


































Communication, Society and Media 
ISSN 2576-5388 (Print) ISSN 2576-5396 (Online) 

Vol. 7, No. 2, 2024 

www.scholink.org/ojs/index.php/csm 

127 

 

Original Paper 

Netflix Overseas Strategy: Why Is China the Most Unnecessary 

Market for Netflix? 

Yiwei Gao
1*

 

1 
Academy of Film, Faculty of Humanities and Arts, Macau University of Science and Technology, 

Macau, China 

* 
Yiwei Gao, Academy of Film, Faculty of Humanities and Arts, Macau University of Science and 

Technology, Macau, China 

 

Received: July 30, 2024        Accepted: August 13, 2024        Online Published: August 24, 2024 

doi:10.22158/csm.v7n2p127                     URL: http://dx.doi.org/10.22158/csm.v7n2p127 

 

Abstract 

Netflix, Inc. has grown into the world‟s leading internet television network, offering on-demand 

streaming ser-vices globally. Its core business strategy focuses on expanding its streaming membership 

while maintaining profitability. Over recent years, Netflix has shifted its attention towards international 

markets, which now generate more revenue than its domestic market. However, despite substantial 

investments, challenges remain, including intense competition, high costs, and differing user habits. 

Netflix‟s attempts to enter China, a significant market, have been met with regulatory challenges and 

stiff competition from local players. The complex landscape suggests that large-scale investment in 

China may not yield favorable returns for Netflix. 

Keywords 

global expansion, streaming services, international markets, competitive landscape, China market 

challenges 

 

1. Introduction 

Netflix, Inc. is the world’s leading internet television network, provide on-demand video, streaming 

movies, original series and documentaries in over 190 countries. Netflix’s users can watch contents 

anytime, anywhere, on nearly any Internet-connected screen. Additionally, Netflix also provides DVD 

services in the United States till September 29, 2023. 

Netflix’s core business strategy is “to grow our streaming membership business globally within the 

parameters of our profit margin targets” (Netflix 2023 Annual Report, 2023). By the end of the fiscal 

year 2018, there are three main business segments for Netflix: domestic streaming, international 



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streaming and domestic DVD. Starting from the fiscal year 2019, Netflix combined the domestic 

streaming and international streaming segments, and reported the streaming financials based on four 

regions: United States and Canada (UCAN), Europe, Middle East, and Africa (EMEA), Latin America 

(LATAM), and Asia-Pacific (APAC) (Netflix 2019 Annual Report, 2019). 

Let’s take a look at the Netflix 2016-23 annual report. From 2016 to 2018 annual reports where the 

domestic DVD segment’s data is separately listed, we can see that the domestic DVD segment is the 

only part that losing customers even it’s still profitable and had the highest contribution margin and 

maintained a slight but steady growth each year. 

 

Table 1. Domestic DVD Segment, Netflix 2016 Annual Report 

 

 

Table 2. Domestic DVD Segment, Netflix 2018 Annual Report 

 

 

Although the total revenue of the domestic DVD segment continuously declined from 2016 to 2023, its 

low costs allowed this part of business to positively contribute to Netflix’s financial health until the 

segment was discontinued in September 2023. 

 



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Table 3. Netflix 2023 Annual Report 

 

 

For the streaming services part, the classification method from Netflix’s 2016-2018 fiscal years will be 

temporarily adopted, dividing the market into domestic streaming and international streaming segments. 

Netflix has developed its domestic streaming market over several years, resulting in a mature and 

highly competitive landscape. Membership growth steady each year, By the end of the second quarter 

of 2023, the number of sub-scribers in the U.S. and Canada amassing over 75 million, and one in three 

U.S. users said they would not drop the streaming service. 

 

Table 4. Domestic Streaming Segment, Netflix 2018 Annual Report 

 

 

To achieve more profit, Netflix has been vigorously pursuing international expansion. From 2014-2018, 

The membership of international streaming segment grows very fast every year, mainly generated by 

its continuing increased investment. The highest increase in the cost of revenue occurred in 2016, with 

a 64% rise compared to 2015; the lowest increase, in 2018, was still substantial at 32%. At the end of 

2018 fiscal year, the cost of revenue for the international streaming segment reached an astounding 5.7 

billion, brings back 7.7 bil-lion revenues, in the meantime, the domestic streaming segment has a cost 

of revenue of 4 billion, at a significantly lower cost, brings 7.6 billion of revenue in return. It’s 

noteworthy that despite cost considerations, the fiscal year 2018 saw overseas streaming segment 



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profits surpass those from the domestic U.S. market for the first time. 

