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Netflix Exploring 'Options' in China

20 Jan, 2015 By: Erik Gruenwedel

SVOD leader also eyes Ultra-HD as incremental revenue source

Netflix operates in 50 countries with launches in New Zealand and Australia pending, but remains on the outside looking in when it comes to its biggest foreign market: China.

Now, the Los Gatos, Calif.-based service is taking steps to penetrate a communist country operating under a market system offering both significant opportunities and challenges. Specifically, Netflix must obtain a license from Beijing to operate, a process CEO Reed Hastings indicated isn’t as simple as filling out a form.

“We’re [still] figuring that out,” he said in the Jan. 20 fiscal interview. “If we go [into China], it will be a modest investment because we won’t have that much content.”

Hastings said entering the People’s Republic would require patience as “we feel our way along” through the license process. Comparatively, launching Netflix in nearby markets such as Japan and South Korea would largely just require substantial financial investments.

If and when Netflix makes contact within China, it will find considerable streaming competition already in place.

HBO and Tencent Holdings Ltd. last November announced a partnership whereby select programing from the premium channel would be exclusively made available on the Chinese operator’s Tencent Video, a subscription streaming website catering to connected portable devices, including PCs.

Warner Bros. recently inked a license deal with Tencent for a subscription video-on-demand business called “Hollywood VIP.” Universal Studios, Walt Disney Studios and separate local content holders also are involved in the project.

HBO and Warner are the latest Hollywood studios looking to sell content to China’s burgeoning entertainment consumer (Lionsgate recently signed a pact with e-commerce behemoth Alibaba). The country’s theatrical market is projected to surpass the U.S. box office in revenue as early as this year.

Ultra-HD as Incremental Revenue

While still smarting from adverse subscriber reaction to a price hike in the third quarter last year, Hastings nonetheless was asked how the subscription streaming pioneer might grow revenue — absent third-party advertising or across-the-board price hike.

The CEO said the service’s nascent $12 price point for Ultra-HD streaming (33% above the standard $9 monthly fee) represented an attempt at generating incremental revenue going forward.

The CEO said that consumers currently spending $2,000 for an Ultra-HD TV are more inclined to spend additionally to stream Ultra-HD content.

“That's the way that we got incremental revenue without making any changes ourselves,” Hastings said.

By comparison, Amazon said it would not charge a premium to Prime Instant Video subscribers for Ultra-HD streaming.

Netflix is filming all of its original series in Ultra-HD, in addition to licensing “Breaking Bad” and “The Blacklist” in Ultra-HD, among select catalog going forward. 

“Today there are very few televisions that are Ultra-HD and we only have a few titles. We have more than anybody else but we only have a few titles. But if you look ahead two years, four years from now, many of the TVs sold at Best buy will be Ultra-HD and lots of our content will be Ultra-HD and it's a natural match,” Hastings said.

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