Global streaming giant Netflix has finally found a doorway into the vast Chinese entertainment market, months after pulling back on efforts to launch its service there. The Los Gatos, Calif., company has made a deal to license its original shows to online video platform IQiyi, owned by Chinese Internet search company Baidu, Netflix said Tuesday. Previous efforts by Netflix to tap into the world’s most populous country have been hobbled by the nation’s regulators.
Now Netflix has a foothold in China through the 7-year-old IQiyi platform, which already has licensing deals with Hollywood studios including Paramount Pictures, Warner Bros. and Lionsgate. By teaming with Beijing-based Baidu, Netflix has gained a powerful partner that is seen as the Chinese counterpart of Google. Baidu is the country’s biggest search engine, though its dominance has been undercut by apps including WeChat and Toutiao.
China is one of the few markets Netflix has yet to enter as it tries to dominate the global streaming video market. Netflix, known for such series as “Orange Is the New Black” and “House of Cards,” this month said it has nearly 100 million subscribers worldwide, with much of the growth coming from outside the United States. It is available in nearly 200 countries, with China still conspicuously absent from its list.
Financial details about the new pact, first reported by Variety, were not disclosed. The companies would not say what shows and movies would be made available to customers in China, where the government keeps tight control over what its population sees. The workaround may be a smart move for Netflix, said Lindsay Conner, a Los Angeles-based China expert with the law firm Manatt, Phelps & Phillips.
“China is the only significant territory Netflix hasn’t been able to crack, so a deal with Baidu would be a valuable compromise,” Conner said. “Chinese regulators can say that Baidu is the domestic distributor, and Netflix can monetize its content.”
A Netflix spokeswoman declined to comment, and IQiyi executives could not be reached for comment.
Netflix has been spending billions of dollars on original movies and shows, such as “Stranger Things” and “13 Reasons Why,” to attract subscribers. China would be a valuable market for Netflix because young people devour much of their entertainment through streaming services. But the company in October signaled that it would try to license content to streaming companies in China rather than launch its own service, citing regulatory hurdles. Licensing revenue is expected to be “modest,” Netflix told investors at the time.
Netflix is one of many American technology companies that have faced roadblocks in China because of popular local competitors that are favored by consumers and the government there. San Francisco-based ride-hailing app Uber lost $1 billion a year trying to establish itself in China, but failed to beat China’s own version — Didi Chuxing. Uber in August sold its Chinese brand to Didi Chuxing, in a transaction that enabled Uber to gain a toehold there without directly competing with the homegrown rival.
Traditional movie studios have long partnered with Chinese companies, including social media titan Tencent (the parent company of messaging service WeChat) and e-commerce leader Alibaba Group, to get their movies and TV programming seen in the country. Chinese partners are crucial for distributing and marketing American movies and TV shows in China, as well as for selling movie tickets directly to users.
Alibaba Pictures last year invested in Steven Spielberg’s Amblin Partners in a deal that would allow the two companies to make movies together. Meanwhile, movie theater and real estate giant Dalian Wanda Group is investing in Sony Pictures’ movies.