Netflix risks raising rates to compensate for purchase of an original series
Despite having a column that is firmly attached to a corporate teat at levels unheard of since my infancy, this level of corporate shilling gives me a unique platform to address certain items of entertainment news that reshape the entire playing field.
Recently, Netflix announced the purchase of its first completely original series, the Kevin Spacey-produced drama “House of Cards,” in a deal that online news site deadline.com estimated could be worth nearly $100 million, including marketing costs.
The show, signed for 26 episodes over two seasons, is reported to cost between $4-6 million an episode in production, and would be the first original series offered by the streaming and mail-rental movie service.
Though not everyone was enthused about the announcement. Cable movie and programming company Showtime followed the announcement by publicizing their intention to pull their own unique programming from Netflix, notably the widely popular series “Dexter.”
Netflix is taking a tremendous risk; one that I cannot say is wise in any sense of the word.
For a company that began purely as a mail order DVD rental service, it was a big-enough step to move into the world of direct Internet streaming, a facet of their operation that has since grown to dominate their business. By stepping into the world of content production, they aim to step above their competition – namely Hulu – and put themselves on the same level as companies like Showtime, HBO and Cinemax.
However, I do not know if Netflix can take on a $100 million price tag without raising their rates, one of the services’ major selling points to consumers. For $7.99 a month, poor schlubs like me can get an entire library of movies and television delivered over the Internet.
So, to keep their current pricing stable, and to cover the projected cost of “House of Cards” without lowering profit margins, Netflix will need the show to generate 12.5 million new streaming-only subscriptions.
The reason companies like Showtime can produce unique content and laugh all the way to the bank with it is that not only are they supported by loftier subscription fees, they also enjoy some level of advertising revenue, something Netflix lacks, and hopefully a feature they will never obtain.
I do not see how Netflix can put on the big boy loafers like this and still maintain the status quo when it comes to the relationship of the consumer to the service. They will either have to raise rates, add advertising, add an unrealistic number of new subscriptions without losing old ones, or find some rich idiot willing to eat the big financial bullet for an executive producer credit.
I can, however, tell you what will happen if they do raise rates or add advertising. Expect my newest column soon, “New on Hulu.”