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How Is Netflix’s Entry into China Likely to Affect Time Warner?

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Netflix’s entry into the Chinese market

Media companies in the United States (SPY) are increasingly looking at international markets for content distribution opportunities as English-language content becomes increasingly popular. On April 25, 2017, Bloomberg reported that Netflix (NFLX) had entered into a content licensing deal with iQiYi, a Chinese (FXI) video streaming service owned by Baidu (BIDU).

This move has enabled Netflix to gain entry into China and could further strengthen its position in the video streaming market. Currently, Netflix has ~100 million total streaming subscribers.

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According to a March report from Technode citing research company iResearch, the Chinese live video streaming market was worth around 20.8 billion Chinese yuan, or $3 billion, at the end of 2016, a huge jump of 180% compared to 2015. According to iResearch data and as indicated by the graph above, the Chinese live video streaming market is expected to have total sales of 87.3 billion yuan, or ~$13 billion, by 2019. This indicates the huge potential of the video streaming market in China.

Time Warner’s entry into China

Last month, Time Warner’s (TWX) Warner Bros. also entered into a streaming deal with Chinese OTT (over-the-top) video streaming service iQIYI. According to a Variety report, the deal would give Chinese iQIYI subscribers access to movies such as the Lord of the Rings franchise, Gravity, and Godzilla. The Variety report also stated that the Chinese video streaming market is currently involved in a battle for premium content and that iQIYI recently ramped up its content spending to $1.1 billion.

Time Warner’s deal with iQIYI indicates the strong demand for its movies in international territories. The company stated during its 2016 earnings call that it was continuing its efforts to develop an SVOD (subscription video on demand) service for the Chinese (FXI) market. Netflix’s entry into China could fuel these efforts.

Time Warner views China as a significant market for long-term growth, whether it comes to creating local content or bringing English-language content to China.

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