Will Netflix's 'House Of Cards' Contribute To More Cord-Cutting?

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On Feb. 1, Netflix released its original production of “House of Cards” starring two-time Oscar winner Kevin Spacey and directed by Oscar-nominated and Golden Globe-winning director David Fincher. It is estimated that Netflix paid $100 million for 26 episodes of this American remake of the successful 1990 BBC and PBS mini-series that brought juicy stories of political ambition and treachery to a level last seen in “Macbeth.”

The first, necessary element of this gamble has been successfully delivered, in my opinion (I’ve watched the first four episodes).  The quality of the writing, acting, directing and overall story is terrific.  It is great television.

The next element of the bet -- whose fate has yet to be determined -- is that this is a new kind of business model, one far afield from the traditional ways that television distributors and program creators have made money.

I believe this $100 million investment can and will help Netflix accelerate the changing face of what we used to call television, and can now refer to as T/V (television/video). Here’s why:

1. It sets the stage for Netflix to compete for new revenues against Hulu, Amazon and others, possibly expanding to a two-tier and/or ad-supported revenue model.

It’s no coincidence that, also on Feb. 1, Amazon announced it had purchased exclusive online subscription service rights to the PBS hit "Downton Abbey." Amazon Instant Video has something Netflix doesn’t – yet:  a two-tiered subscription, and pay-per-view (PPV) service. Viewers pay $79 a year for free streaming VOD access for those properties designated as “Amazon Prime.” Other premium offerings can be purchased or streamed in HD or SD for prices that vary by property. Some are only available for purchase.  No ads are included for now.  Amazon has explored original programming, but not at the level to which Netflix has.

Hulu has free offerings and includes premium offerings through a Hulu Plus subscription at $7.99 per month that includes “limited advertising.” Hulu has also ventured into some original programming.

It's worth noting that YouTube is also looking at a subscription service, though it would not likely compete for viewers of premium content. Its parent, Google, is a leader in monetizing through digital advertising.

At some point, to compete with Amazon  and Hulu, Netflix will need to find a way to expand its revenue sources. If it wants to keep up in the big-league battle for subscribers through new premium programming, without the benefit of the bundled cable/satellite T/V funding machine, it needs to increase value.  Netflix’s price increase debacle of 2011 taught the industry that a straight price-doubling move without an increase in value won’t be tolerated.

A quick look at the bundle-loving approach of the cable, satellite and network television providers for correlating value increases to price increases demonstrates that viewers will respond to the right package.

2. It positions Netflix to compete in an evolving “T/V Everywhere” world.  This phrase is used by cable operators to describe the expansion of content delivery from a single television screen to multiple viewing platforms. Netflix will need to run more than just reruns and second-run movies to earn the kind of demand that will truly cause viewers to “cut the cord” with their cable/satellite subscription bundles and switch to its streaming VOD model.  We may only watch a fraction of the 1000+ channels on cable and satellite each week, but we love the idea that they’re there. I’ll pay the cable bill because with all those channels, there must be quality in the package somewhere. Netflix and VOD can simplify – and, most importantly, reduce -- subscriber out of pocket costs while still satisfying their T/V appetite for content.

3. It retains and builds on the next generation of T/V “cord cutters.” Netflix surprised the marketplace by revealing that it had attracted 2 million new subscribers in Q4 2012, even before the “House Of Cards” launch.  Reporting on a recent NPD study, analyst Russ Crupnick said, "Over half of the viewers for streaming TV are between the ages of 18 and 34, so the YouTube generation is evolving from short-form and user-generated content to TV shows and, like YouTube, they can watch where and when they want."  Is there a better description of the kind of on-demand viewing preferred by this age group who grew up with the Internet?

Netflix must approach its next revenue growth move wisely.  Great T/V content needs funding.  We’re tired of all the ads that we need to avoid on traditional linear television (even with the convenience of DVRs). Netflix has a leg up in the age of “on-demand.”  If  company strategists don’t get greedy by increasing pricing without a reasonable increase in value, or by flooding the system with commercials that add no value for viewers or advertisers, Netflix might just become the next great media company.

The original television networks had the benefit of managing distribution and content creation, and surprisingly, Netflix has made the boldest move toward creating and optimizing those dual-revenue assets, mostly in a consumer-friendly way.  Having learned lessons from its big Qwixster misstep, Netflix’s “House Of Cards" is a bold and major step toward increasing value and attracting new subscribers in an increasingly competitive streaming T/V ecosystem.

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13 comments on "Will Netflix's 'House Of Cards' Contribute To More Cord-Cutting?".

