Explained: Netflix’s Rocky Vietnam Market Entry
Vietnamese authorities are calling on Netflix to open an office in Vietnam. However, this request poses certain risks and compliance challenges for the streaming giant. In this article, we outline the concerns and provide essential information for cross-border digital services providers seeking to engage in business activities in Vietnam.
In the United States, in 1987, Stanley Kubrick’s Full Metal Jacket was nominated for an Academy Award. In Vietnam, in 2017, however, the critics took a decidedly different point of view and ordered Netflix to remove it from its platform. This marked the beginning of a somewhat rocky market entry for the streaming giant.
Indeed, at the time, Netflix had been available in the Southeast Asian nation for barely a year and its arrival had been rather mooted. Take-up had been slow, but in a nation well known for a strong affiliation with pirated video content, this was to be somewhat expected.
That is not to say it had slipped into the video-on-demand (VOD) marketplace entirely unnoticed. The local press had pondered how it might impact local content providers, though local content providers did not see it as a threat. They foresaw the challenges Netflix would face and rationed that a lack of understanding of the market, specifically regulations around media and communications, would be a distinct disadvantage against more well-versed local providers.
And they may have been at least partially right. By October 2018, local media reported that Netflix had an estimated 300,000 paying subscribers in Vietnam. While this was a tiny fraction of the 100 million-strong population, Netflix insisted its Vietnam subscriber base was actually much lower – without providing specific numbers.
But this was not to last. Netflix had eyes for Vietnam’s booming middle class, with their rapidly growing disposable incomes and affinity for big-name American brands. The streaming platform was ready to change its ways to fit the market and it began by localizing its platform.
Netflix local site launches, app ordered to be removed from TV default settings
In mid-2019, Netflix was preparing to launch a Vietnamese language version of its interface in the hopes that more localized content might spark the interest of local users.
But while Netflix was busy translating and subtitling content, the Department of Radio, Television and Electronic Information (DRTEI) was ordering television manufacturers to remove Netflix from among the default apps already installed on new TVs.
“Although Netflix has officially provided services, charged fees, and has TV content translated into Vietnamese with subtitles in Vietnam, Netflix has not shown any signs of complying with Vietnam’s regulations on content management and service,” was the reasoning reported by the Ho Chi Minh City Women’s Newspaper in September of 2019.
Those regulations, outlined in Decree 06/2016/ND-CP, require pay-TV services to be registered with the Ministry of Information and Communications (MIC). Furthermore, the Decree stipulated that content must be edited and translated by an authorized press agency with a radio and television operation license in accordance with the Law on Journalism.
Consequently, the order went out to big international brands with a manufacturing presence in Vietnam, including Samsung, LG, Sony, and TCL to remove the app from their products. It’s not clear what the repercussions were for non-compliance. Neither is it clear if these firms complied.
Regardless, a month later Netflix went ahead and launched its Vietnamese language interface.
US, Australian, and Chinese programs pulled
The two years following the launch of Netflix’s Vietnamese service were somewhat tumultuous for the streaming giant.
In May 2020, it caused a stir when an episode of Madam Secretary featured a shot of central Vietnam’s iconic city of Hoi An captioned ‘Fuling, China’. Local officials in the central province demanded Netflix remove the offending scene. Netflix responded that the program was not created by Netflix but purchased from a third party and that the program was not available on Netflix in Vietnam. It did not, however, stop local media from reporting broad outrage among Vietnam’s citizenry.
Then in August that year, Netflix was in the headlines again. This time, the Chinese television series Put Your Head On My Shoulder had ruffled feathers with a scene that showed a map of China and the controversial nine-dash line. Netflix reportedly complied with a request from the DRTEI to remove the offending scenes.
Then less than a year later, in July of 2021, Netflix was again facing backlash. In the Australian drama Pine Gap, a brief shot of the interior of a navy vessel showed a map of the South China Sea in the background also with China’s nine-dash line. The series was promptly removed by Netflix.
Indeed, five years after first becoming available in Vietnam, Netflix was running afoul of Vietnam’s content controls left, right, and center.
