Just try to cut off Netflix's content supply
By bidding on rights to Kevin Spacey's new show, "House of Cards," Netflix signals that it won't let big media stand in the way of the company acquiring content.
Updated on Friday, March 18 at 4:25 p.m. PT: On Friday, Netflix announced that it had signed the deal for an original series called "House of Cards".
If media companies won't sell content to Netflix, then Netflix will find alternative ways to acquire films and TV shows.
That's the message Netflix is sending content suppliers and consumers. Deadline.com reported that Netflix is in talks to acquire Media Rights Capital's drama series "House of Cards," produced and directed by David Fincher, who directed "Social Network." The show also stars Kevin Spacey. According to Deadline, the talks are ongoing but Neflix has already outbid HBO and AMC with an offer in the area of $100 million.
While Netflix won't be producing content itself, it is vying for rights to original programming. Most of the content that Netflix has acquired in the past has already appeared in movie theaters or on TV before. The move comes as several big media companies have predicted that Netflix's supply of top-quality content could soon slow to a trickle.
I was in Hollywood two weeks ago where I met with entertainment execs. The wild growth of the Web's top video-rental service has the film and TV sectors on alert. Netflix grew by more than 60 percent last year. The company's offer to stream tens of thousands of movies for $8 per month has TV and film sector honchos worried about their profit margins, the consumer trend of renting instead of buying, and the growing perception that their content can be had on the cheap.
Nobody I met with said Netflix would be cut off entirely, but the message was that Netflix would receive access to mostly bottom-rung shows and films. The people steering the film and TV sectors, like any supplier, favor buyers who pay the most for content. They also want retail partners that help keep the price and value of their content up. That's not Netflix.
Netflix is a discounter.
Yet, Hollywood has a mixed record of trying to exercise controls on Netflix's content supply. In the past, whenever film studios or TV networks try barricading Netflix out, CEO Reed Hastings always found a way in. A few years ago, at a time when the studios saw Netflix threatening Blockbuster, the once dominant brick-and-mortar rental chain, they tried multiple times to prevent Netflix from acquiring DVDs.
"Retail is so big and diffuse, this strategy has never worked," Hastings said in 2009. "Four years ago, Blockbuster, in an attempt to have an exclusive in rental, paid the Weinstein Company to block all purchases of their films by Netflix. This attempted blockade continues today but we've never had a problem buying Weinstein DVDs."
Netflix obtained the DVDs presumably from other rental stores. Licensing streaming rights can't be had from anyone else but the show's owners.
As far as a long-term strategy, it's hard to believe that Netflix can afford to acquire too many shows this way, or at least those of the caliber of "House of Cards." These shows are expensive to produce and the risk of failure is high. But the "House of Cards" deal shows that Netflix is willing to do whatever it takes.
In Netflix's favor is the previous experience managers there have with original films. The company's Red Envelope Entertainment division produced more than 100 films before being shut down in 2008. Netflix said it was getting out of the business because it didn't want to compete with their suppliers, the Hollywood studios.
Either Hastings is no longer worried about competing with his suppliers or maybe he no longer considers them suppliers.