 

Table 5. International Streaming Segment, Netflix 2016 Annual Report 

 

 

Regardless of the significant revenue gap before 2018, the international streaming segment allocated a 

much larger portion of its budget to marketing expenses compared to the domestic streaming segment. 

However, despite these investments, the overseas Contribution profit remained in a deficit state for 

years. From the perspective of Netflix’s investment and marketing, we can infer that the overseas part 

is at the center of its cur-rent business strategy. 

 

Table 6. International Streaming Segment, Netflix 2018 Annual Report 

 

 

The continuously increasing cost of revenue and marketing expenditures eventually yielded substantial 

returns. In 2017, Netflix nearly broke even in the international streaming segment. By 2018, the 

contribution margin for the international streaming segment finally turned profitable. This turnaround, 

coupled with the continuously expanding and deepening overseas market, resulted in the international 



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streaming segment’s revenue surpassing that of the domestic segment. These factors likely explain why, 

starting in 2019, the international streaming segment was no longer reported as a separate category. 

Instead, revenue began to be reported by region, with cost of revenue and marketing expenses unified 

across segments.  

In 2017, Netflix passed a major milestone in terms of its subscriber base, surpassing 100 million 

sub-scribers globally. It was also in this year that the number of international subscribers exceeded the 

number of U.S. domestic subscribers for the first time (Netflix 2017 Annual Report, 2017). By the end 

of the 2023 fiscal year, the total number of subscribers worldwide had surpassed 260 million. Of these, 

approximately 31% were from the United States and Canada (UCAN), 34% from Europe, the Middle 

East, and Africa (EMEA), 18% from Latin America (LATAM), and 17% from the Asia-Pacific (APAC) 

region (Netflix 2023 Annual Report, 2023). This indicates that the broader international market (outside 

North America) has become the primary revenue source for Netflix. 

 

Table 7. International Streaming Segment, Netflix 2017 Annual Report 

 

 

Table 8. Domestic Streaming Segment, Netflix 2017 Annual Report 

 

 

 

 



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Table 9. UCAN, EMEA, LATAM, APAC Revenus, Netflix 2023 Annual Report 

 

 

 

2. Method 

2.1 Current Stage of Netflix Overseas Strategy 

As previously discussed, the international segment is the main direction of development for Netflix. 

From the 10-K report, it is evident that despite rapid membership growth and the expansion into more 

countries, these achievements come at a significant cost. Whether in 2016 or 2023, the expenses are 

substantial and certainly not cheap. 

 

Table 10. Cost of Revenues & Marketing, Netflix 2023 Annual Report 

 

 



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According to calculations by the Statista Digital Market Outlook analyst team, Netflix incurred a 

monthly loss of $0.60 per international subscriber in the second quarter of 2016, while U.S. subscribers 

generated an operating profit of $2.90 per month. The international segment continued to lose money 

until the first quarter of 2017. Meanwhile, annual reports consistently show that the contribution 

margin of the international segment has been persistently lower than that of the domestic segment. The 

long-term losses and lower contribution margin in the international segment are due to several factors 

adversely affecting international results: 

1) The average revenue per international user is lower than it is in the United States because prices 

differ across different regions, in some newer market Netflix offers customer one-month free trial, and 

in some market, the subscription fee is different (lower) from the domestic market; 

2) Secondly, the cost of revenue, consisting mainly of costs related to the acquisition, production and 

licensing of content, is significantly higher on a per user basis than it is in the United States (Statista 

Felix Richter, 2016). Netflix made $990.3 increase in 2017 and $976 million increase in 2018 in 

content expenses for international spending; 

3) Thirdly, entering new markets requires significant marketing expenses. Rising brand awareness in a 

new market is challenging, a company needs to consistently invest heavily in promotion, and it will 

take a long time to see a return. In 2018, $327 million increase in expense was due to the streaming 

delivery expenses, costs associated with customer service call centers and payment processing fees, all 

driven by its growing member base (Netflix 2018 Annual Report, 2018). Since 2018, marketing 

expenses for the international streaming segment have surpassed $1 billion. In 2023, Netflix’s total 

marketing expenses reached $2.6 billion, with the majority allocated to international markets, 

accounting for 8% of that year’s total revenues. 

