Netflix has come up with an innovative new business strategy when it comes to China: not going anywhere near it.
In the past, Netflix has made hints of maybe, possibly trying to launch its popular video streaming service in mainland China; however, one section of a letter recently issued to shareholders (and picked up by Quartz) alongside its quarterly earnings report has put an end to hopes of that happening anytime in the near future.
The regulatory environment for foreign digital content services in China has become challenging. We now plan to license content to existing online service providers in China rather than operate our own service in China in the near term. We expect revenue from this licensing will be modest. We still have a long term desire to serve the Chinese people directly, and hope to launch our service in China eventually.
Calling the regulatory environment for foreign digital content services in China “challenging” might just be a bit of a understatement. In recent years, China’s media watchdog, the State Administration of Press, Publication, Radio, Film and Television (SAPPRFT) has repeatedly cracked down on anything entertaining and/or foreign. In March, the government regulator introduced new rules banning television shows from depicting “vulgar, immoral and unhealthy content,” including smoking, drinking, adultery, sexual freedom, homosexuality, perversion and reincarnation. They followed that up a month later with another regulation against reality shows featuring child stars.
But rules against streaming foreign programming have been even more onerous. In 2014, SAPPRFT said that all foreign TV shows and movies must have permits and be reviewed by TV watchdogs before being made available for online viewing in China, causing a mass exodus of American and British TV shows from China’s popular streaming services. This came after the organization went so far as to remove four potentially harmful American TV shows from Chinese streaming sites — including “The Big Bang Theory.”
More recently, SAPPRFT announced even stricter broadcast limits on foreign programming in June, saying that satellite TV channels will no longer be allowed to broadcast overseas programs without approval from regulators, while also limiting them to broadcasting only two programs with imported copyrights during prime time from 7:30 p.m. to 10:30 p.m. every year.
And yet, it has still been even more difficult for foreign streaming services trying to operate in China. In April, Disney’s video streaming partnership with Alibaba was promptly shut down only five months after its launch. That same month, Apple’s iTunes movie store was blocked without explanation, and it remains so.
This all explains why virtually everywhere in the world — including Hong Kong and Taiwan — got Netflix in January of this year, but mainland China was notably left out.
Over at Tech in Asia, Steven Millward also gives a few additional reasons, beyond the regulations, for why Netflix has decided to stay the hell out of China. Millward points out how China’s online video-streaming market is already totally dominated by strong services that are owned by multi-billion-dollar tech giants that can afford to operate inside the “dumpster fire of cash” that the competitive streaming market has become.
Still, Netflix has said it plans to try to license its content to these existing streaming providers, though we’re not sure that SAPPRFT would enjoy watching “Stranger Things.”