Please ensure Javascript is enabled for purposes of website accessibility

Why Netflix Should Sign Chelsea Handler

By Daniel B. Kline – Mar 25, 2014 at 9:43AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The outspoken comedian/talk show host has said she wants to go to the streaming service when her contract expires. Netflix should change its policies and make room for her.

Chelsea Handler created a media storm a few weeks ago when she went on Howard Stern's SiriusXM show and criticized her employer Comcast's (NASDAQ: CMCSK) E! network. In her rant against the cable network and its executives, she told Stern that she thought Netflix (NFLX 2.50%) might be the right home for her show.

"They don't know what they're doing [at E!]. They have no ideas. It's a failure," she told the radio host before suggesting she move to the streaming service. 

Nobody paid much attention to the Netflix part of her rant (though I wrote about it here), but with her contract set to expire at the end of 2014 the streaming service should consider making her an offer.

It's a big change for Netflix

My colleague Jake Mann argued against the move using the logic that Netflix currently has no live programming, and its viewers have a tendency to binge-watch. "Our viewing data shows that the majority of streamers would actually prefer to have a whole season of a show available to watch at their own pace," Netflix Chief Content Officer Ted Sarandos told Deadline last year.

That's true and it's exactly why the service needs someone like Handler. Netflix already has viewers looking to binge watch TV. Offering that plus a daily content fix should broaden the appeal. And while Handler is not exactly CNN, the presence of a daily program that responds to news and entertainment news might allow people hesitant to cut the cord with cable to jump into Netflix and still feel connected to what's going on on a daily basis.

How much would Chelsea Handler cost?

According to its 2013 annual report, Netflix said it plans to spend close to $3 billion on content in 2014 and around $6.2 billion on content over the next 36 months. Much of that will go toward paying to license existing programming, but the company has spent lavishly on shows like House of Cards and Arrested Development.

Handler's current deal with E! was for two-years and $25 million, Fortune reported. It's important to note that she made noise about moving to another network before reupping with E! so her current complaining may just be a negotiating ploy.

Handler's contract with E! not only included hosting her daily show, Chelsea Lately, but producing others for the network. It can be assumed that the host won't be looking for less money in a new deal, but creative freedom -- not money -- might be her driving factor. Handler has been generous with her staffers (she handed out $1,000 to 136 staff members when she signed her last deal, Fortune reported) and she has launched or help the careers of dozens of comedians.

In signing Handler -- perhaps for $45 million over three years -- Netflix would not only get a daily talk show, it would get access to many talented comedians in Handler's circle. Netflix would be paying for Handler the host and Handler the producer -- a producer who has been generous with sharing her spotlight to launch performers including Whitney Cummins, Jen Kirkman, and Ross Matthews.

Can Netflix afford Chelsea Handler?

Handler's audience is small compared to the millions of viewers who watch network late-night shows. It is, however, a loyal audience that has placed all her books on the New York Times best-seller list and sold out Handler's comedy tours across the nation. In my earlier piece I examined how many fans Handler actually has.

Though she only averaged 571,000 viewers in 2013, according to Advertising Age, she still pulled in $30 million for her network between January and October of that year. She also has viewers with a median age of 42.8, putting her audience in the same age bracket as her cable compatriots -- much younger than CBS' David Letterman at 58.9, ABC's Jimmy Kimmel at 54.1, and NBC's Jimmy Fallon at 53.1. Those younger viewers matter as Conan on TBS took in $67.4 million in ad dollars during the above-mentioned period with only 808,000 viewers while Kimmel took in $77.3 million despite having 2.4 million viewers, AdAge reported.

Netflix currently does not take ads (and its paying subscribers would likely be upset if it did), but if Handler can bring E! $30 million a year in ad revenue it's not unreasonable to think Netflix could offset her contract's cost with a single PBS-style sponsor paying $15 million a year. Diet Coke Presents Chelsea Lately may not exactly flow off the tongue, but it would make economic sense.

The deal makes sense for Netflix

The reason my colleague, Mr. Mann, argues against signing Handler -- that she offers a different type of programming than Netflix currently does -- is exactly why the streaming service should sign her. Netflix has gotten very far by sticking to its model, but making an exception to that model when the business logic dictates it does not undercut its overall strategy.

If Netflix brings in Handler the company will attract new subscribers, open up an ability to sell a very limited (but lucrative) amount of advertising, and attract attention for its other programs. Handler's fan base will follow he  and she will get attention for Netflix based on what she says on her daily show. The outspoken comedian will be a public relations boon to Netflix and that will keep the company in the news even when it's not launching a new series.

If Netflix changes its policy on selling advertising, it can essentially have Handler for free. Handler and Netflix are a logical match with little risk for either side.

To read Jake's take, click here.

Daniel Kline has no position in any stocks mentioned. He just finished reading Handler's latest book. The Motley Fool recommends Netflix. The Motley Fool owns shares of Netflix and Sirius XM Radio. 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.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.