Netflix Originals: Why ‘Hemlock Grove’ May Be the First to Get Canceled

Social data doesn't look promising. Either way, we'll know more about Netflix's business soon.

Aug 7, 2014 at 7:35AM

Netflixbuilding

Netflix Originals are the key to the company's growth strategy. Credit: Netflix.

For Netflix (NASDAQ:NFLX), nothing is quite so important as funding original series that customers can't get elsewhere. Chief Financial Officer David Wells said as much in May, at the J.P. Morgan Global Technology, Media & Telecom Conference.

"Our intent is to continue to expand the content library," Wells told the investors in attendance. "If we're going to meaningfully address the 60 million to 90 million [potential U.S. subscribers], we'll need to do that by adding more originals, we need to do that by adding more breadth of content. And part of that is making our content more exclusive, so moving it from nonexclusive to exclusive, and offering more curated offerings" (Source: S&P Capital IQ).

On balance, Netflix originals have done quite well. "House of Cards" is an Emmy winner. "Orange Is the New Black" has a large and growing following. Can the good times continue? After looking at the data for "Hemlock Grove," I'm not so sure.

The horror of 'Hemlock Grove'
On Netflix, more than 1.5 million people had rated the show as of this writing, giving it a combined 3.9 out of 5 stars. By comparison, 3.9 million have weighed in on "House of Cards" (4.8 stars) while 5.8 million have rated "Orange Is the New Black" (4.4 stars). Among Netflix originals, "Hemlock Grove" is a weak performer.

The picture worsens when you look beyond internal Netflix scores and consider social data.

Below, I've compared Netflix's horror show to one of its peers, "Orange Is the New Black," and another edgy, pay-TV drama, "Ray Donovan." The show does well in all but one very important category:

Show
Strength
Sentiment
Passion
Reach

Hemlock Grove

6%

4:1 positive

29%

25%

Orange Is the New Black

42%

3:1 positive

13%

48%

Ray Donovan

10%

4:1 positive

31%

30%

Source: socialmention.com.

Rating just 6% in "strength" -- a measure of the likelihood of the show being discussed on social media -- the performance of "Hemlock Grove" is negligible when compared to "Orange Is the New Black." That's a bad sign for Netflix, which is depending on its originals to produce buzz and bring in subscribers.

How big a problem would it be if 'Hemlock Grove' failed?
As of this writing, we still don't know if Netflix will bring "Hemlock Grove" back for season 3. I will not be surprised if the company decides to pull the plug.

What would it take to reach that point? In a June interview with The Hollywood Reporter, Cindy Holland, Netflix's executive in charge of original content, admitted that the streaming sensation faces many of the same challenges networks face when it comes to keeping a series on the air, even if the business models are different.

"If the creative team decides they don't want to go on, that's one factor [in cancelling a series]. And if the investment required outweighs the subscribers and the viewing hours we predict for the series, that would be another," Holland said at the time.

Foolish takeaway
Notice how she describes the process. Like network TV, it's data-driven. If a show has either the buzz to draw in new subscribers or the adjacent appeal to keep existing subscribes engaged, it'll stay funded. If it doesn't, then it won't. "Hemlock Grove" appears to be on the bubble, and what happens next is important.

So, set aside whatever ill will you might harbor toward werewolves and outrageous horror. The story of whether "Hemlock Grove" gets a third season will tell us a lot about the business drivers for Netflix's original series. Be sure to tune in.

Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He owned shares of Netflix at the time of publication. Check out Tim's web home and portfolio holdings or connect with him on Google+Tumblr, or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool recommends Netflix. The Motley Fool owns shares of Netflix. 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. The Motley Fool has a disclosure policy.

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