Kate Bulkley, Media Analyst.

The house that Netflix built

By Kate Bulkley

Broadcast News

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For Broadcast March 24, 2011

Video rental firm is taking on the global players, says Kate Bulkley.

Who would have guessed that a hit BBC political thriller from the 90s, a pair of big Hollywood players and a video rental company from the US would fit into one sentence? Well they have, and here it is: Netflix is funding a new version of the BBC’s House Of Cards, starring Kevin Spacey and directed by David Fincher.

The deal - potentially worth $100m - has US web and blog sites buzzing because even as little as six months ago it would have seemed a crazy idea.

The mystery player in all this (for most British TV execs at least) is Netflix, which is like the UK’s Lovefilm only much bigger. And - pay attention here - it has ambitions to launch in Europe soon.

Netflix’s reported 67% growth last year is based on rising demand for online video, which has fuelled the company’s transformation from a mail-order DVD provider to largely an online video streaming service.

It had 20 million paying users at the end of 2010 and is on track to reach 30 million paying customers by the end of this year. To put this in context, powerhouse US pay-TV channel HBO has 28 million subscribers.

Netflix has already written some very big cheques to the likes of Disney, Paramount and Sony to pay for films and TV series that have put it on the map, even in the US where pay-TV competition from cable and satellite is very strong. But the new move to fund original content is intriguing and shows that Netflix is not limiting itself to being a niche player.

The House Of Cards deal is a real step change. Netflix insists it has limited its financial exposure by sharing the cost of production with independent studio Media Rights Capital, which will deficit finance the series. Netflix will own the first distribution window on the anticipated 26-episode series.

The surprise is that Netflix is taking on a role typically reserved for big TV networks, Hollywood studios or pay-TV firms, as an original show-picker and funder, a move that puts it in direct competition with premium pay-TV channels such as HBO, Starz and Showtime.

And like them (and like Sky), Netflix is doing the House Of Cards deal to add must-see, original product to its subscription service in order to keep subscribers loyal and attract new ones. Netflix will also offer several episodes of House Of Cards at once, providing a box-set experience.

It is a model that takes advantage of the on-demand nature of streaming video, and it certainly deviates from the traditional TV offer of linear viewing. The House Of Cards deal also throws down a gauntlet to networks and studios. By funding House of Cards, Netflix is saying: “If you won’t sell us your programmes, we will compete in the market against you.”

It’s an expensive and potentially risky move, but it shows that Netflix plans to play big and be a contender. Did I mention that the UK is in its sites? In its new version of House Of Cards, Kevin Spacey is cast as the villainous Francis Urquhart, who (in the BBC version) used a Shakespearian technique of talking direct to the audience. With its latest move, Netflix seems to be doing the same, appealing direct to its audience. By my reckoning, the industry should be listening attentively as well.

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