Will Original Content Save Netflix?

Netflix’s (NASDAQ:NFLX) choice to pursue a range of original programming offerings has presented a new set of challenges, yet the streaming-video provider is moving forward at full steam with its new content model. Its first show, House of Cards, was made available to subscribers on February 1, and the company announced Tuesday that Dreamworks Animation (NASDAQ:DWA) would debut a series for children on the streaming service.

Original programming has noticeable benefits for providers like Netflix and its competitor Amazon (NASDAQ:AMZN), which has not been left behind by the changing streaming paradigm.

For Netflix, original content is a means for the company to hold on to its subscribers. The company’s problems securing movies and television shows from content providers are well-known, so developing its own programming enables Netflix to avoid increasingly expensive licensing costs. The battle to lock in license agreements has intensified as more large competitors have joined the fray; Netflix must now outbid players like Amazon, Apple (NASDAQ:AAPL), and Starz (NASDAQ:STRZA) to acquire content, and that competition has drive up prices.

However, with the recently-inked, expensive content deal with The Walt Disney Company (NYSE:DIS), and Dreamworks’ plan to develop its 3D movie Turbo into a series after the film is released this summer, Netflix will have a strong, family-focused catalog. This will enable the company to draw in new subscribers…
But original programming also has a new set of problems. Not only is it more risky than streaming already known and liked content, it has high costs and some analysts worry that its distribution format will not create excitement in subscribers.

Two of these problems appear to be under control at this point, although the format is still new and that may change. Many critics have given its new series “House of Cards” a positive review and more than one quarter of viewers on one network watched all episodes in the first weekend it was available to stream, indicating that Netflix users are open to content developed in-house. While the two, 13-episode seasons cost $100 million to make, and Netflix plans to make five new shows per year, analysis shows that this business model is sustainable. To finance this production, the company will have to sign up 2.6 million more subscribers than it would ordinarily, reported The Atlantic Wire, which represents less than 10 percent of its current customer base of 33.3 million.

The real question is whether these shows can develop a buzz. ABC’s Maya Baratz noted that Netflix’s decision to release a full season of its first show at one time does not fit with the two predominant viewing molds: movies and television. The company has created a third path. But this model eliminates the forced break between episodes, and therefore removes the opportunity for viewers to discuss and publicize the show. This may also strip the show of momentum that draws in increased viewers for television programs. “Removing the seemingly small function of the synchronized pause collapses the proverbial house of cards that is our shared viewing experience,” she wrote.

Don’t Miss: Google Pays Apple $1 Billion Per Year for iOS Search Privileges.