EY sees advertising 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.

Currently, China limits to 34 the total number of movies foreign companies can import. China’s box last year grew 27 percent, to $3.6 billion, second only to the $10.9 billion million .S. market.

“Transformers: Age of Extinction,” a distributed by Viacom’s Paramount studio, has so far sold more tickets in China than the United States.

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 Frank Biondi, one of the first .S. media executives to visit the country. “But for all the upside, there’s the obvious downside that the government controls everything – what gets put into theaters, what’s put on TV.”