Netflix unable to find key to unlock world’s most populous country

The US movie online streaming multinational has yet to secure necessary licence from Beijing and is being sued at home by major film company.
Above, Wagner Moura as Pablo Escobar in the Netflix Original Series ‘Narcos’. Daniel Daza / Netflix via AP
Above, Wagner Moura as Pablo Escobar in the Netflix Original Series ‘Narcos’. Daniel Daza / Netflix via AP

Netflix has made no progress in its plan to enter the potentially lucrative Chinese market as it needs to obtain a government licence, its chief executive Reed Hastings said on Tuesday.

The video streaming service is seeking to grow its subscriber base abroad to counter slowing growth in its home market of the United States.

The producer of popular TV series such as Narcos and House of Cards has recently entered countries such as Turkey and Poland, but remains absent in the world’s most populous country.

Content providers in China face stringent regulations and censorship challenges.

Asked whether Netflix had made any progress in entering China, Mr Hastings said: “No … we are continuing to work on it. Same [problem] it has always been – government permissions, we got to get a specific licence in China.”

Mr Hastings said he could not give a specific timeframe for Chinese market entry.

The continuing frustration for the company in its efforts to enter China come as it is being sued at home by Twentieth Century Fox Film. The film company claims the internet movie and TV service poached its employees.

Netflix challenged the legality of Fox’s employment contracts and said it will defend it actions.

The suit, filed at the weekend in Los Angeles by two units of 21st Century Fox, alleges the California-based streaming company illegally induced several executives to breach fixed-term employment contracts. Fox highlighted the departure of two officials in promotions and creative businesses for jobs at Netflix.

“We filed this lawsuit because we believe Netflix is defiantly flouting the law by soliciting and inducing employees to break their contracts,” Fox said. “We intend to seek all available remedies to enforce our rights and hold Netflix accountable for its wrongful behaviour.”

Netflix said it plans to fight the lawsuit vigorously.

“We do not believe Fox’s use of fixed-term employment contracts in this manner is enforceable,” the company said.

“We believe in employee mobility and will fight for the right to hire great colleagues no matter where they work.”

In July, Fox sold Netflix exclusive rights to its hit show American Crime Story, a drama about the downfall of OJ Simpson, as part of their first global licensing deal. Netflix said at the end of June it will spend more than US$5 billion on programming in the coming year and has more than $13bn in total content obligations.

While California’s courts favour letting employees move freely, the right to defect from one company to another depends on specific contractual provisions.

Fixed-term contracts are generally enforceable under California law as opposed to non-compete clauses that take effect after an employee has already left, said Devin McRae, a litigator with Early Sullivan Wright Gizer & McRae in Los Angeles.

Still, Mr McRae pointed to what he called a conspicuous lack of detail in Fox’s complaint about how Netflix knew that the two Fox executives had a fixed-term contract or how it might have induced them to break their contracts.

“It appears that the plaintiff didn’t really know what happened,” McRae said in a telephone interview. “Was it really Netflix that caused them to leave or were they going to leave anyway?”

One of the employees cited in the complaint allegedly agreed to serve as Fox’s vice president of promotions for a two-year period starting in January 2015 under a contract that gave the company the right to extend the term another two years. Instead, after Netflix allegedly induced him to breach his contract, he told Fox in November 2015 that he was leaving for Netflix. Fox sued him in Los Angeles in February, claiming he broke his contract.

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Published: September 20, 2016 04:00 AM

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