Netflix plays its $100-million ‘House of Cards’

Streaming site Netflix has set its sights on producing original content to contend with the likes of HBO. House of Cards starring Kevin Spacey, a 13-episode political drama, was released in its entirety on 1 Feb. 2013.

This is a big step for online streaming (and Netflix) as its business model has previously involved paying for the streaming rights of content made and belonging to other distributors and creators.

With monthly subscriptions starting from just US$7.99, it’s hard to see how Netflix could fund a US$100-million show (cost of two seasons). After all that is over 500 000 subscriptions for over two years.

However, Netflix earns about the same as HBO (after cable fees) and HBO has some of the most expensive shows on television (Game of Thrones, Boardwalk Empire) so perhaps the model isn’t that far-fetched after all?

Why it makes financial sense

Creating original content actually makes a lot of sense for Netflix. Currently, it is being horribly overcharged for streaming rights, reporting costs of over US$2-billion per year. The problem is Netflix’s subscription revenue is not growing as quickly as its content expenses.

Creating original content such as House of Cards opens up a world of monetizing possibilities for Netflix that it never had before: DVD/Blu-ray sales as well as other accessories and peripheries could aid in the funding of shows, combined with the subscriptions.

Exclusive quality content is synonymous with a channel in the eyes of viewers. If a show, such as Game of Thrones, is deemed to be of high quality, one automatically assumes the channel, HBO, is of high quality too. If Netflix can mimic this, then its reputation will grow as a ‘channel’ unto itself, and also give their subscribers more incentive to choose their service over another.

Could Netflix reverse the roles and syndicate their own shows to other networks down the line? If the quality is there, then surely yes.

It’s not clear whether producing exclusive content is the solution to Netflix’s financial problems, but it definitely seems to be a step in the right direction.

Netflix CEO, Reid Hastings told GQ’s Nancy Hass that he would like to make ‘five new shows a year’ posing the interesting question, ‘can Netflix become HBO faster than HBO can become [it]?’