Netflix and China

Netflix has blamed challenging Chinese regulation for its decision to not move into the country, however with competitors such as iQIYI enjoying fast growth, regulation is not Netflix’s only concern. China has always been a difficult country for western companies to be successful.  Internet censorship limits what companies can and cannot do.  This year both Apple’s iTunes store and Disney and Alibaba’s joint streaming service partnership have been shut down. Chinese companies are more experienced in dealing with China’s regulatory climate and fulfil the requirements of high levels of home-grown programming.

China is already a hugely competitive market for SVoD services. Baidu’s iQIYI is the current market leader with an estimated 25m subscribers in Q3 2016. In an effort to promote Chinese traditions and socialist core values, Chinese media regulation is currently limiting the amount of foreign broadcast programming to two prime time slots per year. In terms of online services, the government has introduced a ‘moral filter’ which gives them the authority to censor or remove any content which promotes values and themes outside of a prescribed list. In order to avoid falling foul of this regulation, Netflix plans to introduce some of its content through a local online service provider, which will allow it to test government and consumer responses to its existing content with fewer legal and regulatory risks.

Other international markets have proved more promising for Netflix. In Q3 2016, it added 3.2 million international subscribers across its almost universal presence. Going forward, localisation will need to be the key consideration for Netflix, as it struggles against local SVoD services that are already highly adapted to meet the needs of their audience. In Australia where English is a native language, Netflix achieved 62.1% market share in its first three quarters of operation. In contrast, in non-English speaking countries such as Poland or Turkey, its market share was 9% and 7% respectively. Both Poland and Turkey have local SVoD services, and Netflix will not be able to fully compete with them until it is able to ensure local currency billing and larger localised content libraries.