Netflix: Far more than a ‘House of Cards’


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Who would have thought that a direct to home DVD mailing company set up on 14th April 1998 with 30 employees and only 925 DVD’s available for rent would become a leading content creator 15 years later in 2013?  Not an outcome many would have predicted but that is what has happened to Netflix.

It hasn’t been an easy ride but Netflix’s success has been unparalleled with the company peaking at 24.6 million DVD subscriptions during the summer of 2011, and recently topping 1 billion hours of streaming per month (a statement by the CEO on Social Media stating this actually caused Netflix problems with the SEC as the information hadn’t previously been in the public domain).  Some investors question Netflix’s decision to sideline DVD’s, a move that damages short term revenues but overall in the long term, the emphasis on digital services has to be positive.  It was certainly a bold move given the current level of 7.5 million US Domestic DVD subscribers compared to the 7.75million subscribers of the International streaming service.

Netflix recently received 14 Emmy nominations, 9 of which are for the critically acclaimed “House of Cards” with a further 3 nominations for the Netflix backed “Arrested Development” revival.  This is especially important in terms of trends as we have daily reminders that TV is still king, indeed some 80% of us watch programming on our TV’s and TV sales are still high with 60m flat panel TV sets having been sold in the UK since 2004.  However, this TV market is now starting to decline year on year with 2012 sales falling below £3 billion for the first time since 2005.  Considering our increasing consumption of media, how quickly are the 20% of those not watching content on traditional TV’s like students growing?  And how quickly is the rate of people watching non broadcast content from LoveFilm or Netflix on their TV’s growing?

One feature Netflix provides with program series is the ability to watch every episode of a series back-to-back and the Netflix watch all at once capability is an especially attractive feature for most viewers.  In today’s society we can get almost any content we want right now and broadcast networks need to focus their attention on enabling content to be viewed in different regions at the same time or else risk missing out to streaming sites, both legal and illegal.  This is particularly true of some TV series where there are large disparities in timing between series being broadcast in the US and the UK and whilst I understand that the UK is a smaller market than the US and that there are a host of complications with distribution contracts and royalties and rights to be sorted, broadcasters need to make more of an effort to close the time gap.

“Game of Thrones” and “Homeland” are examples of programs which are shown in both the UK and US within a short space of or at the same time and results in viewers actually watching the programs week by week on TV.  This doesn’t solve the issue of online illegal streaming and downloads but it is a start.  Networks need to remember that the business environment of today is based on choice and immediacy.  Consumers are loyal to shows, not networks and will watch their favourite series however they can (even if illegal streams hurt the shows revenues).  They don’t like to be kept waiting whilst millions of overseas viewers have seen episodes of a series they are following and will likely stream it to their laptop or tablet.

Nextflix still has some way to go to please Wall Street as it will not disclose audience numbers for its original content and has fallen short of subscriber targets, despite gaining 630,000 subscribers in the United States in the spring and performing well elsewhere.  Also in the last 12 months Netflix have lost a number of popular titles as partnership agreements expired and the international business still operates at a loss.  However, with its content and the streaming service receiving critical acclaim from customers it won’t be long before the rollout of the service is complete and word gets around and Netflix achieves its targeted market penetration.

Netflix’s success with its bridgehead original series “House of Cards” and semi-original series such as “Arrested Development” will undoubtedly lead to further success with in house original content in the future.  Content providers are starting to take their original content seriously with big names such as Jason Bateman, Kevin Spacey and Ron Howard featuring in new quality programming.  The acquisition of the Star Wars franchise by Disney and the global success of Dr Who after an absence of 15 years suggests that the return of much loved franchises may yield significant revenues in the future.  Netflix could be a conduit to enable the return of fan favourites that have been previously cancelled as it has the clout to renegotiate contracts and hire quality writers to carry on producing content that people loved but didn’t necessarily watch at the time because networks scheduled it against stiffer competition.

Netflix is in a really exciting space and has the opportunity to become both a market leading global service and content generator.

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