Netflix beaten to the punch in China

China's movie and streaming market
China's movie and streaming market   

A movie streaming firm that focuses on independent films launched in China on Thursday, beating rival Netflix to open its service to users in the world's second-largest economy.

To launch into the market, MUBI formed a joint venture with Hong Kong-listed Huanxi Media Group. The move will see Huanxi invest $50 million and hold 70 percent of the joint venture called MUBI China, while MUBI will hold the other 30 percent. As part of the $50 million, Hunaxi will invest $10 million directly into MUBI, taking 8 percent of the company, valuing it at $125 million.

The London-based company, which was founded in 2007, charges users $4.99 a month and focuses on providing independent films. It adds a new film each day and takes one off, so a film is available for 30 days before being replaced by another. It also sees its self as a competitor to Netflix to an extent, with the founder convinced it can challenge its U.S. rival in the film space.

"As Netflix focuses on TV, their movie selection is not that great. So we can really become the most significant platform on film globally. And if you are thinking global you are thinking China," Efe Cakarel, founder and CEO of MUBI, told CNBC by phone.

"China will overtake U.S. as the biggest film market next year but it's a difficulty country to navigate. We managed to crack this and this is why it is a big deal for the industry."

MUBI first in China

Huanxi Media Group was founded last year by Chinese producer Dong Ping and directors Ning Hao and Xu Zheng. Dong was co-producer for major Chinese movies including "Crouching Tiger, Hidden Dragon". He previously founded ChinaVision, a company that Alibaba bought in 2014 for $804 million.

MUBI

MUBI has managed to trump Netflix in entering China first. Earlier this month, Netflix announced that it was live in 130 new countries, but China was absent from the list. While Netflix did not rule out China in the market, chief executive Reed Hastings said it will "take some time" to enter the world's second-largest economy.

Cakarel said MUBI will be hiring people in China and will host mainly Chinese-language films on its site. The Chinese service will launch this year.

'Netflix of China'

MUBI of course has a big mountain to climb if it wishes to challenge Netflix. It has 100,000 subscribers versus the over 69 million boasted by Netflix, according to its last quarterly earnings report. But Cakarel will be hoping that the celebrity status and expertise of Dong will allow the company to rack up a substantial user base in China.

In addition, MUBI is up against the China's internet titans such as Alibaba, Tencent and Baidu, all of which are battling it out in the content space. Alibaba has been trialing a Netflix-style service called Tmall Box Office in China and has invested heavily in the movie space. Alibaba also bought Youku Tudou, a Chinese version of YouTube.

Chinese consumers are also not used to paying services like MUBI. Only 1.5 percent of Chinese households have signed up to subscription streaming services, according to research firm Ampere Analysis.

While MUBI may not be able to compete with China's internet giants, analysts said that its niche in independent films will help it gain traction.

"They are not going to be able to take on the giants in China, but targeting the niche they have been successful with so far is a sensible strategy," Richard Broughton, research director at Ampere Analysis, told CNBC by phone.

Still Cakarel said he is up for the challenge and is hoping its first-mover advantage and exclusive content will put it ahead.

"Online and subscription is nonexistent, there is no Netflix in China. There is no established platform for video on-demand," Cakarel told CNBC.

"We are the Netflix equivalent in China. By focusing and by having access to the best content exclusively we can be a significant player in China."