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 Time Warner's board rejected Murdoch's $80 billion offer, but the
Fox chairman is expected to continue the chase.
A deal would create a giant with more than $37 billion a year in
revenues in the United States and Canada. It would also nearly
double the revenues Fox generates from the emerging media markets in
Latin America and Asia/Pacific.
"He sees 3 billion new consumers coming into the market and a rising
middle class in China and India, and mobile devices and strong
demand for content," said Mario Gabelli, the CEO of GAMCO Investors,
in an interview with Reuters Insider, "He's going to be able to
create Netflixes of his own."
Gabelli owns shares of both Fox and Time Warner.
Last year, Fox generated 42 percent of its revenue outside the
United States and Canada. The company's Asian revenues, including
those in Japan and China, grew by 40 percent, to $2.1 billion, over
two years.
Time Warner's collection of cable channels would compliment Fox's
programming in key territories.
In Latin America, where Fox faces off against large local players,
Time Warner's Turner unit operates Chilevision, a large broadcaster
in Chile, and also shows its TNT entertainment channel, Cartoon
Network and locally tailored regional channels such as the kids
channel Tooncast.
Turner offers three well-regarded channels in India, POGO,
Cartoonito and Toonami, which could help Murdoch's Indian
programming behemoth Star India, which broadcasts 44 channels in
seven languages.
HBO would likely be Fox's big draw in foreign markets. The pay
channel, with a history of hit programs such as "The Sopranos," has
around 84 million subscribers outside the United States, beaming its
shows into more than 70 countries, and sells programming from HBO
and Cinemax into 150 countries.
In China, with Time Warner in the fold, Murdoch would be able to
focus more squarely on profiting from what movies and TV shows the
government allows.
In January, he sold Fox's 47 percent stake in Star China TV, which
owns three 24-hour Mandarin channels, and in October sold off Fox's
remaining stake in Chinese TV company Phoenix Satellite Television.
These move come in the face of restrictions on foreign ownership of
China media assets.
"Murdoch is not unique. The Chinese government says, 'We cannot let
these people control our media,'" said William Yu, an economist at
UCLA's Anderson School of Management, who focuses on emerging Asian
economies.
A Fox spokesman had no comment. In recent earnings calls and
conferences, Fox President Chase Carey has stressed the company's
strategy of selling off assets it couldn't own.
"Long term, I still think that you ultimately want to either own and
operate or monetize," he said at a UBS media conference in December.
Doug Young, a professor at Fudan University Journalism School,
cautioned against overestimating the potential in China. "Taking two
studios and combining, you’ll get a company with twice as many
growth prospects in China, but in terms of either having many assets
in China, it’s just a market for licensing and selling," he said.
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Still, the China potential is alluring. Consulting and audit firm EY
estimates revenue from China's media and entertainment industry will
reach $138 billion by 2015, from $59 billion in 2010. The country
already has embraced streaming video and EY sees advertising revenue
jumping.
Its mobile web users, the most in the world, are expected to hit 750
million by 2017, according to data from China-based consultancy
iResearch. Currently, China limits to 34 the total number of
movies foreign companies can import. China's box office last year
grew 27 percent, to $3.6 billion, second only to the $10.9 billion
million U.S. market.
"Transformers: Age of Extinction," a movie distributed by Viacom's
Paramount studio, has so far sold more tickets in China than the
United States.
With its muscular films such as the "Harry Potter" and "Lord of the
Rings" fantasy franchises, Time Warner's Warner Brothers studio gets
frequent quota approval.
"China is a great market and we've all wanted to be there for
years," said former Viacom president Frank Biondi, one of the first
U.S. media executives to visit the country. "But for all the upside,
there's the obvious downside that the government controls everything
- what gets put into movie theaters, what's put on TV."
A merger would allow Murdoch to use the Warner Brothers studio to
claim more quota slots. In 2013, seven Warner Brothers films were
granted a release in Chinese theaters, and six for Fox, according to
Box Office Mojo.
Fox's Hollywood studio last year produced 14 movies, to Warner
Brothers' 25 films. Fox has also agreed to co-produce five Chinese
language films with Chinese studio Bona Film Group.
 Warner's movies generated $155.9 million from three of its films
that ranked in China's top 20 last year, including "Gravity" and
"Man of Steel." Fox's three films in the top 20, including "The
Wolverine," generated $80 million, according to Box Office Mojo.
A few of Time Warner's Cartoon Network shows appear on the
state-owned China Central Television, and its HBO pay channel
provides a five-hour block of programming as well. HBO's offering
included a censored version of its fantasy hit "Game of Thrones".
"It's a huge opportunity," said former Paramount President Sid
Ganis, whose Jiaflix company advises movie companies in China, "and
media companies are only now beginning to figure the market out."
(Additional reporting by Malathi Nayak, Denny Thomas and Paul
Carsten; Editing by Peter Henderson)
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