Netflix, Inc. (NFLX) Takes On Cable Competitors With ‘House Of Cards’

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Netflix, Inc. (NASDAQ:NFLX), has been sitting on the sidelines too long and watching other cable giants find success with prime time dramas (see Mad Men and Homeland). Now the company is ready to take on the competition with an original show on its own. Last Friday, it debuted the political thriller, House of Cards.

Netflix, Inc. (NFLX) Takes On Cable Competitors With 'House Of Cards'

It stars Oscar-winning actor, Kevin Spacey and is directed by David Fincher from Fight Club and The Social Network notoriety. The show launched with all 13 episodes for its first season. This all-at-once release brings some risks.

Netflix, Inc. (NASDAQ:NFLX) is banking on it customers who will spend only $8 per month to enjoy older TV shows and movies, to now take an interest in a new, original show. The company is looking to expand its subscriber base; it believes an hour-long show doesn’t need to be drawn out for a week in anticipating of the next episode and the usual promotion that runs between episodes won’t be necessary to raise pop culture conversation, reported

Another risk could be the timing. According to Netflix, Inc. (NASDAQ:NFLX)’s chief content officer, Ted Sarandos, the current model of building a show’s reputation and interest level just isn’t working for a generation that can watch content when they want and as dictated by their own schedule. He said via Time, “That’s old media business-thinking. What we’re seeing our subscribers do is jump into these shows that they haven’t seen before and watch them episode after episode.”

For House of Cards, it was first shopped around to the usual cable suspects, but Netflix supposedly paid $100 million in distribution rights for two seasons; this compares to popular HBO shows such as Game of Thrones (approximately $50 million per season) and Boardwalk Empire (around $20 million for the debut episode).

Expectations are high for the show, with such a large initial investment. For the most part, it’s received positive reviews, but Netflix is yet to release online viewer numbers from last weekend, or what its corporate goals are for the show. Sarandos said, “The show will have to perform relative to what we paid for it. Over time, does it become one of the things that [users] attribute to the value of their membership? In that way, you see brand halo effects that will impact retention and word of mouth and ultimately grow the subscriber base.”

This is what’s key for the company: its subscriber base number. After a failed try in 2011 to get rid of its DVD mail-in service, 2012 was a better year for the company. It saw streaming paid subscribers increase by 8.5 million-plus to over 30 million globally. These are HBO-sized numbers and greater than Showtime’s, but these two cable channels have their own marketing and infrastructure machines.

According to the New York Times, HBO sees $1 billion-plus in annual earnings with Showtime bringing in $700 million. Netflix did incur a slight profit in 2012’s last quarter, but this came on rising licensing costs, increasing overseas infrastructure needs and original content costs.

For the company, the original programming could work for them in the long term as it grows as a channel, rather than just a distributor. It could be less dependent on deals from movie studios and cable networks for content. This has worked for HBO and MTV.

Dan Cryan, research director for digital media at IHS Screen Digest said, “What you’ve got from Netflix here is a move straight out of the network TV playbook. It’s a really well-established move to try to take control of your own content and to give people a reason to keep coming back to your channel.”

The company hasn’t rolled all of its dice on the House of Cards. In May, Arrested Development will have a fourth season on Netflix, while viewers can expect the Ricky Gervais sitcom, Derek, and two additional shows to launch by the summer.

This is only the beginning for Netflix, Inc. (NASDAQ:NFLX) and its original shows. There will be more with Sarandos commenting, “We don’t have limited shelf space. We have the appetite [for] a lot more than we currently have today. There’s no reason to believe we wouldn’t be as aggressive as that in future years.”

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