In A Big Game Changer, Netflix Finally Enters China, Albeit Via The Backdoor

Chinese authorities have stymied Netflix efforts to provide its streaming video service in China for years now and, at one point, China might have seemed like a distant dream for Netflix shareholders and management.

Well, not any more. The Hollywood Reporter broke the news this morning that Netflix just signed a deal with iQiyi, (a subsidiary of Baidu) where the latter will distribute Netflix content to the tens of millions (potentially hundreds of millions) Chinese consumers of streaming video services.

China is an important market for obvious reasons; its also a challenging market for obvious reasons, said Robert Roy, Netflixs VP of content acquisition. Right now, what we will do is look to license content into China. We closed a deal with iQiyi, which is exciting.

For us, it does a couple of things, Roy added. It gets our content distribution into the territory and builds awareness of the Netflix brand and Netflix content.

For those that might not know much about iQiyi, it is a subsidiary of none other than Baidu and just completed a $1.53 billion round of convertible debt funding in February, which included a $300 million investment by the parent company, Baidu, and by others, including Sequoia Capital, IDG Capital and Hillhouse capital.

"iQiyi has been a great asset and an important part of the Baidu ecosystem," Baidu CEO Robin Li said at the time of the fund raising.

iQiyi is a video steaming service that hosts free and subscription services. According to research figures cited by Baidu, the mobile app had 481 million monthly active users as of December 2016.

This is more than likely a game-changer not just for Netflix, but also for iQiyi and Baidu.

Disney and company better wake up and smell the action here too.

Netflix's valuation will only increase as a result of this totally game-changing partnership in China. It might not happen immediately, but it should happen very quickly.

It's a terrific deal for iQiyi as well. The way to play iQiyi? Baidu of course.

Just a small tidbit: Netflix just crossed the 100 million subscriber mark this past weekend without a single subscriber in China. In addition, the company also announced yesterday its intention to raise funds via a 1 billion euro offering, so when you hear the kindly uncles and boo-birds wring their hands and weep copious tears, you know better.

Think about that for a minute.

Words to the wise.

(Long nflx, bidu, long and short options on both)

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