Netflix launches a free plan for Android
How much of an impact this press coverage had is hard to ascertain. However, struggling to gain a foothold in the Vietnamese market, in November 2021, Netflix took the unusual step of launching a free plan for Android users. This meant that anyone with an Android phone could download the Netflix app and stream a broad range of content for free.
This was a popular decision and Android users took to downloading the popular streaming app en masse. Netflix’s star was starting to rise and brand awareness began to increase. It was, however, providing its services for free. To generate real revenue, its growing popularity would need to be accompanied by a culture shift in Vietnam. Specifically, it needed consumers to move away from pirated content and instead move toward paying monthly subscription fees.
Vietnam signs up to the WIPO Internet Treaties
This incidentally, coincided with Vietnam’s accession to the World Intellectual Property Organisation (WIPO) Internet Treaties. These treaties, namely the WIPO Copyright Treaty and Performances and Phonogram Treaty, specifically address protections for content providers through the internet.
The point being, that though on the one hand, the Vietnamese authorities were raking Netflix over the coals in terms of the content it was disseminating, they were at the same time taking steps to protect Netflix’s intellectual property as well.
Note that the Office of the United States Trade Representative’s ‘Special 301’ report frequently lists Vietnam as a key offender in terms of intellectual property infringements. Pirate video sites are easily accessible online with movies from all over the world available and subtitled in Vietnamese too. Signing up to these treaties would further serve to strengthen Vietnam’s resolve to wipe this behavior out.
That said, as Vietnam allowed international organizations like WIPO greater influence over how it managed its digital landscape, at the same time it also sought greater influence over international content providers.
Authorities announce data will need to be stored locally
In August of 2022, the Government of Vietnam issued Decree 53. This served to add greater detail to the Law on Cybersecurity 2019. Specifically, there were three key clarifications that would impact firms like Netflix:
- Firms providing ‘internet services’ would be required to store user data in Vietnam.
- Firms would be required to hand over this data to the authorities on request.
- Firms would need to open a branch or representative office in the country.
This was met with derision from the international community. Leading the charge was the US Chamber of Commerce alongside the American Chamber of Commerce in Vietnam and the Asia Internet Coalition (a trade body counting Amazon, Google, and Meta among its members). In a letter to the Prime Minister of Vietnam, Pham Minh Chinh, the group dubbed the localization requirements a ‘significant burden’.
Note that provisions in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) prohibit member states from dictating where other member states should store their data. The United States, however, notoriously left the agreement under the Trump presidency in 2017.
Regardless, though there were some conflicts between the Decree and the Law on Cybersecurity, for the foreseeable future it was here to stay. In this light, firms would need to start seriously assessing their options.
OTT, VOD services to be regulated like radio, television
If Decree 53 failed to prompt foreign internet service providers into action, it was anticipated that Decree 71, which was issued a month later, would have a more significant impact, particularly for over-the-top (OTT) and video-on-demand (VOD) providers.
This Decree officially affirmed that these business models would be required to abide by the regulations applied to traditional broadcast services. They would need to be licensed by the MIC and this would require a local office too.
Netflix had been forked twice. Whether as an internet service or an OTT service, it was clear that the authorities were determined to have the streaming platform open an office in Vietnam.
But there was more to it than that. Decree 71 would also mean that content provided by foreign OTT and VOD providers would need to go through the same rigorous classification process as domestic content.
For example, news programs would need to be reviewed by a registered press agency before going to air. To become a registered press agency, however, is a lengthy and complicated process.
What’s more, on a practical level, this process would be time-consuming and costly. For live news feeds on streaming sites like YouTube, it would be near impossible to comply with these regulations, save for removing live streaming altogether.
But more to the point, these regulatory delays in disseminating news media may have been what drove consumers to unregulated cross-border services in the first place. Removing these services would then likely see consumers simply look elsewhere for their news – Netflix had been given a lot to think about in 2022.
