Commentary

Netflix' Original Content Overcomes Pricing Gaffe

The rehabilitation of Netflix’ image following its pricing debacle of 2011 continued in the first quarter of 2013 with more than two million new subscribers proving that original thinking can eventually trump unpopular marketing decisions. “Netflix Has Good Hand With ‘House Of Cards,’ Shares Soar 24 Percent,” as the Reuters’ hed puts it

“The launch of ‘House of Cards’ provided a halo effect on our entire service,” Netflix CEO Reed Hastings and CFO David Wells said in a letter to shareholders, Reuters’ Lisa Richwine reports. In an interview, Hastings predicted that the “very modest, positive impact” on subscriber growth provided by the 13-episode inside-D.C. melodrama starring Kevin Spacey and Robin Wright would increase with future seasons.

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But that’s not the only basket that Netflix is using to egg on new subscribers.

“When Ted Sarandos, the chief content officer for Netflix, told GQ in an interview published three months ago that “the goal is to become HBO faster than HBO can become us,” maybe he was onto something,’ Brian Stelter writes in the New York Times.

Indeed, “Netflix now is nearly on par with Time Warner Inc.'s HBO premium cable channel in terms of paying customers,” Amol Sharma and Nathalie Tadena report in the Wall Street Journal. “HBO had 28.7 million paid U.S. subscribers at the end of the year, according to SNL Kagan, while Netflix's paid streaming subscribers at the end of March totaled 27.91 million. The company ended the quarter with 29.2 million U.S. streaming video subscribers.”

Piper Jaffray analyst Michael Olson tells the Times’ Stelter that Netflix’s two million new streaming subscribers beat industry expectations of about 1.7 million. “It appears original programming may be driving better subscriber numbers,” he said. “At the least, we believe original exclusive programming is reducing subscriber churn.”

The shareholders letter cites several other factors: “We’ve seen improvements in our business over the last year in content, in our product, in optimizing the way we process payments, and in the general recovery of our brand. All of these improvements contribute to higher member satisfaction, which we see in higher year-over-year levels for members’ likelihood to recommend our service,” Hastings and Wells write. 

The company’s decision to release all of the episodes of “House of Cards” in its first season simultaneously proved to be a smart one.

“If Netflix had followed a standard release schedule, you’d be watching the last episode of the series this week, and presumably more people you know would be talking about the show right now,” Peter Kafka muses on All Things Digital. “But Hastings says the big bang worked just fine: It ended up ‘reinforcing our brand attribute of giving consumers complete control over how and when they enjoy their entertainment.’”

Hastings also reported that only 8,000 of the millions of subscribers who signed up for a free trial during the period bailed after viewing the show. In any event, the success of the tactic is evident in Netflix’ decision to release all 13 episodes of its third original series, “Hemlock Grove,” at the same time last week, as TechCrunch’s Darrell Etherington reported

There’s evidently a lot more original programming in the pipeline, too.

“We are focused on moving toward more and more exclusive content,” Hastings told analysts during an earnings call yesterday, CNET’s Dan Farber reports. “If the content is not exclusive and it's on cable and on other services, it might be pleasant to watch on Netflix, but it’s not really reinforcing customers to stay with Netflix.”

“It’s hard to watch Netflix’s ‘House of Cards’ and not get the feeling that it’s not only great programming, but also a seminal event in the history of TV,” says Greg Satell on Forbes.com, citing two additional breakthroughs besides the simultaneous release of the episodes. “It’s the first major TV show to completely bypass the usual television ecosystem of networks and cable operators,” he points outs, and “it’s the first time that programming has been developed with the aid of big data algorithms.”

Netflix is also addressing the somewhat controversial issue of password sharing by embracing it and adding a little surcharge for more than two -- but less than five -- simultaneous streams. Subscribers now have the option of streaming four programs simultaneously on different devices for $11.99 monthly. The normal streaming rate of $7.99 allows two users, presumably in the same family, to use Netflix on different devices at the same time. 

“We really don’t think that there’s much going on of the ‘I’m going to share my password with a marginal acquaintance,’” Hastings told the analysts, CNNMoneyTech’s Julianne Pepitone reports.

What marginal acquaintances are sharing, it appears, is good vibes about the programming.

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