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Thursday, April 24, 2014

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  • Netflix's "House of Cards" Looks Compelling, But Will Binge Release Strategy Pay Off?

    Having binge viewed 8 episodes of the final season of "The Wire" on HBOGO over the long weekend, I am very intrigued by Netflix's strategy to release all 13 episodes of its first high-profile original series, "House of Cards" on Feb. 1st.  Based on the trailer (see below), the show looks very compelling. The question is whether Netflix's strategy strikes the correct balance between delighting its subscribers vs. best serving its own business interests.

    Binge viewing, or watching numerous episodes of a TV series in a concentrated time period, has become a huge phenomenon, pioneered by Netflix's subscribers themselves. The opportunity to watch as much as you want of a series, on multiple devices, and at any time you prefer (and without any commercials!), is the ultimate in consumer control. As Netflix migrated to streaming, it erased the last obstacle to binge viewing, the need to mail back one DVD in order to get the next one with successive episodes.

    Subscriber satisfaction clearly drove Netflix's release strategy for "House of Cards." In its recent press release announcing the premiere date, Netflix's Chief Content Officer Ted Sarandos said, "In offering the entire season at once, Netflix is giving viewers complete control over how and when they watch the show." As a Netflix subscriber and Kevin Spacey fan, I'm thrilled with their approach, and I'm confident that I'll knock off those first 13 episodes in two weeks or less.

    On the surface, delighting its subscribers like this might seem like a good approach for Netflix, but I wonder if it really serves Netflix's business interests. There are good reasons TV networks have always released their TV series over the course of a months' long season: suspense over what will happen next builds loyalty, plus word-of-mouth, media coverage and increasingly, social media buzz, all build audience.

    The resulting higher ratings lead to higher ad revenues, and for cable networks in particular, can lead to higher affiliate fees when negotiating renewals with pay-TV operators. Importantly, releasing episodes over the course of months compresses the amount of time until the following season debuts, therefore keeping viewers hooked. To be sure, plenty of viewers have taken matters into their own hands by DVR'ing episodes and binge viewing as they please. But despite this, TV networks haven't shown any interest in accelerating their release schedules.

    Netflix will see a surge of media coverage and water cooler chatter about House of Cards in early February. But once the binge viewing subsides, so will the buzz. What does Netflix get out of all this? No doubt, subscribers who binge view will feel more positively toward Netflix and ask why TV networks can't do the same too. But will these warm feelings mitigate Netflix's overall churn rate? Better yet, will House of Cards drive new Netflix subscriptions? And if it does, how many of these new subscribers will binge view House of Cards during their free, 1 month trial period and then cancel, not generating any new revenue for the company?

    I give Netflix credit for trying this experiment, but it seems to me they're being a bit too generous to their subscribers. A more balanced approach might have been to charge for some type of premium access for those subscribers who do want to binge view. An interesting example of this approach is that the upcoming third season of "Downton Abbey" is being made available on DVD concurrent with its airing, so those viewers who want to binge view it rather than wait for it to unspool on PBS have the option of paying extra to do so. Might Netflix have been able to charge say, an extra $5-10 for an "All Access Pass" to House of Cards?

    With each episode of House of Cards reportedly costing approximately $4 million, a binge viewer will be able to quickly watch 13 episodes, or $50 million+ worth of programming as part of their $8 per month subscription. It's hard to see how the math adds up for Netflix on this, but the proof will be whether the company employs this novel release strategy again in the future.

     

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