Through years of sustained investment, Netflix’s global expansion has yielded substantial returns. As of 

March 2022, Netflix is available in over 190 countries, with more than 260 million paid subscribers, 

over 73 million of whom are located in the United States (Netflix, 2024). Globally, Netflix is 

unavailable only in main-land China, North Korea, Russia, and Syria (Netflix, 2024). The absence of 

Netflix in North Korea, Russia, and Syria is due to political or wartime reasons. However, why has 

China, a major market, not become one of Net-flix’s territories? 

2.2 Netflix‟s Attempt to Enter China during the Years 

China has 1.09 billion Internet users as of 2023, representing 77.3% of the Chinese population who can 

access the Internet at home via any device type and connection. This also means that one-fifth of the 

world’s Internet users are in the Chinese market (CNNIC, 2024).  

Signs of Netflix’s interest in China first surfaced in May 2015, when the company was reported in talks 

to form a partnership with Wasu Media, a Chinese holding company backed by Alibaba’s Jack Ma 

(Net-flix’s Pricing Power, 2015).  



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Disney took the initiative to enter the Chinese market. At the end of 2015, Disney and Alibaba 

launched DisneyLife in China; only after five months, this streaming video service has been shut down. 

Con-firmation of the closure follows the shutdown of Apple’s iTunes Movies and iBooks services in 

China in April 2016 (Frater, 2016). Not only Disney and, in June, UK-based video streamer Mubi also 

terminated plans to form a $50 million venture with Chinese film distributor Huanxi (Jon Russell, 

2016).  

Under such a circumstance, on Oct 7, 2016, Netflix’s Chief Executive Reed Hastings said at the New 

Yorker TechFest that “Disney, who is very good in China, had their movie service shut down. Apple, 

who is very good in China, had their movie service closed down. It doesn’t look good” (BNN 

Bloomberg, 2016).  

In 2017, Netflix has given up its intention to launch its own streaming services in China but choose to 

license their content to a local streaming website called “iQiyi” (Frater, 2016). In the Netflix’s 2016 

Final Q3 Letter, it includes a particular section to talk about China market: “The regulatory 

environment for foreign digi-tal content services in China has become challenging. We now plan to 

license content to exist online service providers in China rather than operate our own service in China 

in the near term” (Final Q3 Letter, 2016). On 27 April 2017, iQiyi and Netflix have signed a content 

licensing agreement for Netflix original series. The de-tail of this agreement hasn’t been revealed.  

In 2020, when Netflix’s co-CEO Reed Hastings was once again asked about the Chinese mainland 

market, he stated, “We got turned down by the Chinese government several years ago. And we have not 

been spending any time on China in the last couple years”, Instead of pursuing the Chinese market, 

Netflix has di-rected its focus towards other regions such as India, Europe, and Latin America. The 

company has also been making efforts to appeal to Mandarin-speaking audiences worldwide (Kevin, 

2020). 

 

3. Result 

Although there are many cultural and political factors, this study will mainly focus on the financial 

performance segment as much as possible. This research will discuss whether the Chinese market is 

worth Net-flix’s large-scale investment or not from the perspective of economic cost and ROI, based on 

Netflix and some Chinese local video providers’ financial reports as well as other financial-related 

materials. 

(1) Fierce competition 

Due to the enormous potential of the Chinese market and a series of policies aimed at protecting local 

enterprises, China is home to numerous large-scale and highly competitive internet companies. As of 

August 2023, Alibaba and Tencent rank among the top five capitalization internet companies in the 

world, while Baidu ranked 18th on that list (CompaniesMarketCap.com., 2023). Interestingly, these 



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leading internet companies all have their own streaming services platforms. Baidu owns iQiyi, while 

Alibaba owns Youku. Tencent, a Chi-nese conglomerate offering streaming services, entertainment, 

gaming, payment systems, music, etc., generated a revenue of 77.99 billion in the 2022 fiscal year. 

WeTV, along with iQiyi and Youku, form the Big Three of the Chinese streaming market. Additionally, 

there are formidable competitors such as ByteDance, which owns Douyin and Xigua Video. Douyin 

has registered users reaching 1.06 billion and daily active users of 770 mil-lion. Xigua Video has not 

only reached content cooperation agreements with BBC Studios but also has accu-mulated over 350 

million users, with a daily playback volume exceeding 4 billion (Jiangxi Network Radio and Television 

Station, 2020). Other competitors like AcFun, Bilibili, Mango TV etc., each have a considerable market 

share, leaving Netflix with limited room for market development. 

