1. Netflix China

2. Agenda
✤ Where Are We Today?
✤ Executive Summary
✤ In Depth Country Analysis
✤ Target Market Attractiveness
✤ Product Benefits
✤ Selling & Moving the Product to Consumers
✤ In Depth Analysis
✤ Short Term & Long Term Strategies
✤ Financial Analysis
✤ Recommendations

3. Where is NetflixToday?
Source: Netflix Website

4. Executive Summary
✤ Bring Netflix to China
✤ Target A20-54 (54% of population) / internet subscribers (43% of
population)
✤ Sell directly to consumers and partner with local retailers
✤ Offer a paid “premier” service and a free “limited” service
✤ Revenue will come from paid service and advertisers
✤ Partner with local production companies to provide original content
✤ Establish 6% SOV and $2B EBITDA in 5 years

5. Country Analysis

6. Economic History & Predictions

7. Economic History & Predictions

8. Economic History & Predictions

9. Economic History & Predictions

10. Demographics

11. 0"
100,000"
200,000"
300,000"
400,000"
500,000"
600,000"
700,000"
800,000"
2005" 2010" 2012" 2015" 2020" 2025" 2030"
Popula'on)in)'000)
0,19" 20,54" 55+"
Demographics
Source: Euromonitor 2015

12. Ease of Doing Business
✤ China protects many domestic
industries
✤ Use of discriminatory regulatory
processes
✤ Informal bans on entry and
expansion
✤ Overly licensing and operating
requirements
✤ Placing unwarranted restrictions
Source: Doing Business in China (2015)

13. Country Key Economic Indictors
Source: Euromonitor International from national statistics
Current Historic Forecast
Total GDP $10.36 Trillion
9.0% 15yr
CAGR
4.7% 16yr
CAGR
Inflation 2.0% Growth
2.3% 15yr
average rate
2.8% 16yr
average rate
Unemployment
2.9% of economical
active
2.1% 15yr
average rate
2.9% 16yr
average rate
Real GDP Growth 7.4% growth
9.7% 15 yr.
average rate.
7%
5.1% 16yr
average rate
Exchange Rate Against
US Dollar
6.21 LCU per US$
7.4% 15 yr.
average rate
6.4% 16yr
average rate

14. Corruption Measurement
Rank Score
Corruption
Perception Index
100/175 36/100
Bribes Payers
Index
27/28 6.5/10
Control of
Corruption
33% -0.603

15. Country Shortcomings: Financial
Risks

16. Country Shortcomings:
InstitutionalVoids
✤ Services are expected to a VAT rate of 17% (with 13% reduction to
essentials goods and services, and special goods at a rate of 6%)
✤ Political - communist, congress meets once a year, party dictates
most political decisions
✤ Economics - Chinese government management of exports
✤ Legal - three different levels, IPR, laws and amendments to fit WTO
✤ Social - Aging and decreasing population, online piracy, bribery,
film censoring, income gap between rural and urban

17. Country Shortcomings:
InstitutionalVoids (cont'd)
✤ Requirement of censorship before broadcast
✤ Export restraints: quotas, licensing, and export prices
✤ Value-added services are our barriers-to-entry
✤ Licensing requirements of 50% equity cap
✤ Limited participation by foreign suppliers

18. Addressing Country’s Problems

19. Addressing Shortcomings
✤ Stop over-investment
✤ Build what people demand
✤ Connect with the real numbers
✤ Freedom in the civic space = better position
✤ Accountability and transparency

20. Target Market

21. The Consumers
Internet User
Mobile/Tablet User Children in HHMiddle Class
Tech SavvyAdult 20-54

22. Target Market Attractiveness
✤ Disposable income of U.S. millions
✤ Percentage of broadband internet
✤ Mean age of population
✤ Median and mean income
✤ Age and income

23. U.S. millions
0
2500000
5000000
7500000
10000000
2014 2015 2016 2017 2018 2019
Source: Passport 2015
Target Market Attractiveness
(Disposable Income)

24. Target Market Attractiveness
(Broadband Internet Enabled Computer - Percentage)
41
43
44
46
47
2014 2015 2016 2017 2018 2019
Source: Passport 2015

25. Target Market Attractiveness
✤ Forecast of mean age population
38
38.75
39.5
40.25
41
2014 2015 2016 2017 2018 2019
Source: Passport 2015

26. ✤ Median and mean income
Source: Passport 2015
Target Market Attractiveness

27. Target Market Attractiveness
Source: Passport 2015

28. Product Benefits

29. Product Benefits
✤ Large selection
✤ Various payment plans
✤ Superior viewing content
✤ Limited or no commercial interruptions
✤ Original content for the Chinese market

30. Convenience
✤ 30 day trial run
✤ Shuffle through a wide selection
✤ Different payment preferences
✤ Custom website/landing page
✤ Mobile app
✤ Easy cancellation policy

31. Selling toTarget Market

32. Selling toTarget
Market
✤ Dedicated Chinese website
✤ Dedicated Chinese app
✤ Gift-cards and referral promo-
codes
✤ Partnerships with local
convenience stores and
supermarkets

33. Moving Product to Customers

34. Moving Product
✤ No inventory
✤ Since 2009, 19.8% with broadband internet and
doubled in within 5 five years with 41.7%
✤ Streaming players
✤ Target market: middle class, Adults 20-54 in China

