Programming

Editorial: The Netflix Effect

3/21/2011 12:01:00 AM Eastern

In a development that everyone figured was an
eventuality but is probably taking place a bit
earlier in the company’s cycle than we expected,
Netflix is now jumping into the original programming
business.

The distribution-centric outfit outbid networks like HBO for a show
called House of Cards, which has major talent like David Fincher and
Kevin Spacey attached. And Netflix is jumping in with both feet, ordering
a full 26 episodes of the show.

Immediately, Internet chatter turned to speculation that Netflix was
gearing up to be a major programming provider, given the tens of millions
of dollars they would sink into this one project when you factor in both
production and marketing.

But let’s everyone slow down. Netflix isn’t going to be HBO just yet.

There is no doubt Netflix has media darling status, which also may
extend to Wall Street. And rightfully so, as the company has evolved
its business model on the fly in a way that companies like Tivo simply
missed out on. So while being a pipe is working for Netflix, at some point
undoubtedly they would experiment with being a supplier for things
more than one-off events.

But remember: producing TV shows has about as low a success rate as
any business. And it very simply is not a core competency of Netflix, not
in the company’s DNA. In fact, some have argued it is counterintuitive to
what the company was built upon.

That they are jumping in so boldly is both surprising and impressive,
but it does not signal an inevitable development into a major player in the
programming world. Though clearly the intentions are there.

This is not meant as a knock on Netflix. Quite frankly, we are huge fans
of any forward-looking business that shows the ability to both anticipate
and react on the fly. That is a rarity, as we constantly see a great idea or
company die an early death because it was not smart or nimble enough
to do what Netflix has done in this respect.

Rather, we are cautioning not to count your red envelopes before they
are delivered. Like anyone entering —or already in—the programming
game, it is rife with failure and the economics are often tough to crack.

So we’ll put House of Cards in our queue, sit back and see how it—and
Netflix’s new strategy—look on the small screen soon.

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