Why the Netflix-Marvel Partnership Makes Sense

If anyone still wonders whether Disney's (NYSE: DIS  ) 2009 purchase of Marvel was a good idea, consider the fact that, under Disney's watch, Marvel's last two movies, The Avengers (2012) and Iron Man 3 (2013) grossed $1.5 billion and $1 billion, respectively. With $207 million its opening weekend, The Avengers destroyed the record for box office sales those first three days, and The Avengers 2 is set to release in May 2015.

But that's not all Disney and Marvel have up their sleeves for 2015. That year also marks the beginning of an epic, live-action Marvel saga, brought to you by a new partnership with Netflix (NASDAQ: NFLX  ) , which covers the lives of the heroes and villains of New York's Hell's Kitchen, including Daredevil, Jessica Jones, Iron Fist and Luke Cage. Netflix has confirmed at least 13 episodes for each of the four subjects, with Marvel's mini-series, The Defenders, wrapping up the saga after years of turned comic book pages onscreen.

But why would Disney and Marvel go with Netflix over traditional network television? They released this year's Agents of S.H.I.E.L.D. on Disney's network ABC TV, but instead of populating their own TV networks with the series, they decided to go with Netflix instead.

Why Netflix?

Disney and Marvel are looking to the future. Streaming video is becoming ever more popular by the day. As of its last reported earnings, Netflix added 1.3 million new subscribers in Q3, giving it 31.3 million subscribers, which now puts it past paid TV darling HBO. With revenue at $1.11 billion and earnings per share at $0.52, Netflix is currently surpassing analysts' and investors' predictions. It's had a bumpy ride, having its stock price drop to a low of $53, but it has rebounded over the past two years to return to a value of $334.90 per share.

With surging success like this, it's clear that more producers should and have been flocking to Netflix with licenses for their programming. Even Disney has already signed a previous deal with Netflix, valued at several hundred million dollars, wherein Disney sold rights to Netflix to stream its theatrical movies starting in 2016.

But financials are not the only reason Disney is turning to Netflix for their new Marvel endeavors.

Cinematic feel

With its first five original series, Netflix has allowed directors and producers to strike more of a balance between traditional TV and movie releases with its independently run projects. Netflix doesn't meddle the way some outside TV executives do, which gives directors and producers free range to express their creativity. This may increase costs to an extent, but the results and number of subscribers tuning in might generate just the profits Disney and Marvel are looking for.

Not beholden to TV ratings

Netflix offers an opportunity for this original programming to remain in production regardless of ratings (at least to this point, particularly since Netflix doesn't release these numbers). Because viewers can watch the series at their own pace, the concern about ebbing and flowing ratings disappears.

In terms of numbers of TV viewers, Marvel's Agents of S.H.I.E.L.D. garnered 12.2 million viewers for its late-September debut, making it first in its time slot for viewers aged 18 to 49, the most prized group in terms of Nielsen ratings. This also earned them the highest ratings for a drama debut in almost four years.

However, its second episode didn't do as well, attracting only 8.4 million viewers and dropping 34%. While a drop is to be expected, as the show will not capture the attention of every single viewer of its debut, the show's viewership continued to drop for five weeks straight, with the latest figure at 7.2 million for a drop of two-tenths in the 18 to 49 demographic.

With Netflix, Disney and Marvel do not have to worry about these types of numbers, as their viewers will not be watching only one episode on the same night each week. This format will likely encourage a much higher viewership, particularly with Netflix's subscriber base already above 1 billion.

No slot competition

In addition to not having to worry about ratings, Netflix's series also do not have to worry about competing for TV time slots. Agents of S.H.I.E.L.D. has maintained those 7.2 million viewers while competing with shows such as the popular CBS drama NCIS and the NBC singing competition The Voice. Because viewers can watch episodes on Netflix at their leisure, time slot competition is never an issue.

And because Netflix makes the entire series available at once, viewers can watch episodes whenever they want -- there's no week-by-week waiting -- so viewers have greater control. They can ration their viewing or binge-watch. That flexibility is likely to boost the success of this programming.

Disney and Marvel have the added freedom to create stand-alone episodes that can be watched in any order, which could be another draw for viewers. Netflix's original series have not accomplished this as of yet, but the Marvel programming could prove to be the first.

First kid-friendly original series

Netflix has been competing with traditional TV for child viewers and has released an extensive catalog of kid-appropriate movies and TV shows as a result. But releasing the first potentially kid-friendly original series (or at least preteen-friendly), courtesy of Disney and Marvel, could mean more parent subscribers who sign up to give their kids more to watch.

In a letter to shareholders, Netflix CEO Reed Hastings depicts 10 reasons Internet TV will continue to increase in popularity, concluding that "over the coming decades and across the world, Internet TV will replace linear TV. Apps will replace channels, remote controls will disappear and screens will proliferate."

If Hastings' conclusion is true, Disney and Marvel have absolutely made the right move in bringing their new series to Netflix instead of to traditional television networks such as ABC. Also, the potential for bringing in characters for cameos from different Marvel movies is now a distinct possibility, which will garner Disney and Marvel more advertising for their movies going forward. It may be deemed a bold move, but Disney and Marvel have proven before they know exactly what they are doing.

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