Netflix has already missed its China window

Rumors are circulating in the Chinese press that today Netflix plans to announce a China service, offered through a partnership with Wanda. Given that there’s no real source for this information cited in the reports, it’s probably not true. But even though a Netflix China launch likely isn’t in the offing today, we do know that Netflix is interested in China.

Over the past year, Netflix has moved with increasing speed towards Asia. In March, the company launched in Australia and New Zealand. This month, it’s launching in Japan. It has already confirmed it’s coming to Singapore early next year. We know that Netflix is interested in China, and that it wants to be nearly global by the end of 2016. So the American streaming company coming to China doesn’t seem that farfetched, even if the latest rumor proves bogus.

Beaten to its own business

If and when Netflix comes, though, I fear it will be too late. The biggest reason is that Alibaba has already beaten Netflix to market with its own model of subscription-based ad-free streaming: Tmall Box Office . It’s priced lower than Netflix’s services elsewhere, and although it’s still in beta, it’s almost certain to be fully released and established before Netflix could bring anything to bear given China’s complex regulatory environment.

That’s important because as I see it, Netflix’s main differentiator from other streaming video services is the subscription-based ad-free business model. But Alibaba’s Tmall Box Office has adopted that same model. If it works for Alibaba, then by the time Netflix enters the country it will have an entrenched competitor offering essentially the same service it does. And if it doesn’t work for Alibaba, what is Netflix going to do differently that would make its service more appealing? Alibaba has more data, more local knowledge, an army of loyal local customers, and more money to throw at the problem if it chooses to. If Alibaba can’t make subscription-based video work in China, it seems very unlikely that Netflix can. And if Alibaba can make subscription-based video work in China, how much room is there likely to be left over for Netflix?

Content isn’t king

Some might argue that content is a major differentiator too – after all, Netflix original drama House of Cards is so popular in China that even Xi Jinping is cracking jokes about it. But all of China’s major video streaming services offer original content; Alibaba even has its Alibaba Pictures filmmaking arm. And at the end of the day, most of the content on any streaming service is third-party, and obtaining that is just a matter of having cash to burn. Even with its stock slumping, Alibaba’s valuation is still several times that of Netflix’s. In a bidding war for the most popular content for Chinese audiences, Netflix likely could not compete.

Then, of course, there are all the other obstacles that stand between Netflix and its China dream. It would have to comply with government censorship, mandating a lot of costly editing before its programming is China-ready. It would have to comply with content quotas for domestically-produced programming, requiring it to buy a lot of Chinese-made content if it also wants to offer a significant amount of foreign-made video content. And of course in addition to Alibaba, Netflix would also have to compete with the ad-based free streaming sites like Youku and Letv, who already have impressive libraries of popular TV shows and films.

Don’t get me wrong, I love Netflix. It might be the single best value-for-money service I’ve ever paid for. But even if it launches right away – and that seems unlikely – I have a hard time seeing how the company could ever really make things work in the Middle Kingdom now that Alibaba has launched such a similar service.