Monday, May 1, 2017

Netflix Gets a Foothold in China

Netflix gets a foothold in China

Netflix has been trying to get into the massive Chinese market for years now, and, as of a report by CNN last month, they may have actually cracked the code. At least it looks that way for now.

Netflix recently signed a licensing agreement with a video streaming platform called iQIYI, which is a subsidiary of Chinese search engine provider Baidu. The streaming service is very popular in China so this agreement may give Netflix an early edge even as the relatively new kid on the block.

Netflix has sweetened the deal by offering megahit series such as Stranger Things as well as other original series including Mindhunter and Black Mirror to the Chinese market. This somewhat limited success comes not that long after Netflix said it has unilaterally failed in its bid to break into the Chinese market. Between government regulations and strong domestic competition, the company just didn’t have a shot. Now, apparently, it has a toehold … and that may lead to more opportunity.

There’s no doubt that Netflix would rather be the captain of its own ship in this situation, but that just wasn’t going to happen. As a consolation prize, Netflix plans to enter into several licensing agreements similar to the one with iQIYI. It will have to manage several deals if they want to really make a good return on their investment.

Licensing deals don’t bring in nearly as much revenue as a straight streaming deal, but the sheer number of potential viewers in China makes the licensing strategy worth the risk for Netflix.

The next stage of the game is to draw Chinese fans. The profit disparity between a straight broadcast deal and licensing won’t matter as much if they can’t get eyes on their programming. There is definitely a market for premium content in China, and the Chinese do tend to love a lot of American media … but there’s no guarantee they will take advantage of this opportunity.

If Chinese viewers don’t like what Netflix has to offer, the company might find the door slammed again, and this time for good. That means they will have to choose – and choose wisely – when deciding which original content to license.

Stranger Things is a shoo-in. The spooky drama plays huge on 80s TV and cinema tropes, something the Chinese market should absolutely love, at least as much as American audiences did. And Netflix already has one hit show in China. Audiences loved House of Cards. The drama series was streamed through another service to appreciative audiences. But the love didn’t last. Strict Chinese censorship laws forced the streaming provider to pull the show.

And that’s yet another element of the tightrope Netflix will have to walk. Yes, they’re in … but that’s just the beginning of the challenge.

David Milberg is a financial analyst from NYC.

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