| A new driver for China's economic growth, media sector has been a focal point of venture capital firms. While those institutions like IDG, Softbank and Carlye all build their portfolio in China media industry, capital is destined to play a vital role in China's media industry development is next 3-5 years. The writer of this paper aims to explore this phenomenon, taking into consideration some unique characteristics of China's media industry. The study is conducted along methodology of management science and theories in economics, information science, journalism and system engineering are applied in this multi-discipline topic.Firstly, to address the issue that the boundaries of China media industry is hard to be defined, the writer use the economic theory of public goods, life circle theory about ever-living enterprises and gaming theory, to analyze the statistics by China media industry blue paper, and thus put down principles to divide China media sector into several categories, as well as characteristics and government constraint of each segment. According to the public goods theory and the policy permission, the writer identifies three types of investment decision target: business for collectively consumed product (semi-public goods attribute) - advertisement service, cable TV service, communication service, SMS service and games; business for individually consumed product (private good attributes) - books, newspaper, magazines, films and A/V products. For collectively-consumed products and individually consumed products, the life circle analysis of media industry shows that innovation always creates extra profit, although business for collectively-consumed products and individually consumed products stand on different stage of their own life circle. Hence, the media innovation is the essential reason that attracts attention of venture capitals. In addition, the writer analyzes the gaming between state-owed capital and private capital, and reaches the conclusion that China government shall reduce state-owned shares and encourage more non-state-owned capital investment for a more preferable mix of two types capital, thus to improve the industry efficiency. Secondly, to address the issue that the system consisting venture capital and Chinamedia industry is different from that for other industries, the writer creates the "Media Innovation Dissipative Structure"(MIDS) System, which is developed on traditional dissipative structure theory, stake holder theory and principal-agent theory, and analyze the characteristics of this system as well as internal relation among various factors. Having conducted a SCP analysis of China media industry, the writer finds that China media industry has been an open system far away from balance status, and that changes of policy and technology have been driving force of system status change. The other force stimulating the progress of China media industry is innovative financial model and recognition of human capital carried by venture capital. Above two forces put China media industry in a dynamic innovation progress, demonstrating characteristics of a dissipative structure. Hence, the writer proposes and builds model for MIDS, demonstrating the mechanism of how venture capital investment promotes innovation of China media industry. At the same time, the writer's analysis on multiple principal-agent relation in MIDS shows that non-cooperation between government and investor will drive the industrial efficiency low, and only when various principals cooperate, agents can be motivated to the extent possible and the system can reach Pareto Optimality. China media industry's innovation is associated with extra benefit, due to highly complimentary resources in MIDS. The writer uses stake holder theory to build a value creation network in five dimensions in MIDS, making clear the process and logical chain along which financial capital and intangible capital create value after venture capital investment in China media industry, and explains the resources of extra profit of MIDS. Thirdly, to address the issue that value of intangible assets is rarely considered in venture capital investment decision, the writer builds the "Double Hierarchy Decision" (DHD) model. The writer believes that venture capital's investment target in China media industry are business for collectively-consumed product and individually. What the former type creates are primarily information products and service, which stands for network value creation pattern, whereas the latter type primarily creates material products, which represents network-chain value creation pattern. The writer analyzes the impact on corporate performance made by financial capital and talent capital carried over by venture capital investment, and identifies thereasons and mechanism about how extra profit is created in the MIDS formed by combination of venture capital and China media industry. Based on above, the writer builds the total utility function of investment decision and constrains of the function. The writer builds the synergy model for all factors, and in principle of maximization of venture capital allocation efficiency and maximization of synergy effects, the writer also proposes the DHD model, which consists of two layers: resource allocation model and synergy decision model.Finally, to address the issue that venture capital investor does not have clear profit control points of China media industry, the writer uses the core competence analysis, reputation management theory and control theory to analyze control points of MIDS and proposes corresponding strategies. The writer believes that media industry has its own characteristics of profit making, although there are 15 types of profit making models. These characteristics show that China media industry is still underdeveloped, lacking core competence, not attaching importance to intangible assets and capital operation efficiency being low. The writers' analysis on value creation mechanism and profit driving chain of MID shows that media companies' profit margin can be improved by three driving factors: knowledge exchange and learning, investment on relation specific assets and relation regulation. Knowledge exchange improves company's capability of innovation, thus building media company's core competence to obtain sustainable and stable competitive advantage and profit margin; Venture capital investment brings great amount of reputation to China media firms, allowing the investees to obtain reputation assets in very short time, thus improving market value and market share; A well designed scheme to allocate control right may provide effective incentive, avoid ethical risk and improve operational efficiency. Consequently, the writer proposes three primary profit controlling strategies: dual-vortex learning power, prioritized reputation investment and optimized control right allocation scheme.In a creative manner, this paper defines segments in China media industry, scope of study, characteristics and government constraints; It also initiates the concept of media business for public consumed products, collectively consumed products and individually consumed products, thus to clearly categorize China's media sector and describe segment characteristics; The writer ofthis paper also creatively builds Media Innovation Dissipative Structure (MIDS) System. The model clearly shows the source of media firms' incentive for innovation and resources they need, demonstrates the role of venture capital in driving value creation, and especially emphasizes the importance of intangible asset transformation in venture capital investment; The paper creatively builds the Double Hierarchy Decision (DHD) model for venture capital's investment in China media industry, in which intangible asset is systematically included as investment decision factor; The paper supplies methodology to operation of China media business, by its creative proposal of profit controlling strategies: dual-vortex learning power, prioritized reputation investment and optimized control right allocation scheme. Finally, the writer analyzes and tests the paper with real cases.
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