In September, Chinese President Xi Jinping came to the United States to meet with politicians, corporate executives, and tech leaders. In a speech where he addressed claims that his administration’s crackdown on corruption was related to an internal power struggle, President Xi surprised Americans with a sly cultural reference. "We have punished tigers and flies. It has nothing to do with power struggles," he said. "In this case there is no House of Cards."
Xi’s claim, of course, has real geopolitical implications. But it also speaks to the power of Netflix’s first original show, House of Cards. The drama enthralled Western audiences, ushering in a new era of original programming from Netflix. But the show also found a sizable audience in a surprising place: China. After its release in 2014, the second season of the Kevin Spacey-led series became the number one American show streamed on Chinese service Sohu, according to The Washington Post.
Finding such a huge audience in the world's largest nation might seem like nothing but good news. But when Netflix CEO Reed Hastings announced last week that his company had launched in almost every country around the world, his list contained one glaring omission. Along with North Korea, Syria, and Crimea, Netflix is still not streaming in China.
"In China, you need specific permission from the government to be able to operate, so we're continuing to work on that and we're very patient," Hastings said when announcing Netflix's worldwide expansion at the Consumer Electronics Show in Las Vegas. "I think we're going to be a success there, but it's going to take some time."
Maybe a lot of time. For Netflix, getting into the Chinese market---let alone succeeding in it---will not be an easy feat. The country’s government has strict rules dictating what kind of content can be distributed. Netflix also faces fierce competition from domestic streaming services---many of which have close ties with, or even funding from, the government. As other tech giants have learned the hard way, China is a market all its own, and Netflix will have to play by Chinese rules. But it's not clear that even then Netflix will have a real chance.
At its heart, Netflix is a content company trying to enter a country where the government heavily monitors what its citizens can see. Chinese content creators know the rules put in place by China’s State Administration of Press, Publication, Radio, Film, and Television. Foreign content is subject to the same rules and closely reviewed.
“Any foreign TV show that's distributed on a Chinese platform or foreign platform has to be viewed and censored by regulators even before it gets on it," says Aynne Kokas, an assistant professor of media studies at the University of Virginia who specializes in the intersection of the Chinese and US media and tech industries.
This presents a big problem for Netflix, which more than ever is depending on its original shows as the core of its content business. House of Cards reached a wide Chinese audience before censors started cracking down on streaming services (it didn't hurt that the show portrays the US government as a cesspool of corruption). But Netflix's latest crop of hits may well not pass the test for Chinese censors. In China, violence, sex, and nudity are widely blocked, as are stories determined to be anti-authoritarian, anti-military, religious, hyper-superstitious, or strongly political. "I can't even think of one part of Jessica Jones that would get through Chinese regulators," Kokas jokes. "Maybe The Unbreakable Kimmy Schmidt would be okay."
It's possible that Netflix could negotiate an agreement that would require it to, in effect, self-censor its content like other US companies have done, says Scott Kennedy, deputy director of the Freeman Chair of Chinese Studies at the Center for Strategic and International Studies. "If they have to run individual shows by censors, that's such a high burden," he adds. "That would be impossible."
That would mean that if Netflix had a documentary on, say, the Dalai Lama, it would need to remove it from its Chinese version. In fact, since 2012, Chinese Internet video providers have been required to self-regulate their own content. Regulators last year, however, began to intervene and crackdown more aggressively as well.
And yet Chinese regulators seem keen on limiting the foreign content that enters the country. Domestic broadcasters and streaming services in China are required by the government to have no more than 30 percent of their content be foreign made in an effort to promote Chinese films and TV shows. If regulators were to put a similar requirement in place for Netflix, that would also limit what the company would be allowed to show.
But censors aren't Netflix's only problem in China. The country's heavy appetite for pirated content means people can watch much of what Netflix would show without paying for it at all. What's more, Chinese consumers are already tuning in to several homegrown streaming services, such as LeTV, Sohu, and Yoku Tudou. Many of those services, and the companies and executives that own them, have close ties to the government, which may be hesitant to add a new foreign competitor to the market.
"Everyone underestimates the competition in China," says Jeffrey Towson, a longtime investor and professor of investment at the Guanghua School of Management at Peking University. "It's absolutely ruthless in most things, and the Internet space is a bloodbath."
Unlike Netflix, most of the Chinese competitors are also free. “Chinese consumers aren't used to paying monthly or annual fees for these kind of services," says Eric Harwit, a professor of Asian studies at the University of Hawaii. "That makes it hard for Netflix's model to work."
The Chinese government also requires media companies to have special licenses, however there are only seven in the country, most of which are currently with state-owned companies. Harwit adds, “Netflix would either have to negotiate around that or find a Chinese partner."
Even if Netflix can get past regulators to break into the market, the path to success still isn't clear. While some US media companies such as Disney and the NBA have found huge audiences in China, their offerings have more obvious mass appeal (think Pixar and LeBron James) than many of Netflix's offerings, which tend to focus on finding many niche audiences. Disney and the NBA's content is also difficult for other media companies to rip-off, and it's family-friendly fun that doesn't irk censors.
Netflix, on the other hand, is serving up a library of possibilities in a way that's closer to YouTube than Disney. Success in China may ultimately come down to collaborating with the companies already there. But, to do that, Netflix will need to find a company willing to work with it.
“If you turn the question on its head, you get, what do the major Chinese streaming companies need today?” Towson says. “This is where Netflix is in a very good position." After all, Chinese streaming services have begun to seek out their own high quality original content, much like Netflix itself. But Netflix has already mastered the art—and science—of that process.
Several researchers told me that Netflix breaking into the market on its own might be difficult, but it could likely license its originals to Chinese services, like it did with House of Cards, or partner directly with an established media giant to release, say, a co-branded product. Even the seemingly all powerful Disney, Towson says, has had to partner with Chinese companies.
Netflix may hold out hope that it can do in China what is has done everywhere else: launch Netflix. That prospect, however, will not only take some serious concessions to the government but also significant investments. "If Netflix wants to be in the streaming business in China, they need to have the same mentality as Uber has had," Towson says. "They're ready to fight for a decade and spend billions."
