Netflix Builds a Strong "House of Cards"

Fellow Fool Rick Munarriz recently reported that Netflix (Nasdaq: NFLX  ) has an ace up its sleeve in the David Fincher-helmed drama series House of Cards. In Rick's opinion, what looked like a $100 million production deal would have been worth every penny: Any top-shelf exclusive content deal is a valuable weapon in Netflix's eternal fight against customer churn.

At $100 million, I would have respectfully disagreed. Netflix is not in the business of making movies (or TV shows), and any move in that direction would be a dangerous distraction from the core business of movie distribution that Netflix owns so brilliantly. As it turns out, the price tag is nowhere near that big, Netflix won't be on the hook for production risks, and House of Cards is actually just a different kind of distribution license deal.

Actual showrunner Media Rights Capital will stand for the estimated $100 million budget for two full seasons of the Kevin Spacey vehicle. Media Rights is free to license it to Coinstar (Nasdaq: CSTR  ) property Redbox, to heated content-and-broadcast rival Time Warner (NYSE: TWX  ) and Time Warner Cable (NYSE: TWC  ) , or to any other outlet willing to pay the price. It's just that Netflix has dibs on the original release window, rather than grabbing the show second-hand after Warner subsidiary HBO or one of the big broadcast networks had a go at it.

That's fine. Netflix isn't doing anything new and different here, other than moving into a novel window for broadcast rights. The purportedly enormous price tag is nowhere to be seen. Netflix has done its analysis on how such a show would fare based on untold millions of subscriber-provided movie ratings, and the company liked what it saw.

I'd imagine a substantial marketing campaign attached to this project, ironically conducted in part by placing TV ads on the very networks that lost this auction. And here's why this is a big deal:

  • Original content with big-name actors and directors could entice many a non-subscriber to give Netflix a go.
  • The $7.99 monthly price tag on a streaming-only plan raises very low barriers to taking the plunge. By comparison, adding HBO to your cable plan is likely to cost you $10 or more a month.
  • It sure doesn't hurt that Netflix streams its content over any piece of connected living-room hardware worth its salt.
  • Oh, and did I mention that pretty much anybody with a broadband connection will be able to access the show? There are no ties to specific TV channels, which your cable carrier might and might not offer and to which you may or may not have subscribed.

And by the time House of Cards jumps onto the screen, there will be big, red Netflix buttons on many a remote control -- the synergies are adding up.

A $100 million, truly exclusive contract would have been a grave mistake in my opinion, comparable to that wrongheaded share buyback plan. But under these terms, I'm all for it!

Will the next grand Netflix move be crazy or brilliant? Either way, you'll be the first to know if you just add Netflix to your Foolish watchlist.

Fool contributor Anders Bylund owns shares of Netflix but holds no other position in any of the companies discussed here. Netflix is a Motley Fool Stock Advisor recommendation. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.


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