AOL, Legend may thrive where China firms struggle
REUTERS
AOL Time Warner chief executive Gerald Levin, set to announce an expected US$200 million Internet joint venture with top China PC maker Legend, hopes to succeed where Chinese firms have struggled.
The pending deal, to be announced by Levin and other executives of both firms on Monday at 4pm (0800 GMT) in Beijing, is expected to be structured to navigate China's ban on foreign ownership of content providers.
The tie-up is also expected to try to leverage Legend's dominance of the mainland's fast-growing consumer PC market with the experience of AOL's success in the United States. It is also seen accelerating consolidation in China's crowded and money-losing Internet sector.
But industry watchers said it might be years before the AOL/Legend venture generates any significant return.
"I'm actually a bit sceptical, because in the US AOL had a long, eight to 10 year lead," said one analyst.
A phalanx of portal firms, the top three of which are Nasdaq listed, have thus far captured the eyeballs but not the wallets of China's Internet users.
Still, the tie-up will give AOL a significant head-start in China ahead of foreign rivals such as Yahoo and Terra Lycos.
"Clearly, China's Internet market is going to be big eventually," one analyst said. "Whoever moves in first necessarily has an advantage."
The benefits for Legend, which has a 40 per cent share of China's consumer market and already bundles online access capability onto some PCs via its www.fm365.com site, are less clear, analysts said.
"The only thing attractive for Legend is to ensure that a world-class player such as AOL does not partner with any other ISP [Internet service provider] in China," Kim Eng Securities wrote in a recent research note.
Added Nomura International computer analyst Theodore Teo, speaking of Legend: "I'll be happy if there's any, but I don't think there's any impact on the top or bottom line at the end of the day."
What seems more certain was that the tie-up would accelerate the already-percolating consolidation of China's fast growing but unprofitable Internet sector, where online advertising revenue was expected to total just US$80 million this year, according to Merrill Lynch.
Hong Kong's i-Cable Communications said on Monday that it was holding acquisition talks with China portals NetEase.com, Sina.com and Internet conglomerate Chinadotcom.
Analysts have said the AOL/Legend venture would exert added pressure on the country's top Internet portals - Sina, NetEase and Sohu.com - to find buyers.
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