The Michael Bluth Effect: Netflix's Content Advantage Explained

And now the story of how network television failed to capitalize on a well-made program that attracted a small but passionate viewership. It's Arrested Development, and it's back on May 26 on Netflix .

Hollywood had a problem with Michael Bluth. After three seasons of inside jokes, smart storytelling, and real and imagined courtroom drama, in 2005 News Corp. unit 21st Century Fox canceled Arrested Development because of declining ratings.

But now Netflix is bringing back the Bluths, similar to how it revived The Killing in a cooperative deal with AMC Networks and Fox Television. Netflix gets exclusive streaming rights to Season 3 episodes three months after the finale airs on AMC.


Source: The Verge.

Let's be clear: This isn't just Reed Hastings demonstrating good taste. On Netflix, subscribers devour these niche shows with the same gusto I bring to a fresh box of steaming hot New York pizza. Here's a list of the top 10 rated shows on Netflix according to IMDB:

Show
IMDB Stars (out of 10)
Netflix Stars (Out of 5)
Total Ratings on Netflix

Breaking Bad

9.4

4.4

3,990,431

Arrested Development

9.2

3.9

5,263,197

Firefly

9.2

4.3

2,843,553

Sherlock

9.2

4.5

1,672,152

Twin Peaks

9.0

3.9

784,064

Freaks and Geeks

9.0

4.4

412,106

Downton Abbey

8.8

4.5

1,508,046

Mad Men

8.7

4.1

2,897,300

Parks and Recreation

8.5

4.0

1,852,378

Terriers

8.3

4.0

113,096

Sources: IMDB, Netflix.

Notice anything? If you said, "Wow, this list is filled with great shows stupidly canceled early by network executives," you win our coveted no-prize.

Firefly and Twin Peaks, notably, are among the most famous shows to be canceled before they could become something more. Terriers lasted just 13 episodes, while Freaks and Geeks got 18. Fans were outraged enough by the early demise of Joss Whedon's Firefly that Universal made a film, Serenity, to close the open plotlines. It wasn't a commercial success.

Yet like a digital island of misfit toys, Netflix gives these gems a home. That's a huge advantage, since resurrecting the dead usually costs less than creating something new. (At least when it comes to TV shows.) Having a fan base at the ready also helps.

Look at the Bluths: 5 million are awaiting their return, according to the table. Arrested Development attracted just 4 million viewers, on average, in its third season. Netflix is already poised to do better with the show than Fox did.

Surprised? Don't be. According to a recent Cowen survey, House of Cards appears to have pulled in at least as many viewers as Girls, the award-winning comedy drama that's been a hit for Time Warner unit HBO. More than 870,000 have rated House of Cards as of this writing, giving the show an average of 4.5 out of five stars.

For investors, the point is that Netflix is never going to run out of these sorts of reclamation opportunities. Several well-received shows suffering from marginal ratings could soon be canceled. Here are two I think could see new life on Netflix:

1. Happy Endings. Another quirky comedy with an ensemble cast -- think of a much weirder (and funnier) version of Friends and you'll get it -- has struggled to reach 3 million viewers for ABC. Those who do watch are uncommonly loyal, however.

2. Community. Stars The Soup's Joel McHale in a comedy about a group of misfits attending community college for unlikely reasons. Oh, and did I mention Chevy Chase is in the cast? Unfortunately, only 3.7 million smart people watch this show regularly.

I'm rooting for both shows to go on, but it could be awhile before we know the fate of either. Until then, we can take solace in knowing that Netflix is bringing back the banana stand.

Welcome back, Michael. Mom and Buster are waiting for you at Balboa Towers:

Source: Netflix, YouTube.

For further analysis of how Netflix is changing entertainment, tune into our newest premium research report in which we take you inside Netflix's entertainment empire and tell you what the streaming sensation is really worth, and whether the stock deserves a place in your portfolio. Access your report now by clicking here.

The article The Michael Bluth Effect: Netflix's Content Advantage Explained originally appeared on Fool.com.

Fool contributor Tim Beyers is a member of the  Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He owned shares of Netflix and Time Warner at the time of publication. He was also long Jan. 2014 $50 Netflix call options. Check out Tim's Web home and portfolio holdings, or connect with him on Google+Tumblr, or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.The Motley Fool recommends AMC Networks and Netflix and owns shares of Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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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