On a side note, it went on to round out the year with a take-down request for the Korean drama, Little Women. A reference to the Vietnam War was determined by the DRTEI to have breached a law against ‘distorting history, denying revolutionary achievements, offending the nation and the nation’s heroes’. Netflix complied.
MIC calls out Netflix for non-compliance
And so, at the outset of 2023, the possibility of carrying on business as usual for Netflix was looking bleak.
What’s more, in February, the Authority of Broadcasting and Electronic Information called out the company by name for failing to establish a local office per the new regulations. The branch of the MIC went on to say that the providers of internet services that failed to comply with the new regulation would be blocked.
Notably, though Netflix was singled-out, it was not alone. Facebook and YouTube were both under scrutiny too. But there had been little movement on this front from either party, with the two conglomerates appearing to have adopted a wait-and-see approach.
They did, however, have some leverage where Netflix did not.
Enforcement challenges for Vietnam
When Vietnam first opened up to the internet, it took a markedly different approach compared to its northern neighbor. In Vietnam, a firewall comparable to China’s ‘Great Firewall’ was never really developed (though censorship was and is still rampant).
As a result, cross-border giants like Facebook and YouTube were able to heavily ingrain themselves into the daily lives of the Vietnamese people and the economy of Vietnam. Blocking Facebook. For example, could have far-reaching implications on domestic retailers and Vietnam’s e-commerce sector.
There are also thousands of content creators on YouTube bringing in millions of dollars every year, from all over the world. Blocking the popular video site could be a huge blow to Vietnam’s creative industries, which account for an estimated 3 to 5 percent of GDP.
That’s not to say Netflix didn’t have a leg to stand on too.
In 2022, Vietnam exported US$109 billion worth of goods to the US but imported just US$14 billion worth – a trade imbalance, in favor of the former, to the tune of US$95 billion. The United States has frequently leveraged these imbalances to secure concessions from its trading partners. China, in particular, was repeatedly targeted during the Trump presidency.
Whether the US will adopt a similar approach, in this case, remains uncertain and may hinge on the enforcement methods chosen by the authorities. Nevertheless, a resolution to this question may be imminent.
The TikTok test case
In early April of this year, the MIC announced an investigation into the popular social networking platform TikTok. The objective of the investigation was to address what the MIC considered to be “toxic” content on the platform.
The exact scope of the investigation and the specific expectations of the MIC were not clearly defined. TikTok, on the other hand, remained mostly silent on the issue. However, in a statement to Rest of the World, it expressed its willingness to address any concerns and highlighted the progress it had made in Vietnam over the past four years.
It’s also worth noting that, the MIC explicitly singled out TikTok, citing the fact that it was the only cross-border internet service provider with a local office, according to Reuters.
This raised concerns about whether foreign companies establishing local offices would also be subjected to investigation. Additionally, another issue for consideration was the pending third Decree on data protection in Vietnam’s government, adding further complexity for those contemplating the establishment of local offices.
This was concerning. If foreign firms opened local offices would they be opening themselves up to being investigated too? But that wasn’t all they needed to worry about. A third Decree on data protection was in the process of being passed by Vietnam’s government. This would add a further layer of complexity for those contemplating the establishment of local offices.
Data protection Decree adds another regulatory layer
On April 6 of this year, the Deputy spokesperson for the Ministry of Foreign Affairs called on Netflix to remove parts of the documentary MH370: The Plane That Disappeared. She alleged that the documentary film had mischaracterized Vietnam’s role in the events that took place back in 2014. Netflix swiftly took action, removing the first episode from the series.
At the same time, a new Decree protecting the personal data of Vietnam’s digital class was being approved.
Decrees 53 and 71 had cast the net wide. Foreign cross-border service providers would need to open local offices; there were, however, a number of concerns with respect to keeping data secure.
This the government had sought to assuage with the Personal Data Protection Decree (PDPD). The contents of which established the rights and responsibilities of firms collecting user data alongside those of the users they were collecting said data from.
