Is the Success of Netflix Original Series Sustainable?


Netflix has managed to impress with its original programming. Its highly acclaimed political drama, House of Cards, along with the reprised Arrested Development series, as well as Hemlock Grove, were the first original programs offered exclusively online to be nominated for a Primetime Emmy Award. In addition, Netflix CEO Reed Hastings recently acknowledged that by the end of 2013, its original series Orange Is the New Black will be the company's most viewed original program ever.

This is quite remarkable considering the breakout success of the aforementioned programs. As impressive as Netflix's venture into original programming has been, especially for Internet streaming, there is serious question about the longevity of such shows, and whether they can continue to compete with the content on broadcast and cable television networks. More over, it's uncertain if Netflix's original programming will keep reaching new heights in viewer and critical acclaim, or if a competitor such as Amazon Prime will dethrone the company.

Photo by Netflix company, Jenji Kohan (Producer), Jordan Jacobs (Art Director), courtesy of Wikimedia Commons.

Highly anticipated programming

With the tremendous buzz and ability to binge watch shows like House of Cards and Orange Is the New Black, it's easy to forget that many of Netflix's original programs have only made it through one season. A lot remains to be seen about the highly anticipated second seasons of these shows. Subscribers to the online video streaming service are also anxious for new content, like Netflix's first original series for kids, Turbo: F.A.S.T. (Fast Action Stunt Team), which is based on DreamWorks Animation's animated motion picture, Turbo. What's more, you may remember the multi-year deal inked back in June, ensuring DreamWorks supplies Netflix with 300 hours of animated programming over the length of the contract.

While DreamWorks CEO Jeffrey Katzenberg and Netflix CEO Reed Hastings cheers their new partnerships, they certainly are not the only ones making moves in the realm of streaming original programming.

Amazon Prime and its original content

Netflix's original programming has obviously garnered much more attention than anything has developed so far. But with the tremendous success Netflix has had, and the capabilities its original programming has showed, Amazon Prime is quickly trying to catch up.

In fact, Netflix's rival is currently developing several original programs for its subscribers, including a comedy series with actor John Goodman and a drama series created by Ian B. Goldberg, who wrote on ABC's Once Upon a Time. Amazon's entertainment outfit, called Amazon Studios, is also developing another drama series from Chris Carter, the creator of X-Files. Although Amazon's feverish push for original content is in direct pursuit of Netflix, the company has taken a slightly different approach to fielding its new programming line-up.

Amazon Studios is relying on input directly from viewers. It started the process of developing an original comedy series by hosting 14 pilot shows back in April. Five of them were then chosen for production based on viewer feedback. Moving forward, Amazon has three additional pilots slated for release in early 2014 and will undergo a similar vetting process from viewers. The pilots include Mozart in the Jungle, a show about the secret lives of symphony performers, The Outlaws, about a professional football team, and Transparent, a dark comedy about a dysfunctional family in Los Angeles.

Profitable programming

Regardless of whether Amazon or Netflix is creating the original programming, like any other venture, it ultimately needs to be profitable in order to be worthwhile. Instead of ratings, they rely on new subscribers to show a venture paid off. In other words, while it may not be an exact science, if Netflix releases an original series for the world to binge watch, but by the next fiscal quarter fails to attract enough new subscribers, it is safe to say the program is a flop at least initially.

For instance, you may remember earlier this year Netflix's release of the previously canceled Arrested Development series. The show's debut on Netflix was highly anticipated, but based on social media chatter and 630,000 new subscribers of an expected 900,000 by the following quarter, Arrested Development was largely considered lackluster. In comparison, the company's most recent number of new U.S. subscribers topped 1.3 million, bringing its total to over 31 million, which is officially more than rival HBO.

When you consider that Netflix's quarterly new subscribers have almost doubled compared to after the debut of Arrested Development, it is fair to say that more recent programs, like Orange Is the New Black and House of Cards are potentially more profitable.

With that said, original programs, especially successful ones, are not cheap. Netflix has not divulged how much money it puts into such shows, but some experts believe the company invested as much as $78 million into House of Cards. A price tag like that is fairly typical for an HBO or Showtime series. In order to break even on House of Cards at Netflix's popular $7.99 service fee, it would need to allocate roughly 9.8 million of its subscribers as signing up to watch the show. At less than a quarter of the company's global subscribers, profitability on the venture is more than likely.

A Foolish finish

Competitors like HBO and Amazon are now in hot pursuit of Netflix in original programming. Netflix has proven it can develop original programming that attracts new subscribers, and of course, earns Emmy nominations, as has HBO. Amazon, on the other hand, has little to show for its involvement in original content. A year from now it could all change, and Amazon could prove to be on the same, or a whole other level. With Emmys up for grabs, it will be interesting to see what the coming year brings for original programming.

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Jamison Hill has no position in any stocks mentioned. The Motley Fool recommends, DreamWorks Animation, and Netflix. The Motley Fool owns shares of and Netflix. Try any of our Foolish newsletter services free for 30 days. 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.

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Originally published