NEW YORK (CNN/Money) -
Between the ongoing turmoil at CBS News and stiff fines for Janet Jackson's breast-baring incident, there was ample reason for Sumner Redstone to stick close to home this week.
Instead, the chairman of the big media company Viacom was hobnobbing with business and political leaders in China, something Redstone and his rivals have been doing a lot of in recent years.
For Viacom, the trip paid off. On Friday the company announced a deal with Beijing Television to jointly develop music and other entertainment content.
Financial term were not disclosed. But the move came six months after Viacom entered into a co-production venture with a Shanghai media company -- the first partnership of its kind since China relaxed a prohibition on foreign investment in Chinese-owned production companies.
"Partnerships with Chinese companies are central to our long-term strategy," Redstone said in a statement Friday. Viacom also announced other moves in China, including plans to triple to 10 million the number of Chinese households with access to Viacom's MTV cable music channel.
There's a reason Redstone is placing heavy bets on the world's seventh-largest economy. The major media companies are under intense pressure to grow. Despite strong earnings so far this year, shares in Viacom, Time Warner, Walt Disney Co. and News Corp. are all down for the year -- in Viacom's case, by 25 percent.
Redstone and his key rivals are convinced that big growth opportunities are now overseas, namely in China and India.
China is the third-largest and the fastest-growing advertising market in the world thanks to a booming economy. Total ad spending is expected to jump 15 percent this year from $19.8 billion in 2003, according to Initiative, a media buying firm owned by the Interpublic Group of Companies (IPG: up $0.01 to $10.81, Research, Estimates).
Compared to the United States, the world's No. 1 ad market with an estimated $147.4 billion spent last year, China's ad industry is still small. But with the country set to host the summer Olympics in 2008 and the World Expo two years later, the marketing and advertising opportunities should continue to spread.
Fearful of missing the bonanza, U.S. media companies "are trying to storm" the Chinese market, said Paul Kim, a media analyst with Tradition Asiel Securities.
Bulls in the China shop
Viacom, News Corp., Disney (DIS: up $0.26 to $23.52, Research, Estimates) and Time Warner (TWX: up $0.01 to $16.54, Research, Estimates), which owns CNN/Money, have all been putting down stakes in China.
Viacom (VIAB: up $0.28 to $33.82, Research, Estimates) and News Corp (NWS: down $0.22 to $32.59, Research, Estimates). have been especially aggressive, with huge chunks of time and money devoted to wooing China's wary political leaders.
None of them are making money in China. And some analysts are skeptical that the country will ever generate rich rewards for foreign media companies. "China is going to be an extremely tough nut to crack," said Kim.
Complicating efforts to tap the Chinese market are the high political and cultural hurdles. Currently foreign broadcasters in China are severely restricted in their ability to distribute programming. Most are allowed to broadcast only to foreign diplomatic compounds or to high-end hotels.
Still, China, a member of the World Trade Organization since 2001, has been slowly opening up its economy to foreign investors.
In January, a new law went into effect that allows foreign satellite operators to broadcast in China under certain conditions. The Beijing Television deal Viacom announced Friday -- and a similar deal with a Shanghai company announced in March -- follows another new law permitting foreigners to buy equity stakes in Chinese production companies.
For broadcasters, the big payoff comes from owning channels outright, noted Tradition Asiel's Kim. But just like the U.S. limits foreign ownership of domestic television assets, the Chinese government is unlikely to relinquish control of its airwaves.
"To really make money you have to own the media assets (but) the Chinese are not going to let (U.S. broadcasters) own a lot of spectrum or TV stations," said Kim.
Kim said he suspects Chinese officials are opening the door to foreign media companies to learn from their vast programming expertise. Long-term, Kim thinks, foreign media executives will be less useful to the Chinese.
The joint ventures that foreign media companies rely on to tap the Chinese market can also be a drawback. Often the deals call for the Chinese partner to pocket the bulk of the revenues generated.
Another widespread problem is the common practice in China of heavily discounting ad rates, according to Christopher Torrens, editorial director of market research firm Access Asia.
A senior spokesman at one of the big four media companies acknowledged that profits for foreign media players remain elusive.
"Who is the money going to? It's probably not going to Time Warner, News Corp. or Viacom," said this spokesman. "There are no ad revenues on some of these (ventures)."
Still, Brad Adgate, a New York marketing expert, said the major media companies are right to set their sights on China -- both because growth potential in the U.S. is slim and because China, despite the challenges, offers a vast, largely untapped market.
Long-term, Adgate thinks U.S. media companies will find a way to spin gold in China.
"You might not get a return on your investment tomorrow," said Adgate, senior vice president of corporate research at Horizon Media, a New York branding firm. "You're laying the groundwork."
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