Netflix Gives Up on China as Facebook Presses On

In January of last year, a few months after Beijing rolled out new regulations limiting foreign content from in China, U.S.-based video service   told shareholders of its hope to “operate a small service in China centered on our original and other globally-licensed content.” Months later, reports emerged that it was instead seeking Chinese distribution partners. Now, the company has finally abandoned hopes for an independent serviceat least for the time being. An October 17 letter to Netflix shareholders notes:

The regulatory environment for foreign digital content services in China has become challenging. We now plan to license content to existing online service providers in China rather than operate our own service in China in the near term. We expect revenue from this licensing will be modest. We still have a long term desire to serve the Chinese people directly, and hope to launch our service in China eventually. [Source]

At Quartz, Josh Horwitz explains why China’s market has become too “challenging” for Netflix to continue pursuing:

In the past year, however, regulatory burdens on streaming media in China have increased. Rules restricting what types of content can be shown in China have broadened, as authorities have placed a nominal ban on subjects ranging from homosexuality to witchcraft.

At least three have launched media streaming sits in China, only to be thwarted. In April, Disney’s streaming video with Alibaba was shut down by authorities just five months after it went live. That same month, Apple’s iTunes movie store also went offline. And in June, UK-based video streamer Mubi, which screens independent films on the web, terminated plans to form a $50 million venture with Chinese film distributor Huanxi.

[…] Netflix isn’t just dodging regulatory headaches by staying out of China.

The video streaming industry there is already fiercely competitive. Internet giants like Tencent and LeEco, in addition to Baidu, each have Youtube-esque portals that offer a mixture of professionally-produced (often Hollywood-made) movies alongside amateur videos, through both free and subscription tiers. Moreover, they’re all engaged in a vicious money-burning war as they compete for more users. Netflix would likely have to re-consider its fixed subscription model and broaden its library to stand out. [Source]

U.S.-based ride-hailing service Uber recently abandoned a long and costly fight to enter China’s market, ceding its China branch to the well-connected homegrown firm Didi Chuxing in exchange for a cash settlement and sizable ownership stake.

Meanwhile, U.S.-based giant has been blocked in China since 2009. All the while founder and CEO Mark Zuckerberg has been relentlessly (if sometimes awkwardly) courting Beijing. At MIT Technology Review, Emily Parker summarizes Facebook’s ongoing efforts to gain access to the China market—which by some estimates may eventually prove successful:

Facebook’s founder and CEO, Mark Zuckerberg, has signaled to Beijing that he’s willing to do what it takes to get into the country. People who know the company well think it will happen. “It’s not an if, it’s a when,” says Tim Sparapani, who was Facebook’s first director of public policy and is now principal at SPQR Strategies, a consulting firm. Facebook declined to comment for this article, but Zuckerberg said last year: “You can’t have a mission to want to connect everyone in the world and leave out the biggest country.”

[…] Zuckerberg clearly thinks China is worth the trouble, even if that means leaving some “Western values” at the door. Earlier this year, he traveled to Beijing and had a high-profile meeting with China’s propaganda chief, Liu Yunshan. Chinese state media reported that Facebook’s founder praised China’s Internet progress and pledged to work with the government to create a better cyberspace. Liu highlighted the notion of Internet governance “with Chinese characteristics.” The translation was clear: a Chinese version of Facebook would definitely be censored. This year’s trip was something of a sequel. In 2014, he hosted Lu Wei, minister of the , at Facebook’s offices. President Xi Jinping’s book The Governance of China just happened to be on ­Zuckerberg’s desk.

[…] If Facebook does get the green light from Beijing, sticky questions remain about the conditions that would be attached. Would it have to work with a Chinese partner? Would the government require that Facebook store data inside China, making it easier for authorities to access? […] [Source]

Last week at a conference in Beijing, a Bloomberg reporter asked Ren Xianliang, the deputy director of China’s top internet regulator the Cyberspace Administration of China, if Facebook or Google would ever be allowed back in China. Ren replied “as long as they respect China’s laws, don’t harm the interests of the country, and don’t harm the interests of consumers, we welcome them to enter China […].” The People’s Daily then ran an English article headlined “Facebook is welcome in China as long as it abides by Chinese laws: authority.” At Tech in Asia, C. Custer quickly provided three reasons to dampen any excitement that headline may have provoked:

First: Ren was just echoing the Party line; this does not reflect a shift in policy. China’s government has always said that its internet is open to all law-abiding foreign companies. In practice that isn’t true, but Ren’s statement echoes the sorts of things government officials have been saying for years. All it means is that China’s government wants to sound like it’s willing to allow Facebook back into China. It doesn’t mean the government actually is willing to allow Facebook back. […]

Second: If Facebook were ever allowed into China, it would have to be completely rebuilt. Because of China’s censorship rules, there’s almost no way Chinese Facebook users would be allowed to connect with users outside of China, and within China Facebook would need to hire thousands of censors and rework its feed systems entirely to ensure that it could control and censor the spread of “sensitive” information. It’s likely that executing these changes would be an expensive and time-consuming process.

Third: Even if Facebook was allowed back into China and did rework its platform in a way that pleased Chinese authorities, it would face another major problem: attracting Chinese users. China, after all, already has social platforms like Renren that offer very similar experiences to Facebook. But over the past few years. those platforms have been hemorrhaging users to mobile-first new social platforms like WeChat. Facebook launching in China in 2016 would likely be received like MySpace launching in the US in 2016. […] [Source]

In 2014, when the Cyberspace Administration of China was brand new, then CAC chief Lu Wei had clearly stated the Party line reiterated last week by his successor. In late 2014, Zuckerberg welcomed Lu into Facebook headquarters, where a copy of Xi Jinping’s “The Governance of China” was prominently displayed on his desk.