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Viacom's China Push

By Brian Gorman
March 24, 2004

There is a Chinese proverb that goes: "With time and patience the mulberry leaf becomes a silk gown." Viacom's (NYSE: VIA) long-term lobbying in China has yet to yield a gown, but the media conglomerate may have begun to spin silk with its latest initiative.

In the first-ever such arrangement under recently relaxed regulations in China, Viacom will co-produce children's programming with Shanghai Media Group. Details of the agreement were not available, but Viacom Chairman and CEO Sumner Redstone has reportedly said his company will have a "huge stake" in the venture, although Chinese law limits its interest to a minority position.

Viacom made inroads into the Chinese market last year when the government allowed it to broadcast MTV in the southern province of Guangdong. With the access, MTV gained a potential audience of approximately 86 million. Still, Viacom has had to compete with other foreign media outfits in the province, as China also granted rights in Guangdong to Time Warner (NYSE: TWX) and News Corp. (NYSE: NWS).

The new content production deal sets Viacom apart by giving it a presence in China's largest city, with a population of approximately 20 million. More importantly, the agreement suggests that Viacom's widely reported efforts to curry favor with the central government are paying off, which may help in the firm's long-term goal of extending MTV distribution throughout China. Of note is Redstone's reported disclosure that a second joint venture with Beijing television is in the works.

Admittedly, Viacom's effort in China is at an early stage, and foreign conglomerates' track record in the country has been less than spectacular. Time Warner, apparently unhappy with losses it sustained at its Guangdong-based China Entertainment Television unit, sold its controlling interest in that venture last year. But with a potential audience of more than 1 billion, Viacom's perseverance appears wise.

David Gardner has recommended Time Warner to subscribers of Motley Fool Stock Advisor. You can sign up for six months with a money-back guarantee here.

Fool contributor Brian Gorman does not own shares of any companies mentioned here.

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