Wednesday, March 16, 2011, 8:50 AM ET|Posted by Will RichmondA report late yesterday by Deadline.com, that Netflix is potentially going to bid $100 million to stream/broadcast the new David Fincher/Kevin Spacey TV series "House of Cards" has been ricocheting around the Internet like a pinball since. Deadline also reported that Netflix is bidding against HBO and AMC and could take the unusual step of not even piloting the series before making this huge financial commitment. As a close observer of Netflix's rise over the past several years, the move would break with several key tenets of the company's success formula. Though I've learned to never say never, following are a few Netflix strategies that would be changed with a deal for "House of Cards":
Data-driven approach to the business - Netflix is first-and-foremost a data-driven company. It does not take wild swings; it "measures twice and cuts once" as the old saying goes. That approach has extended to content acquisition. As content chief Ted Sarandos explained to me in my interview with him at NATPE, there's a whole quant team at Netflix charged with drawing correlations about what additional content would be worth bidding on, based on established user behavior. As I've pointed out in the past, these insights give Netflix a huge advantage in its Hollywood content negotiations. Now, maybe Netflix has crunched the numbers and determined "House of Cards" would be a hit with its users. But even if it has, until a series is actually piloted, it's impossible to know its true appeal, regardless of how much star talent is attached to it. As a result, "House of Cards" bid feels much more like a gut move than a data-driven decision.
Controlled financial risk in content acquisition - Despite its breakneck growth over the last couple years, when you listen to CEO Reed Hastings on Netflix's quarterly earnings calls and in my interview with him last year, or interact with other company executives, the overwhelming impression you get is that this is a company guided by rigorous financial analysis. Consistent with their reliance on algorithmic insight about which content to acquire, the amount Netflix spends is heavily informed by the offsetting postage and DVD acquisition savings in the core business. That's been a constant since Netflix got into streaming. A $100 million deal for "House of Cards" stands this logic on its head; it feels awfully speculative what impact to the core DVD business a new, untested series would have. Reed has said repeatedly that his own skills are not suited to original content production. Maybe there's enough distinction between producing your own vs. acquiring first rights, but from a financial risk standpoint, it doesn't seem that way to me. A hundred million commitment to a new series is anything but a controlled risk.
"We want to partner with premium cable networks, not compete with them" - That's an often-stated theme from Netflix executives, who have made good on it by striking deals with Starz and EPIX. The pervading philosophy at Netflix has been that the company can be a partner to existing businesses, rather than a disruptor. That said though, if premium networks like HBO won't play ball with Netflix, then as Ted noted at NATPE, Netflix will bid against them for Hollywood films like Warner Bros. That's fair enough. But bidding against HBO for an untested TV series? That sure feels awfully competitive, not complementary.
Maybe there's more than meets the eye with this potential "House of Cards" deal. Perhaps Netflix is just rattling the cage, sending a signal to HBO, and others, that with 20 million subscribers and growing, it has the potential to be an acquisition force and wants to keep everyone else honest. Or maybe Netflix's data has uncovered a blinding insight about how Fincher/Spacey star power could vault Netflix to the next level. Or maybe Netflix was irked by Comcast CEO Brian Roberts' recent trash talk that "what used to be called 'reruns' on television is now called Netflix." Or maybe Netflix has succumbed to the age-old mystique of "going Hollywood." It's too early to tell. But one thing's for sure - if a deal in the $100 million range for "House of Cards" does in fact happen, Nettfix will be charting a very new course thereby shifting the balance of power in Hollywood.
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