1. G Simpson from George H. Simpson Communications
   

   commented on: February 5, 2013 at 12:53 p.m.
   Wait until you get to episodes 9, 10 and 11....just gets better and better
2. Brian Hayashi from ConnectMe 360
   

   commented on: February 5, 2013 at 12:56 p.m.
   The "price increase debacle" was actually the first salvo in these new programing wars. It was structured to clearly set aside a billion dollar warchest for projects exactly like "House of Cards." It built on Netflix' existing two-tier model (DVD + streaming or plain streaming). Some pundits have criticized Netflix for not offering more choices, such as PPV. I disagree. The monthly unlimited streaming account is so inexpensive, powerful, and easy to understand...why clutter it up with a PPV option that can only diminish consumer satisfaction?
3. Doug Garnett from Atomic Direct
   

   commented on: February 5, 2013 at 1:06 p.m.
   You know a restaurant is on it's way out when it "expands the menu". Despite the silicon echo chamber loving this move, it will end in catastrophe for NetFlix. Too bad they lack smarter leadership.
4. Michael Natale from MCM Media Sales
   

   commented on: February 5, 2013 at 2:41 p.m.
   What a shock! Doug made a comment here. Doug you are amazing, always defending the broken tv model when we all know it's been irreparably broken. Face it...Netflix is a good service just like Hulu and VOD and Tivo and the Hopper by DISH. I know these all keep you up at night but it is what it is man. The days of the consumer (and the consumer mindset) mindlessly staring at the full commercial load during primetime hours is done. Despite all the information that is put forth (which you will no doubt claim self serving and "mesearch") you still defend the indefensible.
5. Doug Garnett from Atomic Direct
   

   commented on: February 5, 2013 at 5:09 p.m.
   Michael - I enjoy spirited debate of the issues. And I would enjoy the professional courtesy that keeps that debate on the issues rather than you increasingly personal attacks. You have important and valid opinion to offer about TV as do I. Please stick to that. As it is, it would be easy to believe you are a cyber stalker given these constant personal attacks. Regards, Doug
6. Dean Fox from ScreenAngels Networks LLC
   

   commented on: February 5, 2013 at 6:52 p.m.
   There are many possible outcomes to this latest "programming war", which reminds me of the first move to original programming by HBO. For Netflix, you have to wonder if "House of Cards" can generate $100 million in new subscription revenues? Probably not, so some portion of this investment is purely for marketing purposes? Will this investment in new subs and marketing be worth $100 million? Personally, I doubt it, but it is an indication of the competition Netflix expects with Apple TV, Hulu and other OTT services.
7. Michael Natale from MCM Media Sales
   

   commented on: February 6, 2013 at 9:52 a.m.
   Not attacks Doug, just comments....as we all know people like yourself who are comitted to the TV model have to constantly defend it by throwing barbs at other ideas and research that backs up the theory of fragmentation. It makes sense that you would do it at all costs but how can you defend lower ratings and higher rates to advertisers year after year? That is my frustration with you. Not meant to be an attack, so please accept my apology.
8. Doug Garnett from Atomic Direct
   

   commented on: February 6, 2013 at 12:36 p.m.
   Wow, you can't even respond without nastiness. I point out truths and opinions that conflict with yours and with others in certain echo chambers. What we will actually see is far less change than you seem committed to as part of your media sales pitch and more than I'd love if I had my preferences. And that's all okay. Please do NOT throw me in the curmudgeon crowd. There is a group of duds like you discuss. But sometimes they are right. And when I note they are right it doesn't mean I'm one of them. Regardless, it's the issues that are important for great discussion. But I take umbrage to your avoiding confronting the issues by attempting to insult me. That's a Fox News approach (and a classic nasty debate ploy). But it's not helpful here.
9. Michael Natale from MCM Media Sales
   

   commented on: February 6, 2013 at 3:39 p.m.
   was not meant to be nasty, if this were the spoken word you would have had a better sense of the tone of my comments. I am definitely not one to sugar coat things though.
10. Doug Garnett from Atomic Direct
    

    commented on: February 6, 2013 at 4:43 p.m.
    I suppose I could have interpreted it in a Dan Akroyd "Jane you ignominious sl...t" tone. But as far as this communication medium that's a bit of a stretch. Thanks for the clarification.
11. Ryan Fortin from UWD Interactive
    

    commented on: February 7, 2013 at 7:29 p.m.
    I am a huge fan of Netflix and so are all of my friends. We are all enjoying House of Cards and are eagerly awaiting the new season of Arrested Development. That show alone will drive thousands of new subscribers to Netflix. Honestly, I look down on people who regularly watch television outside of HBO, Showtime, and the occasional AMC series. If someone mentions they actually like to watch a reality tv show on one of the major networks they instantly lose a lot of my respect. TV content has become so poor and so over commercialized only the dumbest of the dumb will continue to waste there time watching it. But that's what advertisers want right? The people stupid enough to be influenced by flashy TV ads. I want to cite the recent Hopper/CBS/CES debacle as the most recent failure of the television industry. It shocking how far they will go just to protect their antiquated business model. The only time I am willing to see a commercial is if the product or service is free. People like me are tired of paying 100 dollars a month to watch 10 minutes of ads for every 20 minutes of content. It doesn't make sense!
12. Kevin Horne from Lairig Marketing
    

    commented on: February 7, 2013 at 10:23 p.m.
    House of Cards makes zero financial sense to Netflix's business model: http://lairigmarketing.typepad.com/lairig_marketing/2013/02/netflix-deals-a-full-house-of-cards.html
13. Paula Lynn from Who Else Unlimited
    

    commented on: February 8, 2013 at 7:12 p.m.
    Grow up Ryan. You are allowed to like Netflix, but you do not have enough to do if you cannot find you do not have respect for people because they are not dependent upon it. Go volunteer and do something and I don't mean twit.

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