China Remains Roadblock to Netflix's Global Expansion Ambitions

Netflix Goes Live in 130 New Countries
  • Netflix still in talks with Chinese partners to enter country
  • India added; China remains gap in worldwide coverage goal

Netflix Inc.’s massive expansion of its online movie streaming service to cover 130 countries and territories has one glaring absence: China.

Strict controls over content and the need for a local partner to meet licensing restrictions are standing in its way. That’s prompting talks with the nation’s largest Internet companies, including an affiliate of Alibaba Group Holding Ltd., to clear the way for an expansion into a country with more web users than any other.

Netflix wants to become the first global online TV service, with its latest expansion adding countries including India and Russia for movies and its own content, including the critically-acclaimed of “House of Cards.” While mainland China offers an online video market estimated to reach about $14 billion within three years, content rules are strict and Internet giants Alibaba, Tencent Holdings Ltd. and Baidu Inc. offer their own services.

When asked why any of China’s three biggest Web operators would be a partner given their competing services, Chief Executive Officer Reed Hastings said Netflix was in talks with the companies and the government.

Youku Tudou

“Our efforts in China are modest. We’re on a slow and steady path,” Hastings said at the International Consumer Electronics Show in Las Vegas on Wednesday.

Representatives from Alibaba, Tencent and Baidu weren’t immediately able to comment.

Wasu Media Holding Co., which is backed by Alibaba Chairman Jack Ma, held talks with Netflix last year, the company said in May.

Alibaba itself is buying YouTube-like Youku Tudou Inc., Tencent streams live NBA games and content from HBO while Baidu owns video site IQiyi. China’s online video market will almost triple to 90 billion yuan ($13.7 billion) by 2018, according to Shanghai-based Internet consultant IResearch.

Content Rules

Netflix would also need to sort out content censorship regulations with Chinese authorities. Starting last April, new episodes of foreign programs cannot be shown until after the shows’ seasons have ended, according to a government notice. Episodes need censor approval, as content deemed violent, sexual or offensive to the ruling Communist Party will be cut, according to the notice.

Hastings says recent subscription services like DisneyLife, jointly offered by Alibaba and Walt Disney Co., set good examples of how Netflix could expand in China. Netflix stands a better chance to operate in China due to the neutrality of its content, says Hastings.

“We’re not really controversial like a sharing service like YouTube,” said Hastings. “We’re more like Disney or Starbucks as an entertainment and lifestyle service.”

While the company’s expansion excluded mainland China, it did include Hong Kong, which is designated as a special administrative region.

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