As News Corp.'s social-networking Web site MySpace tries to steer its way into China's challenging Internet market, it may find that it has to let someone else do the driving.
MySpace has been in talks with a former Microsoft Corp. executive named Luo Chuan, who until December ran the U.S. software giant's MSN online services operation in China. The 38-year-old has started his own company, and says he is in negotiations to team up with MySpace, along with additional partners including 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.
Unique for such an Internet deal, Mr. Luo says he expects his management team to retain control of any resulting venture.
Negotiations have been taking place, people familiar with them say, since around the time News Corp. Chairman Rupert Murdoch announced last October that he would bring MySpace to China. Hugo Shong, who heads IDG's business in Asia, declined to comment. Mr. Tian also declined to comment.
On paper, China and MySpace.com 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 exact size of the stake MySpace might take in a China venture remains in flux, according to the people with knowledge of the talks. Mr. Luo declined to comment on the content of the negotiations, beyond saying control will be essential.
"The bottom line," he said in an interview, is that "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."
In practice, that means Mr. 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 past 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 television unraveled amid a government crackdown on local and foreign media.
Since then, he has scaled back ambitions for his global television 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 Walt Disney Co.'s ESPN. Last year, News Corp. also sold half of its stake in Phoenix Satellite Television Holdings Ltd., 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.
"I'm very experienced with industry people" in China, including the heads of other big Internet companies, Mr. Luo said, adding that he has "sense of how the industry works, and how the big players have grown up."
Over his career, Mr. Murdoch has shown he is willing to do whatever it takes to break into new markets. Yet ceding control of MySpace in China would be a high price for Mr. Murdoch, who has shown little inclination to take a back seat in the past. 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.
But putting Mr. Murdoch in the back seat 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.
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 implementing a system that requires bloggers to register on sites with their real names.
Mr. Luo said that foreign 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.
MySpace has had similar trouble in Japan, another important Asian market. Since MySpace Japan's launch in November, new sign-ups have slowed to a trickle, according to a person close to the situation.
MySpace China's managers will need the autonomy to make major changes to the MySpace format, analysts said. "Social-networking culture is already alive and well in China. MySpace is not going to create it -- they will have to tap it," said Sam Flemming, the chief executive of CIC, a consultant that helps companies like PepsiCo Inc. and Nike Inc. track China's Internet culture.
Mr. Flemming noted that the U.S. MySpace flourished as a venue for Americans to express their individual personalities by sharing their favorite music, photos and videos. But in China, where most people write messages anonymously, "it is not always about me and me trying to be cool," he said. "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 declined to say what his company is named.
Then there is the issue of making money. By Mr. Luo's count, there are already as many as 100 companies trying to imitate MySpace in China, and perhaps 200 trying to copy YouTube.
"It's extremely crowded space," said Fan Bao, chief executive of China Renaissance Haiwen, 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."
That said, it seems that MySpace is "trying to learn form the mistakes that most of the foreign players made," Mr. Bao said. "What it takes to be successful in China is a local entrepreneur team."