• by Eric Korsh , February 26, 2013

Netflix’s “House of Cards” has been the talk of the media industry since it was released. It has spurred numerous articles and discussions about binge watching, original content, cord cutting, and the future of video in general. Most of the dialogue is centered around Netflix as a disrupter for two reasons. First, its release model that made the entire season available at once, and second, by its investment in original content.  I agree that Netflix has done two bold things – but they aren’t harbingers of anything huge just yet.  My thoughts below are intended to bring some perspective to the conversation.

Content Release Model

People have written about whether or not it was a good idea for Netflix to release an entire season of its series all at once. But this is already Netflix’s foundational approach – so in that sense, it hasn’tdone anything new at all.  The difference only appears because we think of “House of Cards” as a traditional TV series available on a new channel. If you were to think of “House of Cards” as one long movie, then this release schedule would seem totally normal – and the investment would suddenly appear inexpensive if you consider it by the hour of content ($50 million per hour for a two-hour movie, or $2.5 million per hour  for a twenty-six hour series).  In fact, movies have had serialized components for some time—just think about Harry Potter, James Bond, and even Flash Gordon. Netflix is perhaps recalibrating a definition of “TV” content, but they are not doing anything they haven’t been doing since they started.  The only harbinger here is that we may need to coin a new term for content. 

Content Investment:  Will it Lead to Cord Cutting or Unbundling?

YouTube made headlines last year by investing $100 million in channel partners.  Netflix, according to most sources, invested $100 millionin 26 episodes of one series.  Both of these investments were frequently analyzed as harbingers of cord cutting and unbundling.

The theory is that you can get great content without paying for stuff you don’t care about, unlike the current packages from cable operators.  Consider Netflix’s eight dollars per month streaming subscription versus NPD’s reported average cable bill of $86 per month.  In the short term, if you’re willing to forego variety and relevance, you can probably save some money (assuming you want an Internet connection in both cases).  But I see two issues here for consumers:  content and personal budget.

Content

When people talk about unbundling or cord-cutting, they generally assume that their wide variety of content choices will continue to exist – and that they will simply access them in a new way.  But a prime contributor to the volume of quality content is subscription revenue for cable networks at scale.  Cord cutting reduces those payments, and that will eventually reduce the amount of quality content that’s produced.  One potential, long-term outcome is fewer cable networks providing niche, interesting content.  The reason this won’t simply be a collection of the same revenue in a different way is noted below.

Personal Budget

The average person watches over five hours of TV per day (not including laptop or desktop viewing).  At $86/month, a typical consumer is paying about $0.57 per hour for content.  Putting aside the unlimited streaming services (which are a limited form of bundling) and focusing on individual pieces of content, there is evidence ($1.99 for an episode on iTunes or Amazon, $12 movie tickets, $35 TV series season pass) that typical consumers might easily wind up paying $10 or more, per day, for their select, unbundled content.  At $300 per month, this is vastly more expensive, and it’s unlikely consumers will stand it – which is the current value of bundling.  It provides more, better content at lower cost – for now.  In the short term, a person would need to have Amazon Prime, Hulu Plus, HBO Go, and Netflix to even approximate the variety of quality content currently available.  

So what is “House of Cards” really a harbinger of? Ultimately Netflix was able to generate massive publicity and reinvigorate a healthy dialogue about content creation and distribution – all by behaving the way that it always has, with just a minor twist or two.  Now it’s up to us to be more realistic and long-term thinking about what this will mean.