October 31 2007

News Corp. Tunes Asia TV Plans After Stumble
By Geoffrey A. Fowler
The Wall Street Journal

The region's largest international television company, with channels in more than a dozen countries, has been slipping in the ratings in the Indian market it once dominated. In China, efforts to expand its TV business have fallen flat. Operating profit at the company's Asian unit Star Group Ltd. dropped nearly 30% in its latest fiscal year, analysts estimate.

News Corp. Chairman Rupert Murdoch tapped Paul Aiello, chief executive at Star Group since March, to revamp the media giant's strategy in the crucial Asia market. "My goal is to create a new Star," says the 43-year-old Mr. Aiello, who will lay out his plans at an annual industry conference here this week.

The former investment banker, in an interview in his office overlooking Hong Kong's Victoria Harbor, said he doesn't plan acquisitions or a separate stock-market listing for Star, as had been rumored when he took the post. Instead, he said, "our content needed to be refreshed across the board, and a lot of the ways that we monetize that content needed to be updated, too . . . we have to go local and deep."

Global media companies see Asia as a must. China's advertising market across all media is valued at about $23 billion this year, while ad spending in India is at nearly $4 billion. The ad spending in both markets is growing at roughly 20% annually. China also has as many as 172 million Internet users, second only to the U.S.

Yet Star's recent performance hasn't lived up to this promise. "Ad revenue still grew, but not as strongly as we hoped for," Mr. Aiello said. The company doesn't release financial data, but Media Partners Asia in Hong Kong estimates Star's operating profit dropped to $91 million in its 2007 fiscal year from $128 million a year earlier. A major problem was that the price of producing programming rose faster than Star's ad revenue, particularly in India, Mr. Aiello said.

A key mistake, he said, is that Star was resting on its laurels in developing markets where it had taken an early lead. "You can go for a while without reinvesting in your business, and it doesn't show up in your ratings or quarterly results," he said. But, "the minute you get into harvest mode, you are setting yourself up for a big fall."

Nonetheless, Star is still profitable in a region where other international TV companies have struggled. Aside from selling shows to local broadcasters, many global media companies have tried to tap the growth in Asia by setting up cable or satellite channels, often as subsets of U.S. brands, such as Viacom Inc.'s MTV Asia or Time Warner Inc.'s CNN International. However, local TV channels, filled with domestic soap operas and talk shows and often protected by local regulators, still dominate the ratings in most countries.

Star helped redefine broadcasting in Asia after News Corp. acquired the Hong Kong-based satellite broadcaster for $900 million in the 1990s. While many other multinationals focused on region-wide programming, Mr. Murdoch's son James, who took Star's reins in 2000, invested in creating local content and raising production standards in India and greater China, going head-to-head with domestic broadcasters.

Star came to dominate India's TV industry with hits such as a Hindi-language remake of "Who Wants to Be a Millionaire." In 2003, after years of wooing the Chinese government, the company won the rights to broadcast its Chinese-language channel to hotels and parts of southern China.

But recently, Star's shine has faded. In China in 2005, the company attempted to take over the programming of a local Chinese broadcaster with national reach. Regulators halted the move in an ideological crackdown. Last year, News Corp. sold half its 38% share in Phoenix Satellite Television -- a Chinese-language news broadcaster launched as a joint venture with News Corp. a decade ago -- to cellphone company China Mobile, amid what Mr. Murdoch described as general frustration with the market.

Mr. Aiello, an American who has lived in Asia for 15 years, came to Star as president in 2006 from Morgan Stanley, where he headed the Asian-Pacific telecom, media and technology group. He has a doctorate in Chinese economic history from the University of Cambridge and speaks "enough Chinese to get in trouble," he says.

His plans address very different management challenges in China and India.

In India, the smaller market but by far the larger source of Star's revenue, Mr. Aiello is hiring -- and figuring out how to hold on to -- a host of new talent, as well as investing in new programs and local-language channels to deepen its reach into a country with dozens of languages.

Star must compete with a growing number of local TV channels as well as other international cable channels. Through next year, Indian broadcasters are expected to launch about 100 new channels, some run by former executives of Star India.

Mr. Aiello plans new programming for Star's Indian general-entertainment channels, including dramas designed to appeal to younger viewers and updates of long-running soap operas. While most of Star's programming is in Hindi, much of the ad spending on cable TV goes to channels in other languages. So in the next 18 months, Star plans to launch five or six new channels in local languages, he said.

In China, the company is waiting for the government to open its doors to foreign TV content, Mr. Aiello said. No multinational TV company has been able to establish a significant presence in China, and many don't even have the limited rights Star won in 2002. While China wants to turn media into a profitable and globally influential industry, Beijing doesn't want to give up the Communist Party's tight grip on the messages contained in the media. Chinese television regulators didn't respond to a request for comment.

"Channels are probably the most regulated part of the media business in China for the foreseeable future," Mr. Aiello said. He plans to push further original production for Star's existing Chinese channel Xing Kong, but doesn't yet have new programs to announce, saying: "We have great hopes, but we plan according to certain realities."

Meanwhile, News Corp. is looking beyond TV to new media, and Mr. Aiello said he wants Star to focus on producing content more broadly. The company is still discussing ways to develop content partnerships with China Mobile, he said.

In April, News Corp. launched a big online push without Star, investing in social-networking joint venture MySpace China. It has several local partners but faces a crowded market and a relatively immature online-advertising market. Wendi Murdoch, Rupert Murdoch's Chinese-born wife, is on the joint venture's board. Mrs. Murdoch's office declined a request for an interview.

News Corp. has agreed to acquire Dow Jones & Co., publisher of The Wall Street Journal.