February 2, 2007 …

                                   February 2, 2007


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As News Corp.'s social-networking Web site MySpace tries to steer its
way into China's Internet market, it may find that it has to let someone else
do the driving.

On paper, China and MySpace.com seem to make a great match. The Chinese market is already home to
137 million Internet users, most of them under age 30. News Corp.'s MySpace is the champion of
reaching youth and making money from user-generated Web content.

 · The Issue: News Corp.'s MySpace wants to enter    Negotiations to bring MySpace to China have been taking
 the booming but difficult China market.             place for months, people familiar with them say. But the talks
 · The Background: Dozens of MySpace                 had bogged down over how the company would be managed
 look-alikes are already competing in China.
 · The Players: MySpace is negotiating with a
                                                     in China. The answer now appears to be: Let a local Chinese
 former Microsoft executive in China and two other   partner handle it.
 partners to launch its business there.
                                        Former Microsoft Corp. executive Luo Chuan, who has
 · The Bottom Line: Ceding control of its China
 venture to local companies may be necessary for
 MySpace to achieve success.            started his own company in China, says he is in talks to form a
                                        partnership with MySpace, along with several other Chinese
                                        companies and the Chinese wing of an American company.
Mr. Luo ran Microsoft's MSN online services operation in China before leaving his post in December.

The exact size of the stake MySpace might take in the China venture remains in flux, according to the
people with knowledge of the talks. Mr. Luo, 38, declines to comment on the content of the negotiations,
but says he expects to maintain control of any joint venture.

"The management team will need to have control over this venture in order to make sure that it will
comply with the regulations [and] to ensure that we will have the power to customize and optimize the
services to the Chinese audience," says Mr. Luo.

In practice, that means News Corp. Chairman Rupert Murdoch might have to take a back seat on how
MySpace is run in China.

Almost every other international Internet company that has tried to move into China has stumbled over
an obstacle course of management, regulatory, and competitive challenges. After years of struggling on
their own, Yahoo Inc. and eBay Inc. have both handed over their Chinese operations to local companies.
Google Inc., which hasn't, is far behind local competitor Baidu.com Inc. in market share, despite a big
push into China in the last year.

Mr. Murdoch's business in China has had its rough spots. In 2005, a backdoor plan by his company to
break into prime-time Chinese TV unraveled amid a government crackdown on local and foreign media.
Since then, he's scaled back ambitions for his global TV empire's expansion into China. Last month, the
chief executive of News Corp.'s Asian TV operation, Star TV, resigned, and the company lost its Chinese
broadcast license for the sports channel it runs as a joint venture with the Walt Disney Co.'s ESPN. Last
year, News Corp. also sold half of its stake in Phoenix Satellite Television Holdings, a news broadcaster
that distributes to parts of mainland China.

                                   As head of MSN in China, Mr. Luo, a 12-year veteran of Microsoft,
                                   established a joint venture with Shanghai Alliance Investment Ltd., a
                                   company backed by the Shanghai government. Today Microsoft's
                                   Chinese online services have 15 million users, the company says.

                                   Over his career, Mr. Murdoch has shown he's willing to do whatever it
                                   takes to break into new markets. Yet ceding control of MySpace in
                                   China would be a high price for him.

                                 Mr. Murdoch has already visited China to discuss MySpace's plans
                                 there, and people close to the situation say he has also looked for an
                                 official role for his Chinese-born wife, Wendi, on the board of
MySpace's China's operation. Mr. Luo declined to comment.

A News Corp. spokesman declined to comment, and said Mrs. Murdoch had no comment.

The involvement of local companies could help MySpace politically. The Chinese government likes
assurances from media owners that they see eye to eye on what is "appropriate" content, and is highly
suspicious of foreign companies in the sector.

The government also requires all Internet companies to abide by its "civilized Internet" program, which
obliges them to purge content ranging from pornography to anything politically sensitive.

Only recently, President Hu Jintao called on officials to further "purify" the Internet. In recent months,
the government has proposed requiring Web sites that broadcast short films to get special permission, and
is contemplating a system that requires bloggers to register on sites with their real names.

China also sometimes requires foreign companies seeking to do business in the country to take on a local
firm as a partner.

Mr. Luo says that foreign Internet companies bring technological experience to China, but then they
"market their products based on a global perspective," and don't give enough autonomy to local
managers. The companies Mr. Luo is working with in his talks with MySpace include International Data
Group's Chinese venture arm and China Broadband Capital Partners LP, the investment company of
former China Netcom Group Corp. Chief Executive Edward Tian.

MySpace has had similar trouble in Japan, another important Asian market. In Japan, where MySpace
launched a joint venture in November, new signups to the service have slowed significantly, according to
people close to the situation.

MySpace China's managers will need the autonomy to make major changes to the MySpace format.
"Social networking culture is already alive and well in China. MySpace is not going to create it -- they
will have to tap it," says Sam Flemming, the chief executive of CIC, a consultant that helps companies
like Pepsi and Nike track China's Internet culture.

Mr. Flemming says Chinese citizens don't use the Internet in the same way as Americans, often
preferring bulletin board systems where thousands hold conversations at once to individual blog pages.

The U.S. MySpace flourished as a venue for Americans to share their favorite music, photos and videos
to express their individual personalities. But in China, many write blogs and bulletin board posts
anonymously, or even use systems where they have avatars, or online only personas. "It is not always
about me and me trying to be cool," says Mr. Flemming. "It's 'our space.'"

Even the name MySpace might have to go. MySpace has already registered MySpace.cn and has put a
placeholder on the site featuring the name "Mai Si Bei" -- a transliteration of the English that has no
particular meaning. Mr. Luo declines to say what his company is named.

Then there is the issue of making money. By Mr. Luo's count, there are as many as 100 companies trying
to copy or imitate MySpace already in China, and perhaps 200 companies that are trying to copy
YouTube.

"It's extremely crowded space," says Fan Bao, chief executive of China Renaissance Partners, a boutique
investment bank in Beijing that helps Chinese Internet companies raise money from foreign investors.
"One thing the Chinese are very good at is copying. If they can copy Louis Vuitton bags, they can copy
YouTube and MySpace."

Mr. Bao says that it seems that MySpace is trying to learn from the missteps of other foreign companies.
"What it takes to be successful in China is a local entrepreneur team," he says.
                                                                             --Julia Angwin and Juying Qin contributed to this article


Write to Geoffrey A. Fowler at geoffrey.fowler@wsj.com1 and Jason Dean at jason.dean@wsj.com2
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