Netflix takes TV gamble with $100m House of Cards remake

http://www.guardian.co.uk/media/2013/feb/01/netflix-tv-gamble-house-of-cards

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In just six years Netflix's video streaming service has revolutionised the way people watch films. On Friday, the firm made a $100m bet it can do the same to the TV industry, launching its House of Cards remake starring Kevin Spacey online.

Netflix, seeking to make the biggest possible splash as it battles for a leading position in the fast developing video on demand (VOD) market, released the entire 13-episode first series of House of Cards – a star-studded, $100m (£64m) remake of the 1990s BBC drama adapted from Michael Dobbs' political thriller, produced by The Social Network director David Fincher and featuring Spacey in his first TV lead role – to 30 million-plus subscribers in 40 countries simultaneously.

"People want the flexibility of being able to watch what they want, when they want on their choice of device," says Joris Evers of Netflix. "It is a defining moment in the development of internet TV."

The move has left US cable TV channels including HBO and AMC – which have all but owned the audience for high-end programming in recent years with shows such as The Sopranos, The Wire, Mad Men and The Walking Dead – wondering if they have been left behind in the race to adapt to the rapidly developing digital viewing tastes of modern audiences. "Our goal is to become HBO faster than HBO can become us," said Evers.

Netflix started out as a DVD-by-post business in the US in the late 1990s before switching its focus to VOD. More than 80% of its customer base is in US. The firm offers low-cost, no-contract £5.99 a month online video deal.

At such a low price, building a greater volume of international subscribers is critical for Netflix and a year after launching in the UK – where it faces a considerable range of VOD competitors including BSkyB, Amazon's LoveFilm, Tesco's Blinkbox and Apple – it is estimated to have attracted 1.4 million subscribers.

But some media industry analysts are unconvinced Netflix has the financial muscle to support its original production binge without raising prices, as users can pay for just one month and watch all the episodes of House of Cards.

"Netflix is showing it is in sync with viewers who are increasingly consuming drama [in a swift period] in DVD box sets or via 'all you can eat' on-demand services," said Anna Stuart, analyst at Screen Digest. "But it is hard to see how this policy would work if Netflix's original programming slate becomes more prolific."

The firm has five more original shows in train as part of a reported $300m original content budget over the next three years. These are almost all associated with Hollywood names, remakes or revivals including acclaimed US comedy Arrested Development.

It is a theme also in evidence at Amazon's VOD service in the US, with a string of original productions announced from the co-stars of The Big Bang Theory, a director from 30 Rock, and Doonesbury cartoon strip creator Garry Trudeau.

The problem for Netflix, and a number of its internet-based rivals, is that most of the rights it has are for older TV and film content. Films can be more than a year old before reaching Netflix's subscription service, leading to a potentially thin library that will not be attractive enough to attract and keep consumers.

Jeff Henry, a former ITV executive who runs rival digital service FilmFlex, said he believed the original productions work online as an advertising ploy to lure in new subscribers. "It is not surprising that in most cases these original productions come with existing brands, most of these TV projects are about marketing, not about large amounts of viewing," he said.

BSkyB, arguably Netflix's fiercest rival in the UK, has been manning the digital barricades to protect its long established and hugely profitable subscription TV business.

Last year Sky launched Now TV, an internet service allowing consumers to gain access to content such as Sky Movies for the first time without a TV subscription, although it has attracted just 25,000 users to date. But this week it announced it would makes its six Sky Sports channels – including live Premier League football action – available via Now TV for a £9.99 "day pass", which should attract more users.

The satellite broadcaster has also blocked internet rivals such as Netflix from getting almost any of the biggest Hollywood films soon after they are released, tieing down deals with the big six US studios, including Warner Bros and Universal.

BSkyB's deep pockets also give it impressive programming firepower, spending £2.3bn annually on content, the lion's share on sport and film rights.

Sky does not reveal what it spends on film and entertainment programming, but by 2014 it is aiming put £600m a year into original UK productions alone.

The average revenue Sky gets from each customer – a key indicator of the success of a subscription-based business – is £568 a year, compared with Netflix's £5.99 a month.

However, Evers remains unphased by what Netflix views as attempts by TV companies and internet rivals to muscle in. "Netflix pioneered this, others are following our lead," he said. "We believe we are the best at it and it is our challenge to continue to lead."

The rivals

Netflix

• Service £5.99 a month for streaming

• Subscription exclusives Hunger Games, Drive, The Hobbit

• Original programming Arrested Development, Hemlock Grove, Orange is the New Black

Amazon's LoveFilmN

• Service £4.99 a month for streaming, up to £11.22 to include DVD's by post and access using games consoles

• Subscription exclusives Despicable Me, The Green Hornet, Mirror Mirror

BSkyB

Service Cheapest TV package £21.50, including sports £42.50, includes access via mobile devices, PCs and consoles; £15 a month for Sky Movies, or £3.49 a film; £9.99 for 24 hours' access to Sky Sports from the spring

Subscription exclusives Game of Thrones, Mad Men, An Idiot Abroad

Original programming Strike Back, Mad Dogs, Hunderby