Netflix Doesn't Have to Be HBO
Dec 4th 2012 5:01PM
Updated Dec 4th 2012 5:08PM
Netflix is hoping that 2013 will be its "I told you so" moment.
The stock has shed 75% of its value since peaking during the summer of last year, but it's hoping to make a programming statement with several original shows next year.
- House of Cards -- directed by David Fincher and starring Kevin Spacey -- is slated for Feb. 1.
- The revival of Arrested Development follows in the spring, as Netflix is rolling out the long overdue fourth season of the cult favorite.
- Hemlock Grove is a creepy monster mystery series by noted horror director Eli Roth.
- Orange is the New Black is a drama based on Piper Kerman's memoir detailing a year spent in a women's prison.
- Lilyhammer -- the show that started it all earlier this year, as Netflix's first original show -- will be back for a sophomore season next year.
There's also Derek. The Ricky Gervais sitcom will stream on Netflix next year after completing its run on Channel 4 in Britain.
HBO, it's not
It's a pretty diverse catalog of content that viewers will only be able to see on Netflix -- at first. However, let's not be so quick to crown Netflix as the new HBO. The Wall Street Journal's Heard on the Street column yesterday rightfully pointed out that Netflix is simply licensing the content from third-party producers. It's not like Time Warner's HBO that has ownership rights to most of its content.
The benefit to Netflix's strategy is that it's not overly invested in a potential dud. Of the $2 billion allocated to content for Netflix next year, original programming accounts for less than 5% of that.
That's not a bad wager. Since these shows will be initially exclusive to Netflix, it wouldn't be a surprise if these shows make up at least 5% of the total viewing consumed by the service's streaming customers. Who cares if it doesn't own the shows beyond that? The same can be said for the movies and TV shows that are on Netflix already.
Would it be neat if Netflix had some more skin in this game? Sure. A larger investment could've opened up the door for syndication rights on cable networks, DVD sales, and digital downloads. Bears would have to respect the potential for a crossover hit, making this more than just a streaming middleman.
However, that will come in time if it's financially feasible. What if Netflix -- right now -- is drafting a licensing deal that include the right for a piece of the property if it takes off?
Then again, maybe it's better if Netflix never dabbles in content ownership at all.
Dinner bell for creative types
There's a reason why programming costs at Sirius XM Radio have gone down over the past year, even though the satellite radio service's subscriber base has grown. It's just too easy to nab major celebrities and radio personalities.
Sirius XM has 23.4 million subscribers, and what artist or radio host doesn't want to reach a large audience of listeners with enough discretionary income to pay for radio? Sirius XM also offers the uncensored and hands-off freedom that terrestrial radio can never offer.
The same thing could happen to Netflix.
Tight scrutiny on free broadcast television is why all of the envelope-pushing and Emmy-grabbing shows are on HBO, Showtime, or AMC Networks . Do you really think that AMC's Mad Men or Walking Dead would air on NBC or CBS without some heavy-handed editing? Directors and producers that crave free rein with their content may prefer going through Netflix.
There's also a matter of reach. Netflix now has more than 25 million domestic subscribers and more than 30 million accounts worldwide. Don't be surprised if some shows practically give themselves away to Netflix, hoping that they can make it up in DVD sales and syndication. When you think about all of the pilots that get passed up by the conventional network and cable channels, Netflix is now a feasible distribution channel.
The competition is starting to hop on the original programming bandwagon. Amazon.com and Hulu are hoping that they place the right bets on content that viewers will want to see.
It's hard to fault Netflix for being ahead of the curve -- again -- with that.
Original content also makes it possible that this won't be a fight to the death, especially as the cord-cutting trend continues. If someone is saving $100 or so a month by saying goodbye to cable television, why not pay $8 a month to Netflix and another roughly $6 a month for Amazon Prime for differentiated streaming content?
Netflix is the new casting couch. Nice!
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The article Netflix Doesn't Have to Be HBO originally appeared on Fool.com.Longtime Fool contributor Rick Aristotle Munarriz owns shares of Netflix. The Motley Fool owns shares of Amazon.com and Netflix. Motley Fool newsletter services recommend Amazon.com, Netflix, and Time Warner. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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