5 reasons why Netflix just said NOPE to China

One year after we wrote that Netflix has totally missed the boat to China, the streaming service has finally decided on its China strategy – and it’s a big, fat NOPE.

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“The regulatory environment for foreign digital content services in China has become challenging,” said Netflix yesterday, using diplomatic levels of understatement, in a letter to shareholders (hat-tip to Quartz and its amusingly titled story for spotting this) alongside its latest earnings report.

As a result, Netflix will just license its shows to the nation’s streaming sites “rather than operate our own service in China.”

There are quite a few reasons why NOPE is totally the right answer.

1. China’s streaming sites are really strong

China has nearly a dozen well-established and well-funded video sites run by some of its biggest tech giants – like Alibaba-owned Youku and Baidu spin-off Qiyi.

They started out as spaces for people to upload videos of their kid falling off a bike, but now they’re focusing a lot more on movies and TV series – ones they license from around the world, as well as some commissioned by the companies themselves.

All these Chinese streaming sites are largely free and ad-supported, even for big-name shows and films.

2. Prices are low

But… an increasing amount of content is being restricted to “VIP” users who pay a monthly or annual fee. Jack Ma’s ecommerce powerhouse Alibaba took that one step further just over a year ago with the launch of its subscription-only streaming service, TBO, which is available only to owners of its set-top box.

As Chinese consumers move slowly away from piracy and ad-supported streaming, companies are being careful to make the price tag as tiny as possible.

On both TBO and Youku, Alibaba charges just over five bucks per month or US$59 per year. Those are way below the US$10 monthly fee Netflix charges in the US – or even the more gentle US$8 in India.

3. Censorship and restrictions are crazy

This is actually the biggest barrier to Netflix – China’s media environment is not just “challenging,” the legislation is downright hostile to foreign companies.

On top of that, authorities last year clamped down hard on video sites, heavily restricting how they operate and what they can show in terms of foreign movies and TV series.

The result was a massive purge of American and European shows from the Chinese sites. Korea’s saccharine woman-chooses-between-nice-but-boring-or-rich-and-evil-dude-omg-what-a-quandary comedies mostly survived the cull.

Foreign content now needs regulatory approval on a per-series basis.

Chinese fans of Sherlock or Game of Thrones – or Netflix’s Orange is the New Black – might as well go back to torrenting.

Netflix’s statement yesterday says it expects to make only a “modest” amount of money from licensing shows to Chinese sites.

4. It’s a dumpster fire of cash

China’s online video market was worth US$3.5 billion last year and will rise to US$17.6 billion in 2020, say the boffins at IHS Markit. But that’s just the revenue churn, like paying out for licensing deals and getting back cash from ads, not the promise of profit.

With subscriptions largely optional, streaming sites are reliant on unpopular ads to make money from all those shows and movies – indeed, 95 percent of the revenue in that sector in China was from ads in 2014.

That’s why streaming is dominated by China’s multi-billion-dollar tech giants – they’re the only ones that can afford to burn so much cash each year.

5. Oh yeah, did I mention Netflix is too late

Like, really, really late.

Netflix hasn’t entirely closed the door on China as the statement stresses that this new direction is its “near term” strategy.

Converted from Chinese yuan. Rate: US$1 = RMB 6.74.

This post 5 reasons why Netflix just said NOPE to China appeared first on Tech in Asia.

from Tech in Asia https://www.techinasia.com/netflix-china-nope
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