35. Useful Analysis

36. SWOT Analysis
Strengths)
• Huge)online)streaming)
viewership)in)China)
• Huge)internet)usage)in)
China)
• Large)selec8on/variety)
• Original)content)
• Established)company)and)
brand)
Weaknesses)
• Limited)Chinese)content)
• Will)need)to)dub)or)
sub8tle)content)
• Chinese)would)rather)
watch)ads)for)free)content)
then)pay)for)content)
• Payment)gateways)
Opportuni8es)
• Expand)to)new)market)
• Create)new)content)
• Partner)with)ad)agencies)
for)product)placement)
and/or)preDroll/postDroll)
ads))
Threats)
• Chinese)compe8tors)may)
adapt)business)model)and)
execute)more)efficiently)
• Strong)compe88on)in)
market)with)more)to)come)

37. The Country and Consumers
Pros
✤ China is the second largest
country in the world
✤ While the growth of the
economy is slowing, it’s still
growing significantly
✤ The consumers are beginning
to feel more ease transacting
online
Cons
✤ The consumers are not used to
paying for online streaming
✤ The country is an aging country
✤ The country may ban riskier
content such as Narcos and
Marseille
✤ The country utilizes Cable TV more
prevalently than online streaming

38. The Competition and Company
Pros
✤ Netflix is widely known
✤ Netflix is established and
ready to go global
✤ Netflix provides original
content
Cons
✤ It is a highly competitive
market
✤ The current Netflix model
does not match what
consumers want
✤ Minimal Chinese content

39. Short and LongTerm Strategies

40. Short-Term Strategies
✤ Chinese dedicated website and mobile app
✤ Aggressively market to capture majority of market share of
online streaming of media content
✤ Obtain film screening and television licenses
✤ Editing content to fit Chinese regulations/censorships
✤ Dubbing and subtitling
✤ Product placement or sponsorship into original content

41. Long-Term Strategies

42. Long-Term Strategies

43. Communication Strategy
✤ Digital & VOD Advertising
✤ Regular emails and/or text notifications of new releases and updated
seasons
✤ Design a Facebook page specifically for China
✤ Provide the ability to rate shows watched
✤ Provide a portal to submit recommendations for new shows
✤ Quarterly surveys
✤ Points for Participation (P4P) program

44. Financial Analysis

45. Cost
Sources: Wiki Shenzhen; China Whisper Websites
✤ Free for limited streaming
✤ Sell ad space to make money
✤ $4.51 / month (28 yuan) for unlimited ad free streaming
✤ Compared to competitors offering free streaming:
✤ youku.com
✤ tudou.com
✤ cntv.cn

46. Financial Assumptions
✤ 2015 total TA is ~733m with -1% in TA YOY
✤ 2015 internet subscribers ~43% with 1% growth YOY
✤ $140.73 COGs per subscriber for the market
✤ 2% SOV in first year with +1% growth in SOV YOY
✤ Avg. $10 / :30 spot / person / show
✤ 973 hours streaming / year / person
✤ 4 :30’s / show
Sources: Netflix 10k; Euromonitor

47. ✤ Marketing and research
✤ Dubbing and subtitling current content
✤ Investing in original content for Chinese consumers
✤ Creating infrastructure in China over the next 10 years
to support anticipated growth
✤ Market share 2% first year; 6% within 5 years
Cost Requirements and Assumed
Market Share

48. Financial Analysis
Projections 2015 2016 2017 2018 2019
Revenue $3.2B $4.9B $6.5B $8.1B $9.7B
Costs of Goods
Sold
$887.8M $1.3B $1.8B $2.3B $2.8B
Gross Margin 72.6% 72.3% 72% 71.8% 71.5%
Selling, General
&
Administraive
$1.2B $2.0B $2.9B $3.9B $5.0B
EBITDA $1.1B $1.5B $1.8B $1.9B $2.0B
Sources: Netflix 10k; Euromonitor

49. Recommendations

50. Recommendations
✤ Establish 6% SOV within 5 years to enter attractive market
✤ Restructure Netflix model to offer ad time in China to allow for free online
streaming
✤ Dub or subtitle current content
✤ Partner with local broadcast stations and cable networks to stream
Chinese content
✤ Partner with local production companies to produce original content for
China
✤ Partner with local retailers or banks to allow for cash payments

51. Questions?

52. Resources
China Whisper (2012).Top 15 Most Popular ChineseVideo Websites. Retrieved 7/3/2015 from: http://www.chinawhisper.com/top-15-most-
popular-chinese-video-websites/
Coonan, Clifford. (2015).“Ni Hao, Netflix! how entering China is harder than scaling the great wall.” The Hollywood Reporter. Retrieved from
http://www.hollywoodreporter.com/news/ni-hao-netflix-how-entering-797844
Euromonitor (2015). Retrieved 7/11/2015 from: http://www.portal.euromonitor.com.lib.pepperdine.edu/portal/analysis/related
Euromonitor International. (2015,April 28). Countries & Consumers Overview - China. Retrieved from Euromonitor Passport GMID database.
Frater, Patrick. (2015).“Eight reasons why Netflix will struggle in China.”Variety. Retrieved from http://variety.com/2015/digital/asia/eight-
reasons-why-netflix-will-struggle-in-china-1201522141/
Jourdan,Adam. (2015).“Netflix eyes entering tricky China market on its own.” Reuters. Retrieved from http://www.reuters.com/article/
2015/03/02/us-netflix-china-idUSKBN0LY10I20150302
Netflix Inc. (2015). 10-K Annual Report 2014. Retrieved 07/26/2015 from: http://ir.netflix.com/sec.cfm
Office of the United States Trade Representative. (n.d.). China. National trade estimate report on foreign trade barriers. Retrieved from http://
www.ustr.gov/.
U.S. Department of Commerce. (2013, July 21). Doing business in Japan. Retrieved from http://export.gov/japan/doingbusinessinjapan/index.asp
WikiShenzhen (2015). Retrieved 7/3/2015 from: http://www.wikishenzhen.com/shenzhen-guides/cable-tv/