News Corp. to launch MySpace China venture

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SHANGHAI - News Corp. is finalizing a deal with partners, including private equity heavyweight IDG, to launch a networking Web site venture in China within a few months, financial and Chinese government sources said Friday.

News Corp. plans to take less than 50% of the venture, which will establish a localized Chinese version of the popular MySpace.com site, said sources familiar with the deal.

The IDG-Accel China Growth Fund, managed by venture firm International Data Group Technology Venture Investment, will also own a stake, two sources said.

The deal, if successful, will be a landmark step for News Corp. -- led by Chief Executive Rupert Murdoch -- which has made several attempts to tap China's rapidly growing media market.

But the venture will have to negotiate with China's strict regulation of media content, as well as compromise on potentially sensitive content, said Liu Bin, principal analyst at Beijing-based research firm BDA.

"It's hard for a foreign online service provider to get an Internet content license and other news licenses," he said.

"If MySpace forms a JV in which it takes a minor share, the company can still be looked at as a domestic company," he added.

MySpace is a Web site popular with teenagers that lets users post their own videos, pictures and blogs online.

News Corp. is working with local partners to apply to the Chinese authorities for an Internet services license, and expects to set up the joint venture in Beijing, the sources added.

The sources said they could not specify how much money establishing the venture would require as a final agreement had not yet been reached.

Luo Chuan, a former senior executive at U.S. software giant Microsoft Corp., is a potential candidate for the MySpace China CEO job, the sources said.

Luo was former head of Microsoft's Windows Live unit in China, and was also responsible for the China site of the company's popular MSN portal, an online networking Web site similar to MySpace.

Luo set up his own company and began work with News Corp. and IDG to prepare launching MySpace China after he resigned from Bill Gates' Microsoft last year, the sources said.

Now, Luo is very likely to become the first chief executive for MySpace China, they said.

"They want to build a very localized MySpace China site from management to content," said one source familiar with the deal.

"That's why they are working with Luo Chuan and other local Internet specialists," she added.

Murdoch's wife, Wendi Deng, who is also a chief negotiator in the deal, is expected to sit on board of MySpace China where News Corp. aims to take at least one board seat, one source said.

This latest attempt to tap China's Web market comes after News Corp. failed to team up with local TV stations and newspaper publishers, as Beijing still tightly controls mass media.

Although News Corp. -- which part-owns broadcaster Phoenix TV and owns the Star TV channel -- Time Warner Inc. and Viacom Inc. all have TV channels launched in China in the last few years, each has been limited to mass broadcasting rights in the country's southern Guangdong province bordering Hong Kong.

News Corp. bought MySpace -- one of the Internet's fastest-growing properties -- for $580 million in 2005. Murdoch has been talking up the Web, as he now believes Internet businesses will grow faster than cable networks and newspapers.

News Corp. officials could not immediately be reached for comment, while IDG and Luo declined to comment.

China is the world's second-largest Internet market behind the United States, with around 137 million Web users.
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