HONG KONG (Reuters) - Rupert Murdoch's News Corp said on Monday it will sell control of its three Chinese TV channels to a fund backed by China's No.2 media company, in a pullback from the market after years of difficulty.
The decision to sell the controlling stake to China Media Capital is being seen as a clear sign Murdoch's interest in China is cooling as various restrictions and limitations on trade in the country make profitable growth less likely.
While Murdoch's son James runs the company's operations across Asia and Europe, his wife Wendi Deng, who is originally from China, has played a role in seeking out new growth opportunities there, such as with MySpace China. But restrictions on foreign and local media companies by Chinese authorities has seen News Corp shift emphasis of its Asian operations to India in the last year.
"It is very difficult to operate media companies in China unless there is a local control partner -- business in China is simply operated under a different set of rules, even with Rupert Murdoch's wife being from China," David Joyce, an analyst at Miller Tabak, said.
A year ago, News Corp conducted a major overhaul of Star TV, its Asia flagship based in Hong Kong, in a move that many saw as acknowledgment of the company's growing emphasis on India and its lack of progress in China.
"News Corp has clearly been generating the bulk of its Star channels' growth from the Indian assets," Joyce said.
Chinese authorities clamped down on foreign media owners' expansion in 2005 by restricting their ownership of local TV stations and other media outlets.
News Corp and global rivals such as Time Warner Inc and Viacom Inc held out great hopes for China when they launched TV channels there, starting in the late 1990s, hoping to attract mass audiences in a nation with 1.3 billion potential viewers.
But their efforts have been largely disappointing, as China has limited their mass distribution mainly to the southern province of Guangdong and strictly limited their ability to attract audiences in other parts of the country.
"Financially this is negligible for News Corp but strategically it's a big headline," said Tuna Amobi, an analyst at Standard & Poor's. He said News Corp, like other U.S. media companies, had hit a wall and was "throwing in the towel."
"This could portend a trend where more companies like Viacom and others might follow News Corp out of China."
CHINA MEDIA CAPITAL
This latest News Corp deal would see China Media Capital acquire a controlling stake in News Corp's Xing Kong, Xing Kong International and Channel Mainland China channels, along with its Fortune Star Chinese movie library, News Corp said in a statement.
Established in 2009, China Media Capital is a private equity fund with 5 billion yuan ($739 million) in assets under management and a focus on investments in the media industry.
It is backed by Shanghai Media Group (SMG), China's No.2 media company and the dominant player in Shanghai, as well as China Development Bank and China Broadband Capital.
The move could mark the beginning of a wind-down for News Corp in China's tightly controlled media market, which has proved to be highly frustrating to the company and its Western peers after numerous limitations and restrictions by Beijing.
The terms of the deal were not disclosed, but the three channels combined were generating no more than $50 million annually in revenue at the time of the deal, said Vivek Couto, a media analyst at Media Partners Asia.
"News Corp, after two decades in China, has done the inevitable in the last few years," Couto said. "They see the best option to grow in the market is to make sure the business is in control of local hands."
Couto forecast China Media Capital could eventually sell the company, or even take it public.
"This partnership is an extension of our long-term cooperation with News Corp," China Media Corp Chairman Li Ruigang, who is also president of SMG, said in a statement. "The entry of Chinese capital into the international media market will help facilitate its changes and development. Today's agreement represents a first step into that direction."
News Corp shares gained about 2 cents to $14.12 in afternoon trading on Nasdaq.
(Reporting by Doug Young with additional reporting by Yinka Adegoke in New York; Editing by Chris Lewis and Maureen Bavdek)