Foreign firms would now have to comply with all three decrees or potentially risk punitive repercussions. This, however, would be easier said than done with conflicts in the requirements of the three Decrees. For example, the PDPD stipulates user data should be deleted on request but Decree 53 states that certain data must be kept on file for up to 24 months.
At present, numerous uncertainties persist regarding the compliance of multinational cross-border service providers with Decrees 53 and 71. Even if they choose to comply, the specific methods and potential impact remain unclear.
In February, there was speculation that Netflix might establish an office in Vietnam by the end of the year, but the company has yet to confirm this intention.
Netflix’s future actions could depend on the outcomes of the MIC’s investigation into TikTok. The investigation was expected to conclude by the end of May, but no updates have been provided thus far.
In the meantime, the PDPD decree will come into effect on July 1, and companies should ensure they are prepared and in compliance with its provisions.
It is important to acknowledge that Vietnam’s digital services landscape is still evolving, and further clarifications may be necessary to achieve the government’s desired objectives.
So, what does all this mean for foreign firms?
Netflix has faced multiple challenges in providing cross-border services to Vietnamese consumers. Yet, despite being frequently featured in the national news, often with a negative tone, it recognizes the potential value of Vietnamese consumers.
Foreign firms looking to follow Netflix into Vietnam can glean several key insights from the streaming giant’s experience and should keep the following in mind:
Understanding free trade agreements can be crucial. Right now, there are a lot of factors at play in Vietnam’s business environment. More than 15 free trade agreements that the country has signed often overlap and trigger protections that firms may not be aware of, such as limits on forcing firms to localize data. Familiarity with these agreements can make a huge difference to foreign entities entering this booming market.
Regulations and laws need to be monitored. Laws in Vietnam are often vague with follow-up Decrees and Circulars used to fill in the finer details. Firms looking to operate in Vietnam not only need to understand the applicable laws as they are but need to constantly monitor for changes and respond as they occur. One effective way of keeping up with regulatory changes is to subscribe to sites like the Vietnam-Briefing.
What happens in Vietnam doesn’t always stay in Vietnam. Handing over the personal data of a firm’s users, and actioning take-down orders, may come with international consequences from a public relations perspective. Before opening a local office in Vietnam, firms should complete a thorough risk assessment of the business landscape in their sector.
Data security needs to be taken seriously. Firms that open a branch or representative office in Vietnam need to ensure they protect their user’s data. They need to ensure their offices are secure and that storage of sensitive data complies with the provisions outlined in the PDPD.
That is to say, though there are challenges to operating in Vietnam, they can be overcome.
Despite challenges, all love is not yet lost
In Netflix’s A Tourist’s Guide to Love, released earlier this year, a travel executive played by Rachael Leigh Cook, “accepts an assignment to go undercover and learn about the tourist industry in Vietnam. Along the way, she finds adventure and romance with her Vietnamese expat tour guide,” according to the IMDB blurb.
A new twist on an old trope – think Rhonda and Ketut; Lost in Translation; Eat, Pray, Love – in a country more commonly associated with war in modern cinema, this was a welcome refresh of the burgeoning Southeast Asian nation’s image.
As a result, the Netflix feature made national news in Vietnam, giving Netflix’s image a welcome refresh too. But for all the love for this media giant in the wake of this feel-good rom-com, Netflix’s market entry has been far from easy, and the company is still not exactly on stable ground.
That said, Netflix paid taxes of 7.8 billion VND (US$332,000) in the first quarter of 2022. If it’s paying the standard corporate tax rate of 20 percent, that would give it an income of 39 billion VND (US$1.6 million) per month or US$6.4 million per year.
The point is that market entry can be tricky, and managing conflicting interests can be a chore, but successfully tapping Vietnam’s booming middle-class consumer market can be very rewarding if it is done right.
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Dezan Shira & Associates provide business intelligence, due diligence, legal, tax and advisory services throughout the Vietnam and the Asian region. We maintain offices in Hanoi and Ho Chi Minh City, as well as throughout China, South-East Asia, India, and Russia. For assistance with investments into Vietnam please contact us at firstname.lastname@example.org or visit us at www.dezshira.com
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