Thursday, April 26, 2007

The New York Times
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April 27, 2007

Murdoch Is Taking MySpace to China

SHANGHAI, April 26 — Rupert Murdoch’s News Corporation is bringing to China, a latecomer that is betting it can overcome its handicap by competing unconventionally as a start-up.

The News Corporation signed a deal to license the brand for its popular online social networking site and allow local Chinese entrepreneurs who understand their market to pick and choose to build an indigenous business. With this approach, the News Corporation, hopes to succeed where other Western Internet ventures have failed.

The company and two venture capital firms agreed earlier this month to hire a former Microsoft executive to license the brand and technology in China in an attempt to capture some of the business in the world’s fastest-growing Internet market. is entering China at a time when social-networking and online gaming and entertainment sites are already wildly popular.

“They want to avoid some of the mistakes made by the first and second waves of international Internet companies that came to China,” said William Bao Bean, a partner at Softbank China & India, a venture capital firm. “By putting a local manager in, they give the company a fighting chance. This is a very crowded area with at least 100 companies competing in the same space that MySpace has entered.”

American Internet companies have scrambled to set up operations in China’s booming online marketplace, which already has more than 137 million Internet users, second only to the United States.

But the China operations of, eBay, Yahoo and even Google have all either lost ground or ceded the leading market position that they enjoy abroad to local rivals despite, in some cases, spending hundreds of millions of dollars to acquire established Chinese competitors.

The new company, called MySpace China, will tailor the site to the Chinese market. For instance, while invites newcomers to meet their first friend, Tom, who is a company founder, MySpace China introduces new visitors to a Chinese friend.

Still, it faces stiff competition from China’s home-grown Internet companies, including Baidu, Tencent, Sina and, as well as dozens of other Internet start-ups.

Analysts say that Chinese Internet entrepreneurs like Robin Li of Baidu, Ma Huateng of Tencent and Jack Ma of, have managed to outmaneuver their Western counterparts, partly because they have a better sense of the needs of Chinese Internet users.

Foreign Internet companies have also struggled to find the right balance between complying with China’s stringent censorship — sometimes having their sites blocked in China — and providing enough interesting content to attract users.

Mr. Murdoch has tried to gain access to the Chinese market for some of his media properties, but has faced difficulties because of tight controls. Now the News Corporation, which acquired MySpace in 2005 for about $580 million, has teamed up with IDG VC, a unit of the Boston-based International Data Group, and China Broadband Capital Partners. In effect, they are financing a Chinese start-up.

Richard Ji, an Internet analyst at Morgan Stanley, said MySpace China might use the News Corporation’s content. “They have a competitive advantage in sports content,” Mr. Ji said. “The Chinese government likes sports content, and so do advertisers here.”

The group, headed by the News Corporation, did not say how much it has committed to investing in MySpace China, but people close to the talks say that the funding is substantial. The strategy and partnership were partly devised with the help of Wendi Deng, Murdoch’s Chinese-born wife, according to people involved in the deal. Ms. Deng is not an officer of the News Corporation, but she has been named to the board of directors of MySpace China, according to people involved in the talks.

According to the deal, the News Corporation, IDG and China Broadband Capital will largely fund the operations of MySpace China. IDG, which is headed in China by Hugo Shong, has more than $800 million under management and has invested in some of China’s biggest Internet start-ups, including Baidu, Tencent, and Eachnet.

Luo Chuan, 38, who used to run Microsoft’s MSN portal in China, will be the company’s chief executive. “We want to create a site that allows people to find serious relationships and to share something with new friends,” he said, “to share pain and loneliness.”