First reported by Bloomberg, Netflix is reported to be in talks with Jack Ma-backed Wasu Media Holding about bringing its streaming service to the world's largest country as it seeks to continue its global expansion.
Given Netflix's success in Latin America and its early success in France and Germany -- which CEO Reed Hastings categorzied as "successful launches" -- there's no reason to think Netflix can't replicate its success in China despite the cost of doing business there. The company has turned its international business from having no presence just a few short years ago to more than 20 million internationally, half of what it has in the U.S.
On the company's April 15 earnings call, Chief Content Officer Ted Sarandos noted Netflix is willing to do whatever it takes to do business there. "We are anxious and open to all forms of doing business in China," Sarandos said.
That doesn't mean it'll be easy to do business in China -- not by a long shot.
U.S.-based companies that want to do business in China play by China's rules, or more likely, the Chinese government's rules, hence the potential partnership with Wasu. Netflix has never had a partner in any country it's operated before, so it'll be a learning experience for Hastings and the rest of his team at Netflix.
It's going to be an expensive proposition for Netflix, one that investors should be aware of, even if they're pushing the stock to more than $600 today, based on the potential.
At the end of the first quarter, Netflix had more than $9.8 billion in streaming content obligations, meaning it will eventually have to pay nearly $10 billion in expenses for all the content it's acquired over the years.
As the company moves more into original programming, like House of Cards, Orange is the New Black, these costs are only going to increase. Investors have to be wary.