Whether you're an investor or a consumer, quite a bit has been going right for Netflix (NASDAQ:NFLX) in 2013. The company's stock is up an impressive 87% so far this year, and its first major original programming, House of Cards, was met with fantastic reviews and quickly became Netflix's most-watched programming upon its Feb. 1 premiere.
Netflix's big bet in the coming year is on original programming, and it hit the ball out of the park with House of Cards, yet big-budget original programming is a risky field. The gold standard of premium original programming, HBO, has had its share of successes, such as The Sopranos and Game of Thrones. Both of those shows have big ratings and nearly universal critical acclaim. However, HBO's successes come with misses as well. The network thought so highly of John From Cincinnati that it aired the show's premiere after the series finale of The Sopranos.
The big bet on that program was a spectacular failure; John From Cincinnati was cancelled the day after its first-season finale. Today, HBO thinks so lowly of the show that it's one of the few original shows not available on HBO Go.
The point being? Ambitious, big-budget original programming can be a hit-and-miss affair, especially when tackling tricky subjects that network television would never go for. Even the best in the business, HBO, has its share of absolute duds. With Netflix going 1-for-1 with ambitious original programs, will it succumb to the law of averages and release a dud?
If the first review of its newest series, Hemlock Grove, is any indication, while Netflix succeeded spectacularly with House of Cards, it still has some growing pains in becoming an original programming powerhouse.
A dubious idea from the start
Hemlock Grove is the second of three major original programming gambles from Netflix in the first half of 2013. Like House of Cards, it features some high-paid talent. While House of Cards had Kevin Spacey as the main actor and David Fincher as director (he was also behind such films as Seven, Fight Club, and The Social Network), Hemlock Grove has Eli Roth attached to the director role and well-known actors such as Famke Janssen, who was in X-Men and GoldenEye.
Like House of Cards, which cost a reported $100 million for two seasons, Netflix appears to be sparing no expense on Hemlock Grove. The first season was reportedly budgeted at $4 million per episode, pushing it above budgets for widely viewed broadcast programming.
The problem with Hemlock Grove is that it's coming from a niche background, yet angling for more conventional fare at the same time. Director Eli Roth's background is focused around gore-fest horror fare like Hostel. That's a genre with very limited commercial appeal compared with something like House of Cards' genre of political thrillers, a known quantity that's been a staple of broadcast programming across the past decade and appeals to a wide audience. The horror genre has seen some recent success with FX's American Horror Story, but the genre remains a big risk with a limited yet very dedicated audience. However, Hemlock Grove also has an angle in its plot line around whether a vampire or a werewolf killed a girl. What we're left with is a director with a track record of hardcore gore-fest fare combining horror with elements of ... Twilight.
While Hemlock Grove appears to focus on its mixture of being a horror and thriller TV show, an initial review shows the results could be less than stellar. While even the best movies and television shows can have critics who are detractors, the first review posted on Hemlock Grove, from the widely read Hollywood Report, is downright scathing. The review doesn't mince words from the start, posting as its bottom line that "Hemlock Grove is proof that making quality television is a very difficult trick."
Critical-review aggregator Metracritic has since posted a second review of Hemlock Grove from People Weekly that's more positive, giving the show a 3 out of 4. Yet it's worth noting that Hollywood Reporter was glowing in its review of House of Cards, giving the show a 9/10 and saying it makes Netflix "a major player as a content provider." This isn't a publication with any anti-Netflix bias.
Two wins, one dud = success
Reviews and word of mouth definitely matter in premium original programming. They helped propel House of Cards to the major draw it is. So if other publications follow Hollywood Reporter's lead and give Hemlock Grove less than stellar reviews, it'll be an ominous sign for the series. Netflix already released a more limited original series last year in Lilyhammer that was met with more muted success than House of Cards.
However, becoming a content powerhouse isn't about releasing only hits; it's about having more hits than duds. Shortly behind Hemlock Grove is Arrested Development, which hits on May 26. Arrested Development was a critical darling during its three short seasons on Fox, yet its quirkiness and jokes that layered upon themselves were never made for the wide audience appeal that shows need to succeed on network television. During its third season, when the fate of the show was up in the air, it actively had gags in episodes about HBO or Showtime saving the show from cancellation.
With Netflix, Arrested Development has really found a perfect match. Its jokes, which rely on having viewers follow a plot line that expands out across several episodes, are perfect for the binge-viewing that Netflix encourages by releasing entire seasons at once. Also, its loyal -- and already existing -- built-in fan base has plenty of other similar viewing options, as Netflix has a wealth of comedic programming.
While Hemlock Grove looked risky from the start, Arrested Development has all the signs of being a major winner for Netflix original programming.
Original programming: a gamble worth taking
In the end, original programming looks like a savvy move for Netflix even if some series don't realize their full potential. The company is filling out different genres, which will give it a catalog that appeals to a wide audience. Future series involve science-fiction fare Sense8 and programming for children.
Original programming offers a few key differentiators for the company:
- Licensing content from premium channels has either been impossible (such as from HBO, which is relying on its own HBO Go platform) or prohibitively expensive (such as when Netflix didn't renew its deal with Starz). Creating its own content allows Netflix to have a library of content that can compete with HBO and other premium channels.
- One of the trickiest issues in licensing content is that deals must be struck country by country. That makes international expansion, where Netflix sees much of its future growth, a tricky issue. However, if HBO owns the programming, it allows it to fill out a library much more rapidly in countries it's expanding to.
- Finally, Netflix is purely an "always connected" service right now. With original programming, this could allow some content to be downloaded to a device when Internet connections aren't available. This may seem trivial, but consider that Spotify has gained quite a bit of popularity, in part because it can make music available for offline viewing. If you're a business traveler who's ever had to deal with spotty Wi-Fi connections in airports and hotels, you know the value of offline viewing.
While early signs for Hemlock Grove look mixed, the future of Netflix's original programming looks bright. After a couple of years of seemingly doing no right, the company is making moves that strategically make a lot of sense.
Eric Bleeker, CFA, has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.