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This story appears in the April 1, 2011 edition of The Hollywood Reporter.
Hollywood is still digesting the numbers: Netflix is paying $100 million for 26 hours of original content to stream over the Internet. Bold and innovative or risky and unsustainable?
The price certainly is steep for two seasons of an untested series, House of Cards, based on a British TV political drama. And Netflix can’t keep paying $4 million for every hour of new content it collects without significantly increasing the $7.99 it charges customers.
Plus, the Media Rights Capital project, starring Kevin Spacey and executive produced by The Social Network helmer David Fincher — who will direct the first episode — doesn’t necessarily have a built-in audience.
“To commit as much as they did on a show that hasn’t shot anything yet is a bad idea,” one network executive snarks. “A lot of people in Hollywood can’t understand why they did that.”
In fact, some analysts figure that Netflix outbidding HBO and others signals less of an overall shift in strategy than a shot across the bow of the pay cabler, which has refused to license its content. If HBO won’t strike a deal, the thinking goes, Netflix will just bid against it for A-list content. Will HBO budge?
“HBO has no plans to sell its content to Netflix because we believe in high-quality, exclusive content,” network spokesman Jeff Cusson tells THR.
Netflix chief content officer Ted Sarandos says he is not in active discussions to pick up more new shows. But the company is at various stages of dealmaking with its Hollywood content partners.
A new pact with Starz, for instance, may or may not come to fruition, and upstarts large (Gregory Maffei, CEO of Starz parent Liberty Media, says he’s “in a dialogue with Amazon)” and small (Screen Media Ventures’ just-launched ad-supported platform) are entering the streaming market, another reason for Netflix to beef up original offerings.
“They appear to be focused on being more like HBO,” says analyst Michael Pachter of Wedbush Securities. “In order to succeed, they are going to need some original content.”
He figures paying $100 million for the 26 episodes breaks down to only $5 for each of Netflix’s 20 million subscribers. If it can milk the show for three years, then the cost is less than $2 per year, per sub. “Not that much when you think about the average subscriber paying around $120 per year,” Pachter says.
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Jon M. Chu