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Rupert and Wendi go shopping in China

Grab stake in P2P giant ahead of US$200m IPO

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The Murdochs are taking another stab at the Chinese media market, confirming a US$29.4 million stake in Chinese P2P video site Xunlei, which has filed for a US$200 million Nasdaq IPO.

Rupert Murdoch and his wife Wendi made the investment via one of their private investment, vehicles RW Investments (yes, it stands for Rupert and Wendi) not via News Corp, in April.

In a cosy tryst, they join fellow investors Google, holding a 2.8 percent stake following a $5 million investment in 2007, and publisher IDG which has a 12.2 percent shareholding. Former Google China VP Kai-Fu Lee is also joining Xunlei as an independent director.

The Chinese "You Tube meets BitTorrent" site, Xunlei, which means ‘Swift Thunder’, launched in 2004 and generates most of its revenue from online advertising.

Ironically for Murdoch, the site is also China’s largest user of the BitTorrent protocol.

In its IPO filing for the US SEC Xunlei reveals that it has been involved in litigation based on infringement allegations from content owners. Recent activity includes 108 lawsuits in 2009, 126 lawsuits in 2010 and 10 lawsuits to March 2011 in China, all for alleged copyright infringement.

The company also warns in its IPO that a law firm representing the Motion Picture Association of America has flagged that some of its members may make claims of copyright infringement against Xunlei, and have requested that it enters into a content protection agreement with them in order to stop the action.

The company currently has 33 copyright infringement lawsuits still pending with claimed damages of around US$3.4 million.

Xunlei also offers cloud services for storing media content, including its own streaming video portal Xunlei Kankan, for which it claims 120 million monthly visitors, and also operates a subscription service and its own media player software. Market estimates put its current active members at the 290 million mark.

According to Chinese market research firm iResearch, Xunlei owns 3,600 servers and has over a million third-party servers running its P2P software. The Xunlei server farms maintain and update an index of over 3.7 billion digital media files available on third-party servers and PCs connected to Xunlei's resource discovery network.

The company claims that it will use the proceeds of its IPO for data centers, content acquisition, game licenses, technology development, working capital and potential acquisitions.

The IPO will be underwritten by J.P. Morgan, Deutsche Bank Securities, Cowen and Company, Needham & Company, LLC, and Stifel Nicolaus Weisel. ®

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