5 problems standing between Netflix and its ambitious China plans

Netflix wants to come to China. That’s what Ted Sarandos, the company’s chief content officer, told reporters earlier this week in Shanghai. Breaking into the Chinese market is an aspiration of many Western companies, of course, but Netflix’s vision is a little different: it wants to go it alone.

Sarandos told reporters that the usual model for launching a Western tech service in China – partnering with a local company for a joint venture – doesn’t much interest Netflix. Such ventures are, Sarandos said, “difficult to manage.”

He’s certainly not wrong. One need not look far into the past to find examples of Western joint ventures with Chinese companies that went poorly. Groupon’s partnership with Tencent, for example, has ended with the West’s premier daily deals site becoming a group buying also-ran in the Middle Kingdom. With the potential rife for conflicts of interest with any Chinese partner that could give Netflix an in to the Chinese streaming video market, Netflix may be wise to go it alone.

But if Netflix does choose to go its own way, the road ahead will not be a smooth one. Here’s why:

1. Licenses

Even operating a simple website in China requires a license. A wholly foreign company operating a streaming video site with foreign-produced TV shows and films? That will require navigating a virtual mountain of red tape. Sarandos himself told reporters the company would need to procure eight different licenses to set up its business in China. But whether or not that will even be possible is an open question. No foreign company like Netflix has ever tried to set up a streaming video service in China, and Chinese authorities might simply refuse to grant some or all of the necessary permits (for any number of plausible reasons).

2. Censorship

Everything that’s available on Netflix’s China platform would have to be approved by Chinese authorities. That means that some shows and movies will be banned outright, of course. But other shows would need to be edited, which Netflix would have to pay for. Even for shows that are ultimately approved for viewing in China, the cost in time and money to Netflix to bring them through the approval process will not be insignificant.

The Netflix dream.

3. Quotas

It’s unclear what kind of rules would be applied to a foreign video streaming service, but domestic TV streaming sites in China have government-mandated quotas for foreign TV content. Most recently, Chinese authorities announced that in 2015, the number of foreign shows Chinese video streaming sites can import may not exceed 30 percent of the number of Chinese shows they added to their offerings in 2014. Netflix certainly won’t be ready to launch in China in 2015, so the specific requirements are almost certain to change, but the general principle being laid out now is that streaming video platforms must offer significantly more Chinese shows than they offer foreign shows. For Netflix, that could be difficult given its lack of connections in the local entertainment industry.

4. Strong local competitors