Netflix extends its global reach to China – but not on its own terms

Through exclusive licensing deal with Chinese streaming-video provider iQiyi, Netflix finally taps into mainland China’s US$8.83 billion online video market

PUBLISHED : Wednesday, 26 April, 2017, 6:35pm
UPDATED : Wednesday, 26 April, 2017, 10:27pm

Netflix moved a step closer to worldwide dominance with a major licensing deal that enables its original programmes to gain access to China, a vast entertainment market that has long eluded the world’s largest pay-TV service.

Through an exclusive licensing deal with iQiyi, China’s major streaming-video provider controlled by the country’s internet giant Baidu, Netflix is expected to bring a wide range of content to China, where the online video market was valued at US$8.83 billion in 2016, slightly bigger than Netflix’s global streaming revenue of US$8.3 billion in the same year.

According to a statement from the Beijing-based iQiyi, the licensing deal covers a wide range of Netflix’s programmes, including original TV series, animation and documentaries. The latest seasons of Netflix’s hit TV series, such as Black Mirror and Stranger Things, are expected to be available to iQiyi’s more than 20 million paid subscribers simultaneously with Netflix’s broadcast in the United States.

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Despite the major breakthrough, analysts are not entirely confident that Netflix can replicate its huge success in China as the majority of Chinese are still used to watching free content online. Advertisements contributed about 54 per cent of the revenue for China’s online video sites in 2016, said market research firm iResearch.

“Netflix will gain some success, but not in a large scale unless it changes its business model in China, because paying for subscriptions is not the mainstream of consumer behaviour yet,” said Wang Xiaofeng, senior analyst with Forrester Research.

But Chinese are catching on to the subscription behaviour very quickly. iResearch predicts that subscriptions will contribute about 38 per cent of the revenue for online video sites in China by 2019, a significant growth from 19 per cent in 2016.

While China market offers a massive opportunity for film and TV studios, censorship and protectionism make it tough for Western media companies to do business.

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“Cooperation between the companies will adhere strictly to Chinese regulations on film and TV imports,” said Yang Xianghua, senior vice president of iQiyi in a statement.

Wang Chuanzhen, analyst with the Beijing-based internet consultancy Analysys, added: “iQiyi already knows these regulations well so it can help Netflix to get familiar with these rules.”

Netflix has been looking for a way to break into the mainland Chinese market as part of its plan to reach a broader global audience. The California-based company expanded to 130 countries last year, with China the sole major market not included. Netflix surpassed 100 million subscribers worldwide last weekend.

Some Netflix content has already made its way to China. House of Cards enjoyed great popularity in China when it streamed on the country’s online video site sohu.com. But broader access to China had eluded Netflix – until now.