Netflix’s China Expansion Could Take ‘Many Years,’ CEO Reed Hastings Cautions

Marco Polo netflix cancelled
Phil Bray for Netflix

Netflix may be in 190 countries now, but cracking the rest of the would could prove to be much harder: CEO Reed Hastings cautioned Tuesday during an earnings call that entering China could be a multi-year process. “This could be many years of discussions… or it could be faster than that,” he said, adding: “We are in no hurry.”

That’s remarkably different from the tone the company’s executives struck a year ago, when they announced that they wanted to “complete” their global expansion by the end of 2016. At the time, Hastings and CFO David Wells told investors in their letter to shareholders that their goal was to  “successfully operate a small service in China centered on our original and other globally-licensed content.”

Some of its original content investment, including the “Crouching Tiger, Hidden Dragon” sequel “Sword of Destiny” and the original drama “Marco Polo” were also produced with a Chinese audience in mind. However, Netflix always cautioned investors that its plans for China were dependent on getting necessary permissions from local regulators — and the company now seems to realize that this may be a long, drawn-out process.

Complicating Netflix’s China plans is a bit of a regulatory twofer: Online video services have long been tightly regulated within China, in particular if they also were streaming their programming to TV-connected streaming devices and smart TVs. Adding to this is a renewed effort by the Chinese government to tightly control any foreign technology company doing business in their country, which includes third-party network security audits and access to user data.

In that context, Netflix now seems to be exploring multiple options to launch a service in China, which could include joint-ventures with local players. “We are talking to different partners, building relationships.” Hastings said. He also reiterated that launching in China may require the company to censor some content in order to confirm with local regulations, but he stressed that competitors have to play by the same rules. “We will be on a level playing field with all services,” he said.

This kind of censorship isn’t entirely new to Netflix: The company has already begun to pixelate frontal nudity in Japan to conform with local broadcast standards. Executives said during a press event at the Consumer Electronics Show earlier this month that they may consider these kinds of edits for other markets as well, if necessary. “Entertainment companies have to make compromises over time,” Hastings said during that event.