July 13, 2017 2:00 am JST

Netflix struggling to win over Asia

China's closed door will continue to hinder growth of US giants, study shows

KEN KOYANAGI, Editor-at-large, Nikkei Asian Review

Netflix is adding original content produced outside the U.S. to boost its global presence. (Poster of Netflix's Korean film "okja" during the Cannes Film Festival 2017) © Reuters

BANGKOK -- Netflix, the U.S. video streaming giant, is spinning its wheels in Asia, a new market study shows. 

The number of its paid subscribers in the Asia-Pacific region is hovering at about 4.8 million. That is just under 11% of the company's total of 45 million subscribers outside the U.S., and only 1.4% of the region's total paid online video subscribers of 341 million, a vast majority of whom are in China.

The study, published on Thursday, was conducted by Media Partners Asia, a Hong Kong- and Singapore-based consultancy specializing in the media business in the Asia-Pacific region.

The report projects that total revenue for the online video industry in the region will surge to $46 billion in 2022, up 160% from the $17.6 billion projected for 2017. China's share of that total, projected at 72% in 2017, will swell to 77% in 2022, according to the study.

The industry generates revenue in two main ways: advertising and subscription fees.

In terms of ad revenue for online video services, the two biggest names are YouTube and Facebook. They are seen accounting for 85% of the total in the Asia-Pacific region, excluding China, in 2017 and 75% in 2022. That translates to $2.6 billion and $5.3 billion, respectively. But both are banned in mainland China, meaning they cannot access the country's massive online advertising market, seen at $8.7 billion for 2017 and $18 billion for 2022, dwarfing the rest of Asia.

The same dynamic applies with subscription income. China's estimated 283 million paid subscribers for online video services account for 83% of the Asia-Pacific total. The two biggest U.S. online-video streamers -- Netflix and Amazon.com -- are both excluded from providing subscription-based streaming services in China, due mainly to regulations that are difficult to comply with, including self-censorship requirements. Netflix therefore decided in April to sell its video content to iQiyi, a local video streamer controlled by Baidu.

The study shows that about 3.3 million of the 4.8 million Netflix subscribers in the Asia-Pacific region are in Australia and New Zealand, the most mature English-speaking economies in the region. That means the company has fewer than 1.5 million subscribers in emerging Asian economies.

The study found that Amazon.com's Prime Video service has sizable user bases in Japan and India. It was difficult, however, to gauge how much revenue is coming purely through video services because video streaming is just one part of the Amazon Prime membership subscription package, which also includes such services as same-day shipping and photo storage. Amazon claims that its video streaming services are available almost everywhere, but it has very few paid users in Southeast Asia, where the company has yet to introduce its flagship e-commerce services in many areas.

In terms of revenue size, Tokyo-based Hulu Japan, Mumbai-based Hotstar, Seoul-based Pooq and Hong Kong-based Viu are among the biggest online video streaming services in Asia, excluding China.

In the mainland, the biggest players include Youku.com, controlled by Alibaba Group Holding, iQiyi and Shenzhen-listed LeTV.

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