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 Netflix said on Tuesday it would expand to as many as 200 countries
within two years, up from about 50 now, to extend its growth
prospects. "For every country we know what we want to do, but in
China we are still exploring our options," Chief Executive Reed
Hastings said in an interview.
Hastings told investors Netflix would start with a "modest" move in
China centered around its original series and licensed content.
"We'll learn a great deal if we can successfully operate a small
service in China...That is our preference, for the next few years,
if we are able to acquire the necessary permissions," he said.
But China, with two Internet users for every U.S. citizen, is not
easy for foreign firms. Google Inc, YouTube, Facebook Inc and
Twitter Inc, have all been blocked in the country.
And China now boasts domestic online giants from Tencent Holdings
Ltd and Alibaba Group Holding Ltd to rising smartphone maker Xiaomi
Inc. Together they are spending hundreds of millions of dollars to
bring foreign TV and films to China.
"The real question is do they (Netflix) think they've got something,
have they hammered out all these relationships with foreign content
providers that Chinese companies can't offer?" said Mark Natkin,
managing director of Beijing-based Marbridge Consulting. "My sense
is not."
To succeed in China, Netflix may also need flexibility in its
business model, both in finding ways to accept payments and in
coping with a domestic streaming market built on advertising rather
than subscriptions. And it may need to tailor its programming -
"House of Cards" has aired in China in dubbed form, to critical
acclaim, but garnered comparatively small audiences.
PAYMENT QUESTIONMARKS
CEO Hastings acknowledged in an interview the "relatively low"
prevalence of credit cards for online payments in China. To get
around this, Netflix may have to partner with online payment
services - the biggest of which are run by Alibaba's PayPal-like
affiliate Alipay and Tencent's payment platforms.
Netflix's potential Chinese rivals, which broadcast popular domestic
entertainment as well as foreign content, have another advantage:
they are free, supported by advertising in a market where people
don't expect to pay for online media. Subscription models are almost
entirely non-existent in China.
If Netflix doesn't go with an established Chinese partner, it needs
a license to operate. "It's not 100 percent clear we'll be able to
do that," Hastings told analysts.
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Even with a license, home-grown competition will be tough. China's
regulators are imposing new licensing and quota restrictions -
helping the domestic TV and film industry develop with less
competition from mature foreign media, analysts say. The state has
reserved the right to remove anything it considers "harmful" content
from the Internet, ranging from what it deems to be pornography to
"distortions of history".
Netflix's content itself may be an issue for an audience as
particular as China. "House of Cards", with Academy Award winner
Kevin Spacey as star and co-executive producer, was well received in
China but its latest season got 8.2 million average streamed views
per episode, a small audience for a nation of 1.3 billion.
Meanwhile, the BBC's "Sherlock" detective series had 29 million
views per streamed episode on average on Alibaba's Youku Tudou Inc,
while South Korean romantic comedy "My Love from the Star" had a
whopping 181 million average views on Internet firm Baidu Inc's
iQiyi and streaming site LeTV combined. Two popular Chinese shows
averaged 76 million and 61 million per episode.
For Marbridge Consulting's Natkin, Netflix's ambition provides an
echo of that voiced by the string of international firms dazzled by
the market's promise, obscuring China's complexities.
"Another company...sees this magical 1.3 billion number, multiplies
it by some fractional percentage of market share, and that equals a
pot of gold at the end of the rainbow," said Natkin.
(Additional reporting by Beijing Newsroom; Editing by Kenneth
Maxwell)
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