Netflix is challenging the traditional model of TV programme distribution with the premiere of House of Cards, its first original drama series commission, on its US and international streaming services today (1 February). Apart from offering an exclusive window in advance of television, Netflix is making available all 13 episodes of season one of House of Cards. In addition, six million subscribers in Canada, the UK, Ireland, the Nordic region and Latin America will be able to view the series at the same day and date as its 27m Watch Instantly customers in the US.
House of Cards is produced by Media Rights Capital, which bought remake rights to the series from the BBC, which aired the political drama in the 1990s.
The typical budget for a high end 13-part series would be in the region of $50m, and given the scope of the rights Netflix has acquired it is likely the company is covering at least half of the budget for two seasons of the series.
With increasing investment in original content - Netflix is funding the return of the comedy Arrested Development, a drama called Hemlock Grove and comedy-drama Orange is the New Black - the company is following a well-trodden path established by US pay TV broadcasters like HBO, Showtime and AMC. Exclusive content potentially entices new subscribers, reinforces value for existing clients, and reduces the programmer's dependence on third party suppliers. The halo effect extends further, fostering relationships with production community and generating positive PR.
In making the whole of season one available in one helping, Netflix is also showing how it is in sync with the way viewers increasingly consume drama, in DVD box sets or via 'all you can eat' on demand services. (It is, however, hard to see how this policy would work if Netflix's original programming slate becomes more prolific.) Furthermore, by offering international subscribers access to new content day and date with the US, Netflix is bypassing the traditional route to market via third party distribution deals - where there is usually a gap of several months before non-US viewers get to see new US content.
Netflix is believed to have spent $1bn on streaming rights in 2012. IHS Screen Digest estimates that Time Warner networks (parent company of HBO and Turner) programming expenditure was $4.7bn in 2012; ABC and NBC spent $3.9bn, while CBS and Fox were both around $3.4bn. Netflix has a long way to go before it matches the budgets of the US networks and the bigger pay TV players, but it is already on a par with cable network groups like Showtime, Starz and Discovery.
However, the core business of Netflix is in exploiting already proven content - whether movies or TV series - and offering access to as wide a choice of content as possible. Allocating too high a proportion of its content spend to origination is, therefore, risky, given that Netflix has neither the ratings-based advertising sales model of a broadcaster nor the high-ARPU, contract subscription basis of a pay TV network to allow it to benefit from an upside. Its subscribers can bail out of their monthly commitments at any time.
It's the creation of a simultaneous international platform for a new series which is the revolutionary aspect of the Netflix model. Distributors have for some time been looking for ways to shorten the gap between a series debut in the US and in key international markets, which leaves them wide open to piracy, with numerous illegal sites ready to fulfill appetites that have been whetted by Twitter and other social media. By staging a multi-region simultaneous release, Netflix has protected itself from copyright theft while harnessing the power of worldwide social media buzz.
We believe this constitutes a very real threat to some linear TV operators. However, those most vulnerable are not the strong global pay TV operators or local players in the free-to-air or pay markets (most of whom are moving to meet the challenge of Netflix and other over-the-top players by increasing their portfolios of rights), but the smaller thematic channels which may find the supply of high quality acquired programming reduced.
House of Cards will still be distributed by Sony Pictures on a conventional basis where Netflix does not have any streaming services - with Canal Plus in France and Sky Deutschland in Germany among the buyers.