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Nearly a decade ago, Sony opened a Chinese-language production office in Hong Kong. But the unit has had trouble finding success on the scale of "Crouching Tiger, Hidden Dragon." In fact, it hasn't made a movie in the past two years.

By contrast, India has proven bountiful for Sony Entertainment Television, which has become an established TV player in the country and is now expanding from movie buyer into local production.

Similarly, Warner Bros. recently sold off its multiplex chain in China due to a change in government policies on ownership, while in India, overseas investors are embracing a blooming number of exhibition chains.

It raises an interesting question: Should media congloms be looking to China's neighbor, India, as the next great marketplace?

With its rapidly expanding workforce and 8% annual growth in GDP, India is on a similar upward trajectory as China. Moreover, its openness in trade, its increased competition and productivity have one recent Goldman Sachs study predicting India's economy could rank second to China's by midcentury, ahead of even the United States.

"I've just gotten back from a meeting in L.A., where I was told they'd taken away my funding," the China head of one Hollywood company said recently. "They are going to put it in India."

Culturally, the two countries could not be more different. India is more of a shirtsleeves kind of place, while China long ago ditched Mao suits for better-made business attire and more intimidating settings. Chinese meetings involve big rooms with huge armchairs and semiformal statements of position and policy.

But in both countries, you can get lost in red tape once you move away from the negotiating table. As great as growth is, India still struggles to improve its infrastructure, as electricity in some areas is sporadic. Half of urban households lack drinking water within the home, a report in the Economist says.

Hyde Park Entertainment's Ashok Amritraj, an Indian native who is setting up projects there, says the country has "a brilliant, amazing chaos" -- elaborate skyscrapers and technology juxtaposed with "traffic jams created by a bunch of cows." Bollywood has its own traditions.

"There's a lot more reading between the lines," Amritraj says. "You don't have the lawyers dotting the i's and crossing the t's. It is very much a relationship business."

Like in India, Chinese authorities come across as friendly and anxious to do business, in a country with a younger generation of avid capitalists. But ultimately projects are constrained by perplexing bureaucratic mandates.

For major congloms, their investments in Asia are not a matter of China or India, but of a willingness to wait.

"How could you not be in both? I can't get my head around that," says Jim Gianopulos, co-chairman of Fox Filmed Entertainment. "The markets are very different. But they are similar in their enormous potential, massive populations, high rates of piracy and absence of fully developed retail and distribution structures."

His choice is made easier because Fox and parent News Corp. have long had a commitment to be a global player, with operations in every meaningful market in the world.

At a New York media event last week, News Corp. chairman Rupert Murdoch said, "If there was any country in the world I would double down on, it's India. There is a working democracy, the rule of law.

"China is vast. But China has not opened up yet. We keep a presence there. We're going to behave ourselves and be there until we see a change in policies. And it will have to come. It's a sovereign country, and that's the way they do things, and we'll just wait."

Some companies, however, have picked one over the other (see story, next page). Asia's market dynamics and regulatory climate are giving studios plenty to think about.

Until last year, the world's entertainment giants viewed China as the next great thing. CEOs and studio heads made regular trips to Beijing, Asia-Pacific operations were made as China-friendly as possible and there was expansive talk about co-productions and joint ventures. Congloms were not simply attracted to the size of the market; some were also interested in producing at the "China price." That's the rock-bottom price that Chinese firms seem to be offering in so many business sectors.

And there has been a lot of talk about the Chinese media and entertainment markets becoming more open, driven by the country's entry into the World Trade Organization and its desire to look good at the Olympics in Beijing next year.

But for some western media firms, the China dream is being tarnished.

Companies are finding it is still difficult to build meaningful businesses in China or remit profits out of the country. Western movies may have grossed $102 million in China in 2006, but with the revenue share starting at 13% and rising to a maximum of 17%, the net benefit was probably no more than $15 million.

Strictly speaking, China may not be anti-Western, but it does everything it can to favor its own. Chinese films have scored impressive box office, but with the aid of market manipulation in favor of local product. "The Da Vinci Code" was pulled from theaters, while numerous other movies suffered numerous delays and blackout periods when they could not be released.

Meanwhile, the Chinese pic "Curse of the Golden Flower" was genuinely popular and scored more than $31 million, but Chinese auds were not given much alternative: Regulators made sure the annual 20-film quota for big Western films was exhausted before "Flower" blossomed on 825 screens.

India, meanwhile, is seen as moving in the opposite direction, with deregulation of the TV and retail sectors helping local and foreign firms pick up the pace of economic development. One recent example: UFO Moviez, a fast-expanding digital distributor and supplier of digital film equipment, in January attracted $15 million in capital injection from a British VC firm.

With a population close to China's 1.3 billion, the potential for growth in India is staggering. In fact, the country's lucky stars may finally be in alignment.

