Rupert and Wendi Deng Murdoch and Google (NSDQ: GOOG) may benefit from the planned $200 million Nasdaq floatation of Xunlei (“Swift Thunder”), a Chinese online content distributor.
This April, the Murdochs made a $29.4 million third-round investment in the company through RW Investments LLC (“R” for Rupert, “W” for Wendi”). It is not a News Corp (NSDQ: NWS) investment, though the documents were signed by News Corp finance SVP and News America Inc treasurer Paula Wardynski.
Rupert Murdoch told paidContent:UK: “Wendi and I recently made a personal investment in the Chinese video and music internet company Xunlei Limited, through RW Investments. We believe in the talented entrepreneurs who launched this company and we are confident they can build a successful entertainment offering that respects the rights of copyright holders and artists. They have committed to us that they will do so.”
Visiting the Shanghai International Film Festival along with his wife, he said of the Chinese movie market: “The truth is there is no more exciting market in the world than this one.” But he said limits on the number of movie imports to China represent a challenge (via AP).
Google also invested $5 million in Xunlei back in 2007 and is currently a principal shareholder to the tune of 2.8 percent.
Now Xunlei has filed an IPO, for ADS shares under the “XNET” ticker, to raise money for data centres, content acquisition, online game licenses, technology development, working capital and potential acquisitions.
Along with the IPO, ex Google China VP Kai-Fu Lee is joining Xunlei as an independent director. The Murdochs’ investment was described as “secret” by the news wire of IDG, which itself is a 12.2 percent principal shareholder and which puts Xunlei’s valuation at $10 billion.
Xunlei first launched its Downloader application in 2004, letting users download video and other content quickly on a Chinese internet where growing broadband adoption can sometimes slow connections. Now it has 291 million active connections (source: iResearch) and has a suite of cloud services for accessing media content, including its own video portal Xunlei Kankan, which is China’s third-placed and is effectively like Hulu. It also operates a subscription service and its own media player software.
Xunlei has not escaped China’s piracy problem – 126 lawsuits were filed against Xunlei in 2010, but it says 87.7 percent of the complaints were dismissed by Chinese courts. The RIAA complained about Xunlei to the Office of the United States Trade Representative in November, and MPAA members are complaining it is distributing movies without authorisation.
Xunlei acknowledges its Nasdaq listing may expose it to more such complaints and even that “we may be liable for videos and other content that are displayed on our Xunlei Kankan website”.
Xunlei made a $25.7 million profit in 2010, most of which comes from online advertising. In December, Xunlei identified “a significant deficiency and other control deficiencies in our internal control over financial reporting”, primarily non-compliance with US accounting rules. It has since hired financial executives with the necessary knowledge of compliance.
This would be just the latest float of a Chinese company in New York, some of which have not been successful and some of which have been beset by accounting scandal.