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Friday, March 18, 2011

The Future of Television Is Netflix

Netflix's strategy is like that of the wise player in the board game Risk, who starts in Australia and patiently builds armies while the super powers fight amongst themselves.  For those of you who think we have just exceeded the acceptable nerd quotient by: 1) blogging; 2) about contracts; and 3) mentioning a board game (at least it's not D&D), here is a clip to illustrate the effects of such a noiseless-patient-spider approach:   

According to the New York Times, Netflix has gradually developed its assets so that it can compete with traditional TV networks like HBO and AMC and shift from “a DVD-by-mail service to an online library of films and TV programs.” Up until now, Netflix has focused on acquiring the rights to concurrent access to several network TV shows.

Netflixenvelope This all might change soon, however, as The Atlantic reports that Netflix is the lead bidder to purchase the exclusive rights to House of Cards, a new marquee television series created by Kevin Spacey and David Fincher.  Not only would this deal signal the beginning of Netflix’s foray into original programming, but it is significant due to the potential terms of the contract as well. Netflix has offered $100 million upfront for two full seasons, each with 13 episodes. Such a bold commitment has never been done before for a TV drama, and if the bid is accepted, according to New York Magazine it could “upend the way television deals are made…” just like an angry Ukrainian can upend a Risk game.

Many analysts are calling the move a necessary step for Netflix to stay competitive with rivals coming from all sides. Nellie Adreeeva of Deadline.com points out that Netflix has been under great pressure as of late from various challengers in the streaming movie market, like HBO, Amazon.com, and even Facebook. Original content would differentiate Netflix from its rivals and branch out into a new customer base.

Some are skeptical, however. the Atlantic's Megan McArdle highlights some of the drawbacks and risks. While Netflix may have dominated the DVD rental market, pinpointing the next hit TV show requires an entirely different skill set, one that Netflix has not demonstrated thus far. Netflix could not expect that many people would subscribe to Netflix's service, if they haven’t already, in order to get access to a single program.  Netflix thus likely will have to make significant investments in several original programs before it starts to see real returns from this kind of investment, which heightens the risk inherent in branching out.

Regardless, if Netflix wins the contract for the rights to House of Cards, it could herald a major shift in the way TV programming contracts are negotiated and transform Netflix into a major competitor for traditional TV networks. 

[Jon Kohlscheen & JT]

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