Market Insight

Netflix agrees deal with iQiyi to launch content in China

April 27, 2017

Jun Wen Woo Jun Wen Woo Senior Research Analyst – Online Video, IHS Markit

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Netflix is licensing its original content to Baidu-owned streaming service iQiyi in China. The deal was first disclosed by Netflix at the Apos conference in Bali and was confirmed by iQiyi on 25 April. No further details, including a launch date, were disclosed. 

Our analysis

Netflix has been looking for ways to enter China since its global launch in January 2016 and, without the possibility of launching a full Netflix-branded streaming video service, striking a licensing deal is an appealing option. With this deal, Netflix will able to introduce its content and its brand to a large number of iQiyi subscribers in China, without going into launching its own subscription online video service. IHS Markit estimates that iQiyi had 13 million paid-for online video subscribers in 2016.

Netflix has been spending a significant portion of its budget on international launch and its original programming. With  original content as its competitive advantage, revenue from licensing content is a different source of income for Netflix where a launch in a country is not possible. Before the deal with iQiyi, Sohu signed exclusive rights with Netflix to bring House of Cards to China in February 2014.

Founded in April 2010, iQiyi reported 500 million monthly online users in June 2015 and it is currently one of the largest legal online video platforms in China. iQiyi disclosed that it expected the deal to allow its paid subscribers to watch titles such as Black Mirror, Stranger Things and Mindhunter at the same time in the US. Shorter window between titles releases will reduce the number of viewers turning to piracy.

There is still a risk that this licensing deal will not be approved by the government despite Netflix and iQiyi already agreeing terms. In April 2016, Disney Life from Walt Disney Co and Alibaba went offline in China after operating for less than a year. The Chinese government also has strict censorship rules that may obstruct Netflix's content from being streamed in China, especially after it tightened regulations in 2016. Netflix’s content on iQiyi will still have to be approved by the Chinese regulator, to remove sensitive topics including violence, sex, vulgarity, superstition and Western cultural elements within the content.

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