Netflix set to enter China through licensing deal

Great Wall of China
Great Wall of China. (Sean Pavone/iStock/Getty Images)

Netflix is gearing up to enter the final major market in the world where it is not currently operating: China. The move is significant considering it gives Netflix access to a country with roughly 450 million viewers and a value of around $14.5 billion.

However, Netflix’s entry into China is being conducted through a local company, iQiyi, a streaming video subsidiary of Chinese search giant Baidu. That’s not surprising though: China’s government has largely prevented American tech companies from direct entry into the country, and so as a result many have partnered with local firms to gain access to what is generally viewed as the world’s most populous and valuable geography.

Related: Netflix giving up on China, for now, as provider concentrates on long-term content strategy

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"China is an important market for obvious reasons; it's also a challenging market for obvious reasons," Robert Roy, Netflix's vice president of content acquisition, told The Hollywood Reporter. "Right now what we will do is look to license content into China.”

"For us, it does a couple of things," he added. "It gets our content distribution into the territory and builds awareness of the Netflix brand and Netflix content."

Interestingly, Netflix’s Roy said that some Netflix originals would arrive on iQiyi on the same day they are released in the rest of the world—that’s noteworthy considering Chinese regulators typically retain a tight grip on content released in the country. For example, Netflix’s "House of Cards" was released in China through the country’s Sohu.com portal but was held up for weeks because the country's media regulator, the State Administration of Press, Publication, Radio, Film and Television, had to view every episode before deeming it acceptable for the public.

Related: Netflix will succeed in Japan, but China is a whole other ballgame

Nonetheless, China has long been a target of Netflix, which early last year expanded its services across most of the world.

"I would say China continues to be sort of its own entity in terms of the challenges and the characteristics of the market," David Wells, Netflix's chief financial officer, said in 2015. "We're taking our time and being deliberate in finding a path and the right model to work."

Netflix isn’t the only company that has faced challenges in China. For example, Google withdrew from the market in 2010. Facebook was blocked from the country in 2009. Both companies have been in discussions to return.

An agreement to enter China could be significant for Netflix as it works to continue expanding its subscriber base, which recently passed the 100 million-customer mark. Specifically, Netflix said it expects to add another 3.2 million subscribers in its current quarter. Analysts said earlier this month that that target might be an understatement—and that was before Netflix announced its agreement for China.

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