"House Of Cards" Could Cost Netflix Big–And Still Save It Money in the End
But Netflix is indeed negotiating for the rights to distribute “House of Cards,” a political drama based on a British miniseries. David Fincher is set to direct the show, which will star Kevin Spacey.
Note the future tense in that last sentence. The show doesn’t exist yet, but Netflix is apparently willing to guarantee two seasons and a total of 26 shows. As Nellie Andreeva notes, that would be a risky bet for an established TV network.
And for Netflix, it’s almost completely new ground. Instead of funding original content, Reed Hastings and company have been spending their money on deals like the one they just struck with CBS, where they’ll pay the network some $200 million for shows you’ve already seen.
The “House of Cards” deal isn’t done yet. And a person familiar with the negotiations says if it does close, Netflix will end up spending less than the $100 million figure Deadline reported.
I don’t know how they can spend a lot less, though. People familiar with the project say it will require a big budget, minimally $3 million an episode. “It’s high-quality, HBO-level stuff,” I’m told. At 26 episodes, that’s at least $78 million.
So unless Hastings has figured out a way to lay off some of the costs with a partner, or work some kind of production magic, this thing is going to cost Netflix a pile of money.
For argument’s sake, let’s say “House of Cards” does cost $78 million. Using very rough math, that’s the equivalent of 800,000 digital-only subscribers signing on for a year. Last year, Netflix was growing at a clip of three million new customers a quarter, which means Hastings can afford a show like this.
But he can’t afford many. Not if he’s going to keep cutting deals with networks and studios for the stuff they’ve already made, too.
Most crucially, sometime in the next year, Hastings is supposed to renew a deal with the Starz pay cable channel, which gives him access to movies from Sony and Disney. Netflix got the original deal years ago at a bargain basement price, and Hollywood has been fuming about it since. Now it may cost Hastings $1 billion or more to re-up.
Which may be the real point of a deal like this–to help position Netflix in advance of those negotiations. If he can argue that Netflix is becoming less dependent on other people’s movies and TV shows, then Hastings doesn’t have to have the Starz deal. Or, at least, he can say that during negotiations.
You’re probably not aware, for instance, that HBO doesn’t feature movies from Sony or Disney, either. You probably do know, though, that it’s the place to watch “True Blood” and “Curb Your Enthusiasm.”
Turning into HBO is an awfully tough trick to pull off. But Hastings doesn’t have to actually pull it off to make it pay off, at least not right away. He just has to get Starz thinking he might be able to pull it off, and that he’s willing to walk away from the table if doesn’t get his terms.
And pulling that off could be easily worth $78 million.