Netflix Basks in the ‘House of Cards’ Era

The third season of “House of Cards” is now showing on Netflix (NFLX), giving legions of binge-watchers an excuse to call in sick to work.

For those few who’ve yet to tune in, “House of Cards” is a 13-episode Netflix original series that follows the rise of fictional political power couple Frank and Claire Underwood (played by Kevin Spacey and Robin Wright). On screen, their scheming topples titans. Their real-world influence is less certain, because we don’t have ratings data to understand how many Netflix members are tuning in to the show.

And yet there’s no mistaking the timeline. The four years since Netflix announced plans to make “House of Cards” have been some of the best in the company’s history.

Profile of a Power Couple

The good times began on March 17, 2011. That’s when Chief Content Officer Ted Sarandos announced in a blog post that Netflix had acquired the exclusive broadcast rights to “House of Cards” from producer Media Rights Capital. Subsequent reports put the price tag of an initial 26-episode order at $100 million.

“We’ve found the gripping, serialized one-hour drama, such as ‘Heroes,’ ‘Lost,’ ‘Dexter’ and ‘Weeds,’ has become a very important part of the Netflix experience and over the years, we’ve been able to add these shows from many different channels, with the notable exception of HBO. With David Fincher’s unique vision, the incredible acting skills of Oscar winner Kevin Spacey, and a great and timeless story of power, corruption and lies, we think ‘House of Cards’ will become a big hit among Netflix members and thus, represents a manageable risk,” Sarandos wrote at the time.

Today, “House of Cards” is a multiple Emmy- and Golden Globe-winning series. Nearly 5.4 million have rated the show on Netflix, giving it an average of 4.5 out of 5 stars. Another 187,000 have weighed in at IMDB, giving the show 9.1 out of 10 stars, while 82 percent of viewers tracked at Rotten Tomatoes have rated season 3 as “fresh.” Seasons one and two were rated 97 percent and 95 percent fresh, respectively.

Origins of a Strategy

As much of a boost as “House of Cards” has been to Netflix’s creative credentials, the show has arguably had an even bigger impact on the company’s financials by making it safer to strike new deals for original programming.

None have been so big as Netflix’s partnership with Disney (DIS), which hits a new milestone on April 10 when 13 episodes of “Marvel’s Daredevil” become available. The series is the first of five announced in November 2013, just 11 months after the two companies agreed to a landmark streaming deal worth a reported $300 million annually. The Marvel series wouldn’t have been possible if “House of Cards” hadn’t first proven that original programming is a worthwhile investment.

Political Capital

Just how well have Netflix’s programming bets paid off? While we don’t have enough public data to measure precisely, a few key statistics reveal the importance of originals:

• Since March 2011, Netflix has either aired or commissioned 11 new series and added new seasons for five canceled shows, including acclaimed comedy “Arrested Development.”
• Annual programming investment (marked as “additions to streaming content library” on the cash flow statement) is up 62.6 percent since Netflix announced plans to make “House of Cards,” from $2.32 billion in 2011 to $3.77 billion in 2014.
• Revenue is up 71.8 percent over the same period as worldwide streaming subscriptions zoomed from 23.53 million then to 58.97 million as of December. Profits and cash flow have barely budged in response as CEO Reed Hastings and his team have chosen to reinvest in the business and grow Netflix’s global footprint.
• Even so, the stock is up over 130 percent since Sarandos’ blog post — more than doubling the four-year return of the benchmark S&P 500 (^GSPC).

Call it the impact of the Underwood administration, four years in which Netflix has put billions in capital to work creating new programming — and winning a global audience in response. Are you binge-watching the new season of “House of Cards”? Have you signed up for Netflix to get access to the show? Leave a comment below to let us know where you stand.

[source : dailyfinance.com]