(2) Hash operating costs  

Except for the saturated market, Netflix also doesn’t have a financial advantage. The Fierce of 

competi-tion in the Chinese market is reflected in almost all of the Streaming services mentioned 

before are losing mon-ey year after year to seize the market and compete with each other. Take iQiyi as 

an example, 

 

Table 11. Revenues, iQiyi 2018 Annual Report 

 

 

Table 12. Revenues, iQiyi 2021 Annual Report 

 



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Table 13. Revenues, iQiyi 2023 Annual Report 

 

 

From iQiyi’s financial reports from 2018 to 2023, it is evident that the operating costs and expenses 

were above $4.1 billion (30 billion RMB) each year from 2018 to 2022. It wasn’t until the end of the 

2023 fiscal year that iQiyi achieved profitability for the first time. Prior to 2023, iQiyi’s annual losses 

were partly covered by inves-tors and partly by Baidu. The primary reason Baidu continues to support 

this part of the business is to compete with other streaming services, relying on income from its other 

business segments (search engine, financial ser-vice, delivery service etc.) to offset the losses of this 

plate. The first profitable year for iQiyi came 13 years after its establishment.  

Why did iQiyi finally turn profitable in 2023? Was it due to increased revenue? Between 2016 and 

2018, iQiyi’s revenue maintained a high growth rate of over 40%. Revenue increased by 16% from 

2018 to 2019, but from 2019 to 2023, revenue remained stagnant at around $4 billion (30 billion RMB) 

with no signif-icant increase. Thus, the answer to iQiyi’s profitability lies in cost reduction. The method 

of reducing costs was simple yet harsh: layoffs. Starting at the end of 2021, iQiyi implemented multiple 

rounds of large-scale layoffs. Except for the core departments (such as procurement and production 

department of series and variety show), non-core departments such as iQiyi Research Institute, iQiyi 

Game Center, and the short video product “Sui Ke (similar to YouTube)” all faced layoffs. Some 

departments were merged. In fact, during the analyst conference call for iQiyi’s Q3 2021 report, iQiyi’s 

founder, chairman, and CEO Gong Yu hinted that non-core business departments might be layoff. “For 

iQiyi, the focus is on increasing revenue and cutting costs, mainly by cutting inefficient businesses and 

projects, and increasing and trying new monetization opportunities”, said Gong Yu (2021). 

In 2023, iQiyi delivered its best financial report in history, but Wall Street seemed unimpressed. 

Imme-diately after the release of the report, the company’s stock price briefly rose before falling again. 

The capital market is always right; turning a profit does not necessarily mean iQiyi has fully turned the 

corner (Sina Fi-nance, 2024). 

The terrible news for Netflix is that losses are the norm for all Chinese domestic streaming services—it 

relates to consumer habits, which will be discussed later—but not a single company has any intention 

of leav-ing the market. Some of them have strong parent companies (iQiyi, WeTV, Youku, Mango TV), 



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which Netflix does not; some have government support (Migu TV), which Netflix does not; and some 

are niche services (Bilibili), targeting a specific otaku community and becoming an integral part of its 

culture, something Netflix clearly cannot replicate or compete with. 

From Netflix’s annual report, Netflix has spent a significant amount of money on expanding into 

over-seas markets. If they attempt to enter the Chinese market, it would feel like falling into a 

bottomless pit, with a hard-to-achieve return on investment. 

Consider the example of Uber when it entered China and faced competition from Didi and Kuaidi. For 

several months, people in China who wanted to take a taxi not only did not need to pay but also 

received cou-pons for their next ride using these taxi apps. As Didi and Kuaidi completed their merger, 

the final battle be-tween the local company and Uber began. Uber, which did not adopt a subsidy 

strategy in other parts of the world, allocated $1 billion for subsidies in China. “Didi and Uber raised a 

combined total of about $20 billion, while the first Gulf War cost approximately $60 billion” (Lu, 

2016). 

As the money-burning war intensified, investors’ patience wore thin. Additionally, losses in the 

Chi-nese market somewhat hindered Uber’s global IPO plans. For Uber’s investors, cutting losses in 

China, preserv-ing the global market, and going public as soon as possible were more important than 

capturing the Chinese market (Brad et al., 2016). Uber poured all its earnings from the U.S. into China, 

but it was still not enough. The result was Didi acquiring all of Uber’s business in China. Netflix would 

not want a repeat of this scenario. 

