By Ren Fang | Tuesday, January 19, 2009

I have to comment on this ‘Google quitting China’ fiasco that has been percolating the news reports over the last week. Not because if it happens (emphasis on if), it would bring ‘ a loss for the Chinese people’ (Wired Magazine, 1/15/10), but because of the global attention given to the announcement overall.

At the very least, it has gone far past my expectations as a Chinese native – and when asking my 15-year old nephew in China about this, he’s never even used the site to begin with.

Back in 2008, News Corporation’s quiet exit (closing of China’s headquarters for Star TV) didn’t make much ripples amongst the other news happening all around the world. While News Corp’s did not fully exit from China, it was a good indication that News Corp was stopping their efforts to build out a national TV station in China after trying over 20 years when Rupert Murdoch first visited China (and giving free distribution rights of 50 movies to CCTV as a ‘gift’).

Now, back to 2009 – the sharp contrast of Google’s potential exit is what surprises me most. While there is the argument to be made that there is a vast difference between News Corp and Google (one being a media company, the other a technology company), to the eyes of the Chinese government, they are one in the same. In the mind of the Chinese government, these two companies are positioned exactly the same way – a publisher / media agent.

Search Engine Illusion  

Baidu, Google’s direct competitor in China with over 70% market share, obtained a News Publisher License in 2007, the same year when Google was busy defending itself from piracy issues with Sogou’s Pinyin. It may seem odd that Baidu attained a news publishing license considering Baidu’s core business is in search engine, it was Baidu’s deep understanding of how to play ‘nice’ with the Chinese government’s thoughts that a search engine portal is nothing more than a collaboration of news and information. To date, Google has still to reach that mutual understanding with the government.

Google’s Next Steps

While no one really knows what Google’s next steps might be, some due diligence on News Corp’s China history may give us possible options for Google.

History on News Corp.'s in China

• 2001: SARFT (State Administration of Radio, Film, and Television) was founded, planning on cooperating with western media groups.

• 2001: Star-TV (owned by News Corp.) is one of the first 3 foreign media groups who obtained the Landing Right (SARFT-proved right for a media company/TV station to put its own TV channels on air) in GuangDong province only.

• 2003: Star-TV formed a joint venture with local and national TV stations in China to produce 1-2 hour program blocks every week.

• 2005: News Corp made an aggressive move by acquire programming and advertising rights from QingHai provincial Statillite TV station who had a national coverage. This allowed News Corp to take control of all the programming and advertising for the primetime programming slots on QingHai Statillite TV station. At that time, News Corp. produced over 1000-hour program per year for Chinese audiences. However, after 3 months post-acquisition, their strategy was considered to be an unauthorized move to obtain ‘landing rights’ on a national scale and forcing SARFT to halt any further broadcasting of News Corp’s programs through the QingHai Satellite TV. It was said that News Corp lost over $50M (USD) in the ordeal. Shortly after, SARFT mandated that all non-China media groups will cease any further ‘landing rights’ agreements with the exception of Guangdong province.

• 2007-08: News Corp stopped producing localized programs for mainland China, and moved their China headquarters from Shanghai to Hong Kong.

News Corp in China Today

It’s not an unhappy ending for News Corp in China. In fact, they are the perfect example of ‘making lemonade out of lemons’ since dealing with the Chinese government for over 20 years. While News Corp had their public 2008 exit out of China, it was just the beginning of alternative strategies to make good and penetrate this marketplace.

Control of Distribution

In November 2007, China Broadband Capital Partners, a private equity company (whose major investor happens to be Murdoch), became the largest shareholder of Asia Union New Media, a Hong Kong-based media company. Almost immediately, China Broadband Capital Partners replaced most of the senior management team of Asia Union New Media with new members since governmental restrictions for foreign investments in production companies do not apply in Hong Kong. More importantly, Asia Union New Media happened to have the exclusive rights to run programming and advertising sales for HaiNan Satellite TV Networks. To sum it up, (indirectly) Murdoch controls distribution through HaiNan Satellite TV. 

Control of Advertising

In August 2008, Asia Union acquired Blower Investments Limited and made one of their subsidiaries, Zhong Guan Group, an indirect wholly owned subsidiary of Asian Union. At the same time, Asian Union announced that Zhong Guan Group has entered into an advertising agency agreement with Guangdong Television to be the exclusive advertising agent of the Guangdong Satellite TV for a period of three years from 2009 to 2011. In short, (indirectly) Murdoch controls advertising for Guangdong Satellite TV.

Control of Programming

Before 2007, only few of News Corp’s Star-TV programs were produced in conjunction with local TV stations in China. But in Jan 2009, Asia Union formed a new joint venture and announced producing program blocks in collaboration with six local networks, including Beijing, Shanghai, Fujian and Chong Qing (and planning for 20 by the end of 2009). In summary, (indirectly) Murdoch controls programming for major markets throughout China.

Multi-platform Play

Like the majority of large media companies in the United States, News Corp had plans to develop a multi-platform business models to follow the trends of where the Internet was headed. MySpace first landed in China in 2007. Despite Myspace’s lack of huge success in China (ranked six in the market), it was a bold move by News Corp to help diversify their portfolio within China.

Implications for Google

So, looking at News Corp’s positioning in China, I ask myself why Google still intends to be labeled as a ‘search engine’ company in China. Why not learn the mistakes News Corp had made and create a more active strategic move to win over the Chinese through their other business entities (i.e. Gmail, Google Maps, Android, etc.). Make strategic investments in local companies (we all know Google has enough cash on hand), form joint ventures with state-owned companies, but don’t lose out because Google is just a ‘search engine’ model.

In all the absurdity after this announcement, Google really has nothing to lose at this point. The public announcement is forces the issue and the all-mighty media spotlight are burning heavily on Google’s next steps. However, if Google were to just look at their numerous predecessors’ trials and tribulations, the path to China would be a simpler one.