Biz keeps keen eye on Netflix

Vision for originals opens new avenues to Hollywood

Nothing receives a warmer welcome in Hollywood than a new buyer with deep pockets.

At the moment, the creative community is swooning over Netflix and its growing ambition to field original series. Netflix execs have been deliberately cautious in their statements about the scope of those plans, but that hasn’t stopped some bizzers from hearing what they want to hear.

“Netflix wants to be HBO!” “Netflix wants to be the savior of brilliant-but-canceled shows!” So goes the chatter at the Grill. It was no surprise that talk of Net-flix considering a “Terra Nova” pickup surfaced less than 24 hours after Fox nixed a second season of the dino-drama.

The reality is that by the end of 2011, Netflix was already on the hook for $3.9 billion in content licensing fees — more than half of which come due over the next three years, according to its 2011 annual report. And 2011 saw a huge increase over Netflix’s programming bill at the end of 2010, when it stood at $1.12 billion. Last year, Netflix generated net income of $376 million on revenue of $3.2 billion. Execs have repeatedly emphasized that original series rep a very small — single-digit small — portion of its overall content budget.

For sure, Hollywood has reason to be grateful for Netflix. Its robust growth over the past few years has forged a significant new revenue source for showbiz congloms as it spurred competitors like Amazon and Hulu to step up their game on subscription VOD. Thanks to those Web streaming residuals they fought so hard to secure, writers and others may actually see a little money in the coming years.

Netflix has a lot on its plate in the coming year, initiatives that are likely to have greater impact on its long-term fortunes than “House of Cards,” the David Fincher-Kevin Spacey drama slated to bow in the fourth quarter of this year.

The company is in the early stages of an aggressive international expansion. Its stock is still recovering from the fumble of the pricing plan changes that angered consumers and forced a humbling about-face last year. And all of the competition Netflix has stirred up in the streaming arena means that it will have to work harder to remain the SVOD market leader. What’s more, both Hulu and Amazon have been making noise about doing originals as well — Hulu’s already there with its “Battleground” skein.

Still, many in the industry remain fixated on Netflix’s potential to blossom as an alternative to broadcast and cable networks. Plus, it generated gallons of goodwill among creatives through its pact with 20th Century Fox TV to resurrect “Arrested Development” next year.

Netflix’s content boss, Ted Sarandos, has said the company expects to have served up five original series by the end of next year, a rollout that started last month with the U.K. drama import “Lilyhammer.” In addition to “House of Cards” and “Arrested Development,” there’s Lionsgate dramedy “Orange Is the New Black,” steered by “Weeds” creator Jenji Kohan.

For now, Netflix seems to be keeping its options open but not beating its chest. It bolstered its programming staff in its growing Beverly Hills office last fall with the appointment of former Playtone exec Peter Friedlander, who has kept a low profile in showbiz-centric media, by the company’s design.

Just as interesting as what it’s putting on is how it’ll put the shows on, given that the company doesn’t have to stick with TV’s tune-in-once-a-week tradition in a VOD universe.

“Lilyhammer” bowed Feb. 6 with all eight episodes posted at once, though there’s no certainty that Netflix will stick with that plan for “House of Cards.”

In a recent letter to shareholders, Netflix explained its Nielsen-free rationale for evaluating the performance of its originals: “If ‘Lilyhammer’ or ‘House of Cards’ is popular enough on Netflix so that the fees we’ve paid for each are in line with that of other equally popular content on Netflix during the same time period, we’ll consider them a success.”

That yardstick will be opaque for an industry accustomed to overnight ratings. And it’s a reminder that for all its showbiz muscle, the 360 miles that separate Netflix’s Los Gatos, Calif., headquarters and Hollywood is a long way indeed.

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