Netflix Plans to Enter China, Partnering with Alibaba-Backed Wasu Media

NetflixNetflix, Inc. (NASDAQ/NFLX) is in talks with Chinese online media company Wasu Media Holding Co. Ltd. as it seeks a way into the Chinese market. Previously, Netflix planned to enter China without partnering with a local company. Now, however, things have changed. (Source: Bloomberg, May 15, 2015.)

Netflix is an online video-streaming company based in Los Gatos, California. It reached 60 million members worldwide by the first quarter of 2015. (Source: Netflix, April 15, 2015.)

Wasu Media Holding Co. Ltd. is a Chinese media company offering cable and Internet TV, mobile phone TV, and other media services, based in Zhejiang, China. Jack Ma’s Alibaba Group Holding Limited (NYSE/BABA) and other partners own 20% of the company.

Investors cheered for Netflix’s expansionary move. On May 15, 2015, the company’s share price rose to as high as $618.44. It was also the first time that Netflix’s stock price reached above the $600.00 mark.

Netflix in China: Is the Market Too Competitive?

Competition is tough in China’s online video-streaming market. Each of the three giants in the Chinese Internet business has their stake in it: Baidu, Inc. (NASDAQ/BIDU) has iQiYi; Alibaba Group Holding Limited (NYSE/BABA) has Youku Tudou; and Tencent Holdings Limited has Tencent Movies.

Regulation poses another challenge for Netflix. Entering China means Netflix will have to comply with the country’s content regulations and censorship. How much and what type of Netflix’s popular TV shows will be allowed to broadcast remains uncertain.

On the up side, Chinese consumers will most likely welcome the entering of Netflix. Shows like House of Cards have huge followings in the country.

Does Netflix Have a Chance in China?

The Chinese online video-streaming market is booming. According to IResearch, an Internet consulting firm based in Shanghai, the market is expected to grow to 90.0 billion yuan or USD$14.5 billion by 2018. (Source: IResearch, last accessed May 15, 2015.)

An extensive fanbase does not necessarily translate into success. Pricing is crucial. Although inexpensive in the U.S., Netflix should seriously consider rethinking its revenue-generating model once it enters the Chinese market to work into all the competition.

The terrain will be rough; whether Netflix will be continuing its successful track record will depend not only on itself, but also on its local guide Wasu Media.