Netflix Says Zaijian to China

By Lily Wang

Netflix is the latest U.S. tech company to abandon its efforts to capitalize on China’s enormous online market.  In a statement issued alongside its quarterly earnings report, the company informed shareholders that it will no longer pursue a full-service offering in China due to hazy government restrictions and ruthless competition.  Instead, Netflix is choosing to license content to existing online service providers in China, foregoing the opportunity to further expand its international presence.

Last year, Netflix sparked an interest in entering the Chinese market when the company reportedly explored a partnership with Wasu Media Holding Co., the Chinese media company backed by Jack Ma of Alibaba.  Not surprisingly, China’s internet users make up the world’s largest online audience and for Western entertainment companies like Netflix, tapping into this $5.9 billion market is irresistible.  More recently, however, the regulatory environment for foreign digital content in China has become stricter, with authorities imposing nominal bans on television shows and online videos depicting homosexuality, drinking, vengeance, and even witchcraft.  These stringent censorship rules create a hostile climate for foreign involvement, making it extremely difficult to beat out domestic video streaming companies such as iQiyi, LeEco, and Youku.

But Netflix is not alone.  In April, Disney’s streaming video service with Alibaba, DisneyLife, was shut down by Chinese authorities only five months after its debut.  A representative from Alibaba later released a statement claiming that the service was “undergoing maintenance.”  Soon after, Apple’s iTunes movie and iBooks stores also went offline, blocking Chinese iPhone users from accessing Apple’s vast collection of content.  Even British companies have faced hardship establishing themselves in China.  Last June, Mubi, a London-based video streamer that screens independent films on the web, scrapped plans to form a joint venture alongside Chinese film distributor Huanxi Media.

The U.S.-China Business Council reported in its 2016 membership survey that 67% of those polled named the market and policy protocols as the biggest issue impacting their company outlook in the next five years.  China’s regulatory framework has failed to keep up with its enormous economic growth, resulting in slowed foreign investment.  In fact, China has isolated itself more and more from the rest of the world, developing its tech, media, and online content separately.  Clearly, what happens inside China is very different from what happens outside China.  And with that notion, a problem arises for American companies: China will not open its doors to foreign businesses unless it sees something that it can profit from, such as new technology or expertise, a barrier that will continue to elongate the list of companies like Netflix that failed to breach China’s Great Wall of government regulations.