AMC Networks Inc (AMCX), Time Warner Inc (TWX): The Controversy Over Laura Prepon’s Return Shows Netflix, Inc. (NFLX) Is Doing It Right

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Netflix, Inc. (NASDAQ:NFLX) doesn’t release ratings data for its shows; the company believes the measurement is largely meaningless.

But if there was any doubt that Netflix, Inc. (NASDAQ:NFLX)’s bet on original programming hasn’t paid off, consider the outrage following reports that actress Laura Prepon, a supporting character in Netflix’s Orange is the New Black, may not be returning to the show.

In less than three months, Netflix, Inc. (NASDAQ:NFLX) has created a show with a die-hard cult following; something that has taken other networks years to accomplish.

Netflix, Inc. (NASDAQ:NFLX)

The success of Orange is the New Black

The controversy over Prepon’s return has been ongoing for several weeks. Last month, BuzzFeed reported that Prepon was only returning for a single episode — that angered fans online, and was enough to solicit an official response from Netflix, Inc. (NASDAQ:NFLX) management, who denied the report and said the second season’s cast has not yet been finalized.

But BuzzFeed isn’t backing off. It reiterated that report again on Wednesday, and once more, fans across the Internet are up in arms.

Without knowing the ratings, it’s difficult to judge the show’s success, but the very fact that such a new show has been able to generate such buzz has to be seen as a positive sign for Netflix.

Historically, great shows take time to develop

To be sure, Orange is the New Black is probably much less popular than other premium shows like Game of Thrones and Breaking Bad, but unlike Orange is the New Black, those shows didn’t turn into hits overnight.

Game of Thrones has become one of HBO’s most popular shows ever, second only to The Sopranos, but it wasn’t always that way. The first season of Game of Thrones was only a modest success, and was actually less popular than the first season of Boardwalk Empire.

The same is largely true for AMC Networks Inc (NASDAQ:AMCX)‘s Breaking Bad. The first episode of the second half of the fifth season brought in twice as many viewers as any episode prior to that, and in general, Breaking Bad has steadily expanded its base of viewers over time. But Breaking Bad‘s creator, Vince Gilligan, remarked that the show might’ve been cancelled in its second or third season.

Netflix and the serialized TV show

But obviously, Breaking Bad wasn’t cancelled — and Gilligan credits on-demand services like Netflix, Inc. (NASDAQ:NFLX). AMC Networks Inc (NASDAQ:AMCX) sells its content to the Internet video streamer, and the deal appears to have benefited both companies — Netflix gets a bundle of great content to attract subscribers; AMC sees the popularity of its shows grow over time.

As a highly serialized show, Breaking Bad does not lend itself to casual viewing. You couldn’t, for example, just start watching the show in the middle of the third season — each episode forms part of a very long story arc. Thus, if a viewer hadn’t considered watching the show until just recently, they would need the services of a company like Netflix to catch up.

Of course, it works both ways. As Academy Award winning actor Kevin Spacey argued, highly serialized TV shows are the ideal medium for storytelling, trumping two-hour long movies and traditional episodic programs. As video-on-demand services have made watching these type of shows possible, the format has seen an explosion in popularity. Even networks like The History Channel have jumped on the trend.

Virtually all of AMC Networks Inc (NASDAQ:AMCX)’s recent success has been built on its commitment to that type of programming — shares of the network are up more than 63% in the last two years, as hits like Mad Men and The Walking Dead have brought in top advertising dollar.

The subscriber dilemma

But, despite the fact that its bet on original programming appears to have paid off, Netflix remains challenged. The company has committed itself to paying enormous future content costs, off-balance sheet liabilities that total in the billions.

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