Netflix has a China strategy — but it doesn't involve launching there soon

Key Points
  • Netflix is launching a spate of Mandarin-language original shows but has no immediate plans to launch in China.
  • Its strategy involves tapping the millions of Mandarin-speaking people around the world.
Netflix CEO Reed Hastings speaks during an interview on day two of the Netflix See What's Next: Asia event at the Marina Bay Sands on November 9, 2018 in Singapore.
Ore Huiying | Getty Images

Netflix has a China strategy, but that doesn't involve launching its streaming service in the world's second-largest economy.

Instead, the U.S.-based streaming company has recently been spending more money on acquiring rights to Mandarin-language content and producing its own originals.

In September, the technology giant unveiled the cast for its Mandarin-language original TV series called "Nowhere Man." In January, it kicked off production for two more originals, called "Triad Princess" and "The Ghost Bride." Two of the shows will be filmed in Taiwan and one in Malaysia.

The aim is to create shows for the millions of Mandarin speakers outside of China. It's also looking to create or acquire shows that have global appeal.

Earlier this week, Netflix launched "The Wandering Earth" on its platform. That's been called China's first space epic and is the third-highest grossing film of 2019, according to Box Office Mojo. It was a huge hit in China when it was released earlier this year and Netflix has brought it to the global audience.

Netflix has also turned to partnering with Chinese streaming companies. On Thursday, Alibaba-owned streaming platform Youku said Netflix had bought the exclusive distribution rights outside of China for "I Hear You," a 24-episode romantic comedy.

Netflix declined to comment on that development when contacted by CNBC.

Netflix problems in China

In January 2016, Netflix announced an expansion to 130 countries, but China was not part of that. It has never had a local product in China.

Instead, it partnered with iQiyi, a streaming service which is majority-owned by Chinese search giant Baidu. iQiyi is one of China's largest streaming platforms. In 2017, Netflix agreed to license some of its original content to iQiyi to access the Chinese market.

But that partnership has now ended, according to iQiyi CEO Gong Yu.

"We had an agreement with Netflix two years ago, (to distribute) its content in China, but because of the verification system and users' tastes, the effect wasn't that great, so we didn't continue the partnership anymore. We have partnered more with the six traditional major studios, in the U.S. and other regions," the CEO said in a Friday Mandarin-language interview translated by CNBC.

Netflix's adult cartoon "BoJack Horseman" was pulled from iQiyi in 2017.

The U.S. firm isn't planning to launch in China soon and, in the past, CEO Reed Hastings has said his company would need government permission to do so. Instead, it is focusing on gaining share in other lucrative markets like India.

For now, its China strategy is focusing on tapping into the Mandarin-speaking diaspora around the world. Analysts say that China may now be a closed door because of the company that it once partnered with.

"Netflix has made no headway in China whatsoever. Inevitably Netflix needs to partner, place greater focus on commissioning locally produced content and address censorships with its own originals. Essentially, it could revisit its licensing partnership with iQiyi that could benefit both parties given Netflix's global position. As well as work more closely with other providers including telcos and vendors like Huawei," Paolo Pescatore, an analyst at PP Foresight, told CNBC.

"However, it might be too late as iQiyi, the Netflix of China, continues to march ahead strongly."

—CNBC's Evelyn Cheng contributed to this report.