Netflix (Nasdaq: NFLX) may have only taken home one statue at the 2014 Golden Globes, but the pay service might actually be the big winner at the annual celebration of television and film. Even though the company's only award was "House of Cards'" Robin Wright as best actress in a television series, the exposure from the Golden Globes may prove an invaluable revenue driver -- and cachet builder -- that validates the company's expensive decision to produce original content.
Though Netflix, as of its last quarterly report, has an impressive 31 million subscribers, that's a fraction of the 103 million homes with cable and 114 million U.S. TV homes that have some sort of paid cable, satellite, Telco or other service, according to SNL Kagan last August. Every mention of the pay service to the over 20 million people who watched the Globes and the millions more who saw news coverage of them was like a free commercial (and in 2012 each 30-second spot sold for around $400,000)..
"House of Cards?" "Orange is the New Black?" What are they and where can I watch them, was likely asked in countless homes around the country during the Globes telecast and at the proverbial water cooler the next day. Even if only a fraction of viewers go out and subscribe to Netflix, the numbers can be truly staggering for the company.
At $7.99 a month for a subscription, every 100,000 new subscribers (.5% of the direct Globes' nearly 20 million viewers) brings Netflix $799,000. Hang onto even half of those for 12 months and the company has brought in an extra $4.8 million, which is likely just the tip of the bucket for the actual economic boost Netflix received just by having its shows nominated.
Going after HBO
In many ways, the current Netflix model mirrors that of HBO, which the company acknowledges as its biggest long-term competitor on the investor relations pages of its website. "HBO bids against us on many original content projects.... HBO has global reach and a strengthening technology capacity," according to the document.
HBO, the first premium pay cable channel, began as an outlet for movies after their cinematic release, but before their video and network debuts. The company, which fell behind Netflix in total subscribers, according to a letter Netflix sent to subscribers in October 2013, morphed from its early days when its original programming included low-end sitcoms like "1st & Ten" and "Dream On" and schlocky soft-core pornography including its "Real Sex" series and various documentaries about hookers, into a destination for top-quality original shows.
Programs like "The Sopranos," "Six Feet Under," Sex and the City," and special documentaries produced with A-listers including Tom Hanks and Steven Spielberg. These shows not only attracted audiences with viewership that sometimes rivaled top-rated network shows, they also garnered award nominations.
This heavy viewership and increased attention made the pay network hip and gave it water-cooler cachet. If you didn't subscribe to HBO, you weren't able to talk about Carrie Bradshaw's latest love failure or Tony Soprano's newest enemy. Having hot shows that people are discussing not only makes people want to subscribe, it keeps them paying the bill each month -- a lesson learned by HBO that is now being adopted not just by Netflix, but by Showtime, Cinemax, Starz, and Amazon.com's Prime video service.
As a stand-alone service, Netflix also has an advantage over HBO, which can only be subscribed to as part of a cable or satellite package. Netlix can be seen as an alternative to having a typical cable subscription -- something millennials have seemed especially open to.
According to a June 2013 report commissioned by the Pivot cable channel, "13% of 18-34 year-olds (8.6 million people) who already have broadband service are committed to a broadband-only existence."
The Golden Globes was a top ratings draw among this age group as, according to the Neilsen ratings service, the show ranked number one for the night among network primetime telecasts in women 18-34. It was also the top-rated among non-sports programs for all adults 18-34 and men 18-34.
There also seems to be some room to grow in original programming for Netflix with future Golden Globes and Emmy exposure as one of the carrots that makes the investment worthwhile. Netflix spent around $300 million on original content in 2013 and plans to double that in 2014, according to Chief Content Officer Ted Sarandos in an interview in Variety last October. "Overall, Netflix's spending on original content next year will still represent less than 10% of overall global content spending. About 40% of HBO's spending is on originals," Sarandos said, "so there's a big gap from where we are to where we could be."
So, the 2013 Golden Globes may just be the coming-out party for Netflix as a premium content partner with more nominations, wins, and free buzz-building publicity to look forward to in 2014.
Fool contributor Daniel Kline has no position in any stocks mentioned. 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.