The Michael Bluth Effect: Netflix's Content Advantage Explained

And now the story of how network television failed to capitalize on a well-made program that attracted a small but passionate viewership. It's Arrested Development, and it's back on May 26 on Netflix (NASDAQ: NFLX  ) .

Hollywood had a problem with Michael Bluth. After three seasons of inside jokes, smart storytelling, and real and imagined courtroom drama, in 2005 News Corp. (NASDAQ: FOXA  ) unit 21st Century Fox canceled Arrested Development because of declining ratings.

But now Netflix is bringing back the Bluths, similar to how it revived The Killing in a cooperative deal with AMC Networks (NASDAQ: AMCX  ) and Fox Television. Netflix gets exclusive streaming rights to Season 3 episodes three months after the finale airs on AMC.

Source: The Verge.

Let's be clear: This isn't just Reed Hastings demonstrating good taste. On Netflix, subscribers devour these niche shows with the same gusto I bring to a fresh box of steaming hot New York pizza. Here's a list of the top 10 rated shows on Netflix according to IMDB:

Show
IMDB Stars (out of 10)
Netflix Stars (Out of 5)
Total Ratings on Netflix

Breaking Bad

9.4

4.4

3,990,431

Arrested Development

9.2

3.9

5,263,197

Firefly

9.2

4.3

2,843,553

Sherlock

9.2

4.5

1,672,152

Twin Peaks

9.0

3.9

784,064

Freaks and Geeks

9.0

4.4

412,106

Downton Abbey

8.8

4.5

1,508,046

Mad Men

8.7

4.1

2,897,300

Parks and Recreation

8.5

4.0

1,852,378

Terriers

8.3

4.0

113,096

Sources: IMDB, Netflix.

Notice anything? If you said, "Wow, this list is filled with great shows stupidly canceled early by network executives," you win our coveted no-prize.

Firefly and Twin Peaks, notably, are among the most famous shows to be canceled before they could become something more. Terriers lasted just 13 episodes, while Freaks and Geeks got 18. Fans were outraged enough by the early demise of Joss Whedon's Firefly that Universal made a film, Serenity, to close the open plotlines. It wasn't a commercial success.

Yet like a digital island of misfit toys, Netflix gives these gems a home. That's a huge advantage, since resurrecting the dead usually costs less than creating something new. (At least when it comes to TV shows.) Having a fan base at the ready also helps.

Look at the Bluths: 5 million are awaiting their return, according to the table. Arrested Development attracted just 4 million viewers, on average, in its third season. Netflix is already poised to do better with the show than Fox did.

Surprised? Don't be. According to a recent Cowen survey, House of Cards appears to have pulled in at least as many viewers as Girls, the award-winning comedy drama that's been a hit for Time Warner (NYSE: TWX  ) unit HBO. More than 870,000 have rated House of Cards as of this writing, giving the show an average of 4.5 out of five stars.

For investors, the point is that Netflix is never going to run out of these sorts of reclamation opportunities. Several well-received shows suffering from marginal ratings could soon be canceled. Here are two I think could see new life on Netflix:

1. Happy Endings. Another quirky comedy with an ensemble cast -- think of a much weirder (and funnier) version of Friends and you'll get it -- has struggled to reach 3 million viewers for ABC. Those who do watch are uncommonly loyal, however.

2. Community. Stars The Soup's Joel McHale in a comedy about a group of misfits attending community college for unlikely reasons. Oh, and did I mention Chevy Chase is in the cast? Unfortunately, only 3.7 million smart people watch this show regularly.

I'm rooting for both shows to go on, but it could be awhile before we know the fate of either. Until then, we can take solace in knowing that Netflix is bringing back the banana stand.

Welcome back, Michael. Mom and Buster are waiting for you at Balboa Towers:

Source: Netflix, YouTube.

For further analysis of how Netflix is changing entertainment, tune into our newest premium research report in which we take you inside Netflix's entertainment empire and tell you what the streaming sensation is really worth, and whether the stock deserves a place in your portfolio. Access your report now by clicking here.


Read/Post Comments (1) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 30, 2013, at 11:45 PM, BLE7481 wrote:

    "Notice anything? If you said, "Wow, this list is filled with great shows stupidly canceled early by network executives," you win our coveted no-prize."

    This is a bit simplistic, for several reasons.

    First - half the shows on the list (Breaking Bad, Sherlock, Mad Men Downton Abbey and Parks & Recreation) are still on the air, not canceled. So at best, the list is "half-filled" with shows canceled too early. And even that doesn't hold water, because ...

    Second, at least two of the other shows - Twin Peaks and Freaks n Geeks - were canceled long before Netflix was a glimmer in anyone's eye. I'm not sure what the author's thesis is about those shows; perhaps, in addition to being not "stupid", the network execs should have looked into their crystal balls to foretell the coming of Netflix and not canceled those (financially underperforming) shows in hopes of a save several years down the road? Or is the theory that everyone should try to get Netflix to resuscitate some of their dead shows (which, of course, means that every time AMC reprograms such a show, it loses a slot that might otherwise be used to try create an actual new hit like "Breaking Bad")?

    Third - "Fans were outraged enough by the early demise of Joss Whedon's Firefly that Universal made a film, Serenity, to close the open plotlines. It wasn't a commercial success." Fans were so outraged that they didn't bother to go to see the movie? And if the movie wasn't a commercial success, and the series wasn't rating well enough for the ad time to cover the costs of making it, why was the decision to cancel it (in the author's pejorative) "stupid"?

    Fourth - it's easy to say a show is "great" when you like it, but it gets a lot harder when the show's negative hit on your financials is putting your job in jeopardy.

    Fifth - and this for me is most important - this "content advantage" is going to increasingly dry up. Warner has now launched its own Netflix-type service (Warner Archive), and the others will eventually follow suit as the CEOs realize that there's no point in giving away future long-tail revenue streams so that distribution execs can make their quarters and hit their annual bonus targets by taking money from Netflix.

    In short, if Netflix doesn't become HBO - and fast - they're dead. Bogarting some cast-off TV shows is a decent near-term short-cut, but there aren't enough of those to make it a business. "House of Cards", "Borgia" and other originals are a must for the 'Flix, before it's too late.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2398377, ~/Articles/ArticleHandler.aspx, 9/30/2014 6:14:09 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement