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Why An Indie Film Streaming Service Looks To China To Disrupt Its Competitors

Photo of Tim Mulligan
by Tim Mulligan

If one was to seek out two areas of video streaming that are currently wide open and waiting for consolidation then right at the top of that list would be film and the China market. Ever since last September when Netflix decided to downplay its feature film commitment when it declined to renew its $1 billion licensing deal with Film Distributor Epix (and which was subsequently taken up by Hulu), the world’s largest SVOD (Subscription Video On Demand) Service has looked to its original programming to win market share alongside its competitive pricing strategy. Putting its money where it’s mouth is, Netflix has committed to spend $6 billion on content in 2016 which will allow for 600 hours of original programming to be made over the year. However it is worth remembering that that majority of the programming budget still goes on licensing in third party content. So an estimated $600 million will actually go on original programming in 2016. Still this is double the amount the respective budgets for 2015 and highlights Netflix’s commitment to both increasing the quality and breadth of its content. With the notable exception of exclusive film distribution deals (ie Cary Fukunaga’s harrowing Dogs of War) Netflix is steering clear of the movie business and theatrical-first windowing rights for movies above the $10-20 million budget range-which is where the service with its 70 million strong global audience has a first event-making screen debut cost advantages.-cheaper and more effective reach for debut screenings.

As for China, the Video on Demand sector is being fiercely contested by the regional tech giants of Alibaba, Tencent and Baidu. All are essentially trying to clone Netflix’s successful product onto the Chinese market. Ali Baba is so far looking the most likely to succeed with the combination of its SVOD Tmall Box office service and its recent acquisition of YouTube copycat YouKou Tudou for $4.4 billion. Despite the deal-making, the Chinese market remains notoriously fragmented and diverse.

No One Currently Dominates Film Streaming

The simple truth is that no one service dominates the film on demand services. Indeed the focus is currently on trying to disrupt the Pay-TV sector through TV friendly scripted dramas and comedy shows. And this is where London-based company MUBI sees an opportunity to gain a first mover advantage over its SVOD competitors

MUBI does three things differently from its competitors. Firstly they focus on streaming independent films focusing in on international arthouse cinema. Secondly the movies on their service are only available for 30 days before being replaced by another offering. Thirdly and perhaps most interestingly they have just decided to launch their service in the China Market.

China Shows The Way Forward To Accelerated Growth

For a niche service with 100,000 subscribers, the decision to create a Joint Venture (with Huanxi Media Group, a Hong Listed Company established by the producer of cross-over hit Crouching Tiger, Hidden Dragon) to launch in the world’s largest and most challenging digital market is an example of bold strategic decision making. "As Netflix focuses on TV, their movie selection is not that great. So we can really become the most significant platform on film globally. And if you are thinking global you are thinking China," Efe Cakarel, founder and CEO of MUBI, told CNBC last Thursday.

While arthouse cinema is clearly a niche area, a successful move into China would allow MUBI the opportunity to leverage its brand recognition by diversifying into mainstream film streaming. This would then enable the service to gain mainstream traction and to begin to effectively compete with its larger SVOD competitors.

Netflix’s hesitation over China and its decision to downgrade the importance of movies on its service shows the opportunities available to more nimble and focused competitors. MUBI would not be the first company to misjudge the challenges of applying uniform business models to the idiosyncratic constraints of the current Chinese market. And it is paying a high price for this, with 70% of potential revenues going to its JV partner as the majority shareholder. Nonetheless, it has spotted an opportunity. If it is successful, then it will have pulled off a major marketing feat, which it can potentially use to transform its business from a niche one into mainstream competitor to the likes of Netflix and Amazon Prime.

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