A hit cable drama on a channel like AMC, Showtime, or HBO follows a pretty typical trajectory. A quiet launch draws the attention of TV critics who sing the show’s praises. Over the course of several weeks, word of mouth helps the show to slowly build name recognition. By the time you’ve hit the season finale, the show’s taking over the trending list on Twitter and maybe setting a new ratings record for its channel (see: Downton Abbey, Homeland and The Walking Dead).
According to Netflix chief content officer Ted Sarandos, this decades-old model won’t work for an “on-demand” generation that expects to access content on their own terms. “That’s old media business-thinking,” he says. “What we’re seeing our subscribers do is jump into these shows that they haven’t seen before and watch them episode after episode.”
Now, in addition to binging on cable staples like Mad Men and Breaking Bad, Netflix subscribers have a brand new program to devour as quickly as they see fit. On Friday Netflix debuted 13 episodes of its first original show, the political thriller House of Cards, starring Kevin Spacey and directed by David Fincher of Fight Club and The Social Network fame. By releasing the entire first season simultaneously, Netflix is making several large bets at once—that people who pay $8 a month to watch old TV shows and movies are interested in new programming; that new shows will help broaden their subscriber base; and that an hour-long drama doesn’t need the week-long suspense, speculation, and media promotion in between episodes to break into the pop culture consciousness.
The show, originally shopped to the usual cable mainstays, has the production values and star power of the programs you’d find on HBO or Showtime. (TIME and HBO are both owned by parent company Time Warner.) Netflix has paid a reported $100 million for the distribution rights to two seasons of the project, which has a cost in the realm of high-profile programs like Game of Thrones (pegged at around $50 million per season) and Boardwalk Empire (which cost around $20 million for the debut episode alone).
With so much money invested, expectations for the show are high. It’s garnered mostly positive reviews, but Netflix won’t say how many people watched the show in its first weekend online or what viewership goals they have for it. “The show will have to perform relative to what we paid for it,” Sarandos says. “Over time, does it become one of the things that [users] attribute to the value of their membership? In that way, you see brand halo effects that will impact retention and word of mouth and ultimately grow the subscriber base.”
That subscriber base number is key to the streaming service’s future. After a botched attempt to spin its DVD mail-in service off into a separate company in 2011, the company had a more stable 2012, growing its streaming paid subscribers by more than 8.5 million to a total of more than 30 million worldwide. That’s in the same realm as HBO and significantly ahead of Showtime. However, those two channels, benefiting from the marketing and infrastructure muscle of cable operators, dwarf Netflix in terms of profitability. HBO pulls in more than $1 billion in earnings annually while Showtime is approaching $700 million, reports The New York Times. Netflix, juggling continually rising licensing costs, growing infrastructure needs overseas, and the costs of original content, actually surprised investors by posting a small profit in the final quarter of 2012.
In the long term, a large stable of quality original shows could open the path for consistent profitability by making Netflix less reliant on deals with movie studios and cable networks. It’s a strategy that’s already worked for channels as varied as HBO and MTV. “What you’ve got from Netflix here is a move straight out of the network TV playbook,” says Dan Cryan, research director for digital media at IHS Screen Digest. “It’s a really well-established move to try to take control of your own content and to give people a reason to keep coming back to your channel that you’re in charge of.”
House of Cards won’t be doing all of the heavy lifting as a Netflix original this year. Arrested Development, which has a rabid cult following, is being revived for a fourth season in May. A Ricky Gervais sitcom, Derek, and two other shows will also launch by summer.
Sarandos says viewers should expect more Netflix originals in the future, too. “We don’t have limited shelf space,” he says. “We have the appetite a lot more than we currently have today. There’s no reason to believe we wouldn’t be as aggressive as that in future years.”
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In terms of overall size, Netflix remains a small player competing against giants of both the analog and digital ages. Amazon has been aggressively expanding its own streaming service, while HBO is experimenting with selling its subscribers-only streaming service, HBO Go, as a standalone product in Scandinavia. “It’s hard to say which category or which party will ultimately be the victor,” says Modi Wiczyk, CEO of Media Rights Capital, the studio that’s producing House of Cards. “But I think for all of entertainment it’s better that it just be more—more avenues, more channels and more choice.”