Netflix wants to stream into China with a partner, sources say

May 15, 2015 03:18 PM

(Bloomberg)—Netflix Inc. is in talks with a Chinese media company backed by Jack Ma and other possible partners as it seeks entry into the country’s $5.9 billion online video market, according to people familiar with the matter.

Netflix, No. 6 in the Internet Retailer 2015 Top 500 Guide, has held discussions with companies including Wasu Media Holding Co. about forming a partnership, according to the people, who asked not to be identified because the talks are private. Netflix plans “to be nearly global by the end of 2016,” a spokeswoman, Anne Marie Squeo, said in response to questions about a possible China partnership.

Entering China would allow the broadcaster of “House of Cards” and “Orange Is the New Black” to take advantage of what’s forecast to be explosive growth in online television in the nation of 1.4 billion people. The market is expected to almost triple to 90 billion yuan by 2018, according to Shanghai-based Internet consultant IResearch.

Wasu’s Shenzhen-traded shares, which had been down as much as 10% in the morning, reversed declines and briefly rose to a record. They closed little changed at 56.59 yuan. 

A local partnership would be essential given the Chinese government’s strict controls over licensing for online content. Netflix wants a partner that has licenses for content on all devices—including mobile phones, computers and set-top boxes, according to the people. China’s State Administration of Press, Publication, Radio, Film and Television has given Internet TV licenses to seven companies, including Wasu.

Wasu didn’t respond to an email seeking comment. Two phone calls to Wasu’s general line weren’t answered.

Content censorship

Netflix, based in Los Gatos, Calif., is investing heavily in original programming to keep the U.S. business growing and support international expansion.

“China is too big to have an asterisk next to it,” Ted Sarandos, Netflix’s chief content officer said Friday in Cannes, France. “There are a lot of operating constraints in China that are different to anywhere else. We don’t have any operating partners anywhere else in the world, so that would be a new skill for us too.”

Sarandos, speaking to film buyers, executives and producers, did not comment on specific companies.

“We are also aware that there are unique operating models we’ve not worked in before, we’ve not acquired companies, we’ve not worked with partners before in any of our territories, but if that’s the cost of doing business in China we will figure that out,” he said. The Cannes Film Festival is for the first time hosting a three-day China Summit to help film professionals in the country’s market.

Chinese rules

Netflix would need to sort out content censorship regulations with Chinese authorities. Starting this April, new episodes of foreign programs, including “Mad Men” and “The Simpsons,” can’t be shown until after the shows’ seasons have ended, according to a government notice.

Episodes need to be handed in to censors for approval, and content deemed violent, sexual or offensive to the ruling Communist Party can be cut, according to notices.

Wasu, one of the first in China to receive an Internet TV license from the government, has been working with Ma’s Alibaba Group Holding Ltd. to produce set-top boxes since 2013. Wasu operates cable TV and broadband networks in Hangzhou, where Alibaba is based.

Wasu said in April last year it would sell a 20% stake to Alibaba Chairman Ma and fellow billionaire Shi Yuzhu.




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