Shocking many in the TV industry, Netflix is now moving its streaming movie and TV business into the original content arena, reportedly buying a big new TV drama.
With reports that Netflix outbid HBO and AMC for a big original TV drama, media executives say this accelerates the idea that all TV content may be streamed digitally -- with little regard for traditional TV schedules.
"It's fascinating," says Brad Adgate, senior vice president and corporate research director for Horizon Media. "All this has caught people by surprise. These changes are happening so fast."
A report from Deadline.com says a David Fincher-directed TV drama, "House of Cards," which stars Kevin Spacey and is based on a series of British political novels, has done a network-like deal with Netflix: 26 episodes a year, in a two-year pact worth around $100 million.
Media executives had several questions about the news. For example, would it be advertising-supported? How would a TV show like this be marketed? A Netflix spokesman had no comment.
Adgate guesses that Netflix, which has around 20 million subscribers, would probably operate like an HBO -- a premium cable TV network where consumers make extra monthly payments to their cable operator. HBO has around 30 million subscribers, where consumers pay around $10 to $12 a month.
"It's following a pay cable model of eventually using original series instead of only off-net programs/movies," says Adgate. "AMC has been called the HBO of pay cable, and it points out the direction Netflix wants to move into." For its entry-level service, Netflix charges $7.99/month.
Netflix started its business renting DVDs to customers, sending them out by mail. It has now moved the majority of its business online, where people can stream theatrical movies, older TV shows and other content to their computers, mobile devices and TV sets. Recently, Netflix made a big deal with CBS for some older library products -- a deal valued around $200 million.
The original TV deal has raised eyebrows with regard to the money that Netflix will reportedly pay for the TV series, but also for future movie deals that need to be renewed.
"If it's costing them $100 million [for this series]. How much will it pay Starz/Encore to renew its movie-package deal this year?" wonders Adgate. He estimates that original three-year deals cost Netflix around $20 million to $30 million.
In the wake of getting an original TV show, media executives suggest Netflix might also look to merge some of the financial models for premium TV shows that run on the Internet. The company could choose to possibly filter in some advertising components near TV shows, such as starting off a TV series with a pre-roll commercial.
Netflix might have different plans. Some analysts say the strong media company with lots of cash on hand may look further -- to perhaps buying a small- to-medium-size TV or movie studio.