(3) Different user habits 

So why are almost all streaming services in China losing money? Lowering prices to increase 

competi-tiveness and investing heavily in promotions are some of the reasons. The biggest issue is the 

video consump-tion habits of Chinese audiences. Only in recent years has the “subscription” awareness 

started to develop; for decades, everyone watched videos and online content for free. According to 

statistic, in 2022, China accounted for about one-fifth of the 5.4 billion (1.08 billion) internet users 

worldwide. However, compared to its total population, China’s internet penetration rate is lower than in 

other Asian countries (https://www.statista.com/statistics/265140/number-of-internet-users-in-china/). 

In China, iQiyi’s membership fees are considered relatively high. Its basic plan costs $4 per month and 

$25 per year, offering 4K MAX+HDR+surround sound on mobile devices. Youku’s annual membership 

can be as low as $18. These membership price levels were reached after a series of significant price 

hikes led by iQiyi from 2020 to 2022, which sparked considerable public dissatisfaction and led to a 

wave of membership cancellations across various streaming platforms. Currently, Netflix’s basic plan 

(which only supports 1080p and includes a few ad breaks) costs $6.99 per month, making it difficult for 

Netflix to compete with Chinese streaming providers on price. 

 



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Facing high video membership fees, according to Statista, 52 percent of respondents from China stated 

that they had watched pirated content on a mobile device (Irdeto; YouGov, 2017). If Netflix can’t come 

up with new revenue growth channels, relying solely on subscriptions won’t give it a fighting chance in 

the Chinese market. 

User habits also encompass audience tastes, which are notoriously difficult to predict. Take Netflix’s 

original drama “Marco Polo” as an example. This show, set against the backdrop of Chinese history 

and pro-duced with a Chinese audience in mind, cost Netflix approximately $90 million for its first 

season’s 10 epi-sodes, making it the second most expensive TV show in the world after “Game of 

Thrones”. Netflix is hoping the series will help their international expanding, however only after two 

seasons Marco Polo has been canceled. The series’ two seasons resulted in a $200 million loss for 

Netflix (Goldberg, 2016). That is a typical case of failure to grasp the user’s preferences.  

These differences in user habits can cost Netflix a fortune, Netflix needs to find ways to lower 

sub-scription fees while enhancing service content. Additionally, they must conduct in-depth studies on 

the tastes of the Chinese market, providing more original series and acquiring more existing local 

content if necessary. How-ever, this approach may also lead to further complications. 

(4) High original program production costs in China 

The different market has different production structures. Netflix’s original programming is the key 

ele-ment to differentiate their service from other offerings, enhance Netflix’s brand and otherwise 

attract and retain members. But produce original series not that easy in China. Despite the censorship 

and regulation difficulties, the production cost is also a big problem. In this stage of Chinese motion 

picture business, actors and actresses are much more important than the program itself. Lu Han, a 

former member of the South Korean Chinese boy group EXO, now one of the most popular idols in 

China, earned $17 million (120 million RMB) by shooting his very first a TV drama called “choose 

heaven”. The total cost of this show is $60 million (400 million RMB), with one-third of the budget 

goes to one single actor, other actors and actresses are not cheap either. $1.4 million on promotion, $5 

million on special effects, and only $2 million on clothing (NetEase Entertain-ment, 2017). The 

allocation of resources reflects the show’s high production costs. 

On December 24, 2018, the Beijing Radio and Television Bureau issued the “Implementation Rules for 

Further Strengthening the Management of Radio, Television, and Online Audiovisual Programs”, which 

stipulates that the total remuneration of all guests for each program must not exceed 40% of the total 

program cost, and the main guests’ remuneration must not exceed 70% of the total guest remuneration 

(Beijing Munici-pal People’s Government, 2018). However, according to China News Weekly (2024), 

the top-tier actors’ remu-neration for a single project still reaches around $ 3 million (20-25 million 

RMB). These actors do not demon-strate outstanding performance skills, and the anticipated online 

traffic they are expected to generate often re-mains unrealized. Their value predominantly lies in 



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attracting investment during the pre-production stage of film and television projects. 

 

4. Discussion 

Fierce competition, high operating costs, different user habits, and high original program production 

costs in China, these difficulties and other political constraints make the Chinese market a place that is 

not suitable for Netflix’s expansion. If Netflix forced into the Chinese market, it is likely to fail quickly 

like DisneyLife and Apple’s iTunes movie; Even if it can stay for a long time, it can hardly make 

differences from what’s happening to Uber—caught into the big fight with China’s local companies, 

invested heavily but hopeless to see any payback. 

 

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