The Chinese online retail giant Alibaba (BABA) will be entering the streaming video market according to the company's president of digital entertainment Liu Chunning as of Sunday. The new service, to be called Tmall Box Office, will be offered through Alibaba's set-top box, as well as through smart televisions by Haier Group Corp. The new service is set to launch in two months.
Tmall Box Office will include both original and local content as well as a portion that is purchased overseas. There have not been exact prices released, but about 90 percent of the service's material will require a subscription or be priced on a per show basis, with the other 10 percent being free of charge.
Netflix (NFLX) announced back in January its global expansion plan to include 200 countries in 2 years, and as of May, reports came about of the streaming service company participating in talks with Chinese broadcasting executives in an attempt to enter the Chinese market.
There have been delays due to several obstacles though, the biggest being regional licensing blocks that prevent content from being shown in other countries. The news of Alibaba's service will certainly increase the motivation of Netflix to get a deal in place to enter the Chinese market.
Alibaba's new service entering the market in China, and eventually possibly into the US could create a price war between the different streaming services in the industry, an industry that already has razor-thin margins. While Netflix has been profitable thus far, a price war that they have not previously had to deal with could affect the company's sales and margins.
Netflix's subscription sign up rate has slowed domestically as of recently, while it has increased internationally as the company has turned its focus to establishing and growing its presence in other countries. Competition in the US has affected the company's domestic market share, causing the need for international expansion as well.
Alibaba's launch of a new service will certainly affect Netflix's plans to expand in China. The company will most likely look to speed up their entrance into the Chinese market and obtain a solid hold there before Tmall Box Office becomes entrenched with a huge lead.
While Alibaba does hold several advantages over Netflix in China including a solid relationship with the country's government that provides an advantage in obtaining necessary licenses, as well as the company's current extensive online market presence, the battle for the Chinese streaming market will be an interesting one.
The rivalry between the two countries will heat up even more if Tmall Box Office ever enters Netflix's home turf in the United States. The pressure has now increased for Netflix to expand and to do it quickly, and investors should be looking for the amount of growth and expansion the company is able to obtain.
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