Netflix and its China dream

Late last week, news broke that American subscription-based streaming video service Netflix is in talks with Jack Ma-backed Wasu Media Holding Company to bring Netflix to China. Netflix, the maker of popular original shows like House of Cards and Orange is the New Black, has aspirations of being a global power, and it can hardly realize those without China’s billion-plus internet users. Netflix spokeswoman Anne Marie Squeo told reporters Netflix plans “to be nearly global by the end of 2016,” which implies a China launch could be coming soon.

The news caused a jump in the stock prices of both Netflix and Wasu, but the personally I think it’s cause for concern rather than excitement.

First of all, what happened to Netflix’s plan to enter China without a partner? Just two months ago, Netflix chief content officer Ted Sarandos told reporters:

It’s unlikely that we would definitely pursue [a local partner model] as a strategy… These ventures become very complex and very difficult to manage, and ultimately difficult to be successful.

Now, barely two months later, the company is reportedly in talks with local partners? What has changed? It’s true that Netflix entering China alone would have been very tough given that it would have to finagle rare licenses out of China’s government in order to operate legally. But the fact that it has so quickly abandoned that dream and embraced a model it called “difficult to be successful” makes me question whether Netflix really knows what it’s doing here. Was the company fully aware of the difficulties when it said it planned to enter China alone? If so, why did it abandon those plans so quickly? If not, why should we believe it’s got a better grasp on China now?

The apparent choice of Wasu as a partner also raises questions, since beyond its internet TV license I’m not sure what that company brings to the table. It certainly isn’t a valuable partner from a branding perspective – it has nowhere near the visibility of other internet video providers. It hasn’t built anything like the massive, nationwide streaming platform for hundreds of millions of viewers that Netflix will be hoping to roll out. And while “backed by Jack Ma” makes for a grabby headline, but neither Jack Ma nor Alibaba have a strong track record of success in entertainment.

It all gives the impression that Netflix has chosen the worst of both worlds: it will adopt a local partner out of necessity but then be forced to go it alone in terms of operations (because Wasu hasn’t done anything like what Netflix wants to do) rather than being able to lean on a strong, experienced Chinese brand for support and guidance.

And of course, the other issues stopping Netflix coming to China have not vanished:

• The company is will still have to struggle with censorship, especially given that some of its flagship original programming contains violence, sex, and political content that’s unlikely to please Chinese censors.
• It will still have to deal with China’s quotas on foreign entertainment, forcing it to license massive amounts of Chinese-produced films and TV series.
• It will still have to fight against local competitors like LeTV and Youku Tudou, who have much more established brands and years and years of data to draw on in determining viewer interests and tastes.
• Netflix will still have to figure out how to make a subscription-based model work in China’s free-to-play world, or alternatively figure out how to invert its business model and monetize itself while streaming for free.

As I have said before, I love Netflix. But this announcement has me deeply worried. When the company said it wanted to go it alone because local partnerships were difficult, I thought that would be tough, but I also thought Netflix had a plan. Now, I think that might just have been a reflection of the company’s extreme ignorance of the Chinese market conditions, and I’m not sure that a partnership with Wasu will do anything to fix the deeper-lying issues with Netflix coming to China.