• Due to a wave of multiplex construction, the theatrical market is expanding. That's allowing the first steps toward nationwide (rather than state by state) releasing.
• The pay TV market may boom if mandatory set-top decoders allow subscription revenues to flow to rights owners, rather than mom-and-pop cable pirates. The country is expected to have five DTH satellite platforms by the end of 2007.
• The development of an organized retail sector of chain stores and supermarkets is driving growth of home entertainment, even as it looks wobbly in the rest of the world.
• With cell phone numbers growing at more than 5 million per month, mobile entertainment is delivering real gaming and music returns. Because TV penetration is low compared with other, more developed countries, including China, some analysts expect mobile ownership to even outstrip TV.

Chinese firms have little problem attracting venture capital and private equity coin. There are several Chinese firms with NASDAQ listings, but these tend to be in the Internet and telecom sectors, rather than in media and entertainment, where the state likes to keep control.

The apparent anti-Western stance seems to stem from high-level Communist Party apparatchiks and is enforced by state regulations that have taken several steps backward since a regime change 18 months ago.

Former Disney execs have told Variety that they could already be well on their way to building the much-talked-about Shanghai Disneyland park that both the city and the Mouse House are anxious to see break ground.

The hitch is that Disney apparently has linked the issue of a mainland park to getting its channels on the air in China. Like all Western groups, including those broadcasting in Chinese like News Corp.'s Star, foreigners have only been given landing rights in Guangdong Province, in 3-star or higher-rated hotels, and in foreigners' compounds.

Others say China's tough policy stance is meant for public consumption and can be very different from behind-the-scenes pragmatism. Senior public affairs execs based in the region say it is perfectly possible to work together, but the key to success is not crowing about it.

Whatever the truth about News Corp.'s ad sales operations exceeding its mandate at the Qinghai local satellite channel, Murdoch's greater error may have been his volume and visibility. In that respect he has changed his ways. Other international groups have apparently caused ire in Beijing by revealing too much financial detail in their annual reports.

So how far will the pendulum swing India's way?

"China is too frustrating to deal with, too lucrative to ignore," says one corporate insider.

India's big drawback has been that the level of overall economic development is significantly behind China and its entertainment industry is largely isolated from the rest of the world. Local-language movies account for 95% of the box office, and the soundtracks of Bollywood dominate the music industry.

"What is shocking is the fracturing of the old Hollywood, imperial model where we could talk of a home office and the far away provinces," says one studio exec. "There is a growing regionalization of the film business. Some countries seem to be able to do without Hollywood. India and Korea are extreme examples. China would like to, and even Japan is leaning that way."

Although Bollywood is bigger in absolute terms, the Chinese industry has been more successful on a world scale.

"The Chinese films generally have had larger success outside of China than the Indian pictures have had outside of India," says Sony's Michael Lynton. "The market outside India is largely people who are part of the Indian diaspora."

Indian regulators are just as capable of infuriating congloms. Barely a month had passed after a new policy was put in place for mandatory conditional access systems, or set-top boxes, in order to curb cable TV theft by mom-and-pop pirates. But then regulators decreed that pay channels should not be allowed to charge more than 1 rupee (2 cents) per month, in order that the poor also can afford their shows.

Appeals are ongoing, but the notion that either country will enact reforms for the benefit of foreign interests is somewhat ridiculous.

"In the end, the Indians will prove to be no different than the Chinese," says Andre Morgan, one of Hollywood's most experienced Asia hands, who recently signed a three-picture deal with state-run China Film. "They are interested in what we can do for them."

Among Indian producers, "there's a cautious note when it comes to the studios," Amritraj says. "There's always a concern when a huge company comes into a smaller industry. You always wonder what they want and why they want to do business with you."

Both countries are making some progress on copyright issues, even if it has been an uphill battle for U.S. firms. Chinese courts are increasingly enforcing copyright laws, and one recently established principle is to pay music royalties. In Delhi last year, a court made it clear that rental libraries are illegal, and studios are now encouraging stores to go legit.

"We have to talk to government, not just about respect of IP, but also about building a tax base," says Gianopulos. "A lot of people getting to see movies for free (on pirate disc) is a cheap way to keep them entertained. But that is a massive black market economy that the state never benefits from."

The biggest hurdle to success in Asia may be adapting Hollywood mindsets to local ways. Winners will likely be those that do not flex studio muscle, but learn to hitch their wagons to local power structures, and those who make local films without expectation of them traveling. Just adapting to the way many films are made can be a challenge, what Amritraj calls "pickup and dropping," where three months of production can be followed by a six-month break.

While bullish on India's growth, he adds that U.S. firms "will have success if they have the patience, but in the short term it is going to be very difficult for them."

After all, even with all the headaches, the ultimate lure is each country's billions of dollars of potential. Indian Rupee - Sensex index - Forex