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Netflix, Inc. (NFLX): Building More than Just a House of Cards

“House of Cards,” the original series that Netflix, Inc. (NASDAQ:NFLX) released a few weeks ago, is a hit. The Kevin Spacey-led political drama quickly became the most-watched show on Netflix, with a lot of subscribers binge-viewing and taking in the entire series in a weekend or even a day. Given that the news comes from Netflix, Inc. (NASDAQ:NFLX) itself and lacks specific numbers one might want to take it with a pinch of salt, but there’s a lot of positive buzz about the show and third-party polling companies have reported large numbers of viewers as well. The real question is whether the success of “House of Cards” is enough to fuel the growth that Netflix, Inc. (NASDAQ:NFLX) needs to stay on top.

Netflix, Inc. (NASDAQ:NFLX)“House of Cards” cost Netflix $100 million to make, and Netflix is hoping that cost is an investment that will result in new customers for its streaming service. To sweeten the deal they’re producing several more original series, including an additional season of fan-favorite “Arrested Development” and a kid-friendly co-production with Dreamworks Animation Skg Inc (NASDAQ:DWA) called “Turbo: F.A.S.T.” that serves as a series spin-off of DreamWorks’ upcoming “Turbo” feature film. Netflix also has four other original series in production for this year spanning a wide range of genres including a horror series from Eli Roth, a prison comedy from the creator of “Weeds” and a show written by and starring Ricky Gervais. A second season of last year’s “Lillyhammer” is also planned for the fall.

It’s estimated that it may take an increase of 10% or more in digital subscribers to foot the bill for these productions. The math gets a bit tricky in some spots since Netflix, Inc. (NASDAQ:NFLX) is working in conjunction with other production companies so they don’t have to foot all of the bill; DreamWorks Animation is obviously assisting with “Turbo F.A.S.T” since it spins off of one of its own properties, while Lillyhammer was produced in association with Norwegian Rubicon TV AS for the Norwegian Broadcasting Corporation. This is good for Netflix, since it not only helps to reduce costs, but also gives them a bit of wiggle room on exactly how much they need to increase their subscriber base and still have a viable business strategy going with these exclusives.

But Wait, There’s More

The creation of must-watch original programming to draw in new customers is a pretty solid business strategy when you look at it in a vacuum, but we all know that business doesn’t exist in a vacuum. Netflix is facing a few problems at the moment, and how well it manages those problems will determine whether its original programming becomes a boon or a liability. While the issues facing any corporation are usually complex, many of Netflix’s problems can be linked to either increasing competition or to problems originating within the company itself.

Netflix is essentially the big fish in the movie-rental-by-mail-and-streaming-content pond, but that’s largely by virtue of it being one of the first major players in its particular market. Netflix, Inc. (NASDAQ:NFLX) isn’t the only fish in that seriously hyphenated pond, however;, Inc. (NASDAQ:AMZN)‘s Amazon Prime service continues to grow in popularity and offers the option to rent movies and TV shows that aren’t available for free with the Prime subscription, an option that isn’t available from Netflix and that makes new releases accessible that customers might otherwise miss. Coinstar, Inc. (NASDAQ:CSTR)‘s Redbox service is also entering the instant streaming business with help from Verizon Communications Inc. (NYSE:VZ) with a service known as Redbox Instant; currently in beta, the new service offers customers unlimited movie streaming and also provides four 1-night DVD rentals per month from any Redbox location. There are other streaming services out there as well such as HBOGo and YouTube Movies, though none are quite positioned as well to take on Netflix as Amazon Prime and Redbox Instant are.

Of course, Netflix would be doing better if competition was its only problem. Unfortunately, a struggle to get new releases onto the streaming service and unpopular price hikes have led some users to give up Netflix out of frustration. A lawsuit and potential SEC action in regard to accusations of making misleading statements to manipulate investors and make the company’s streaming service seem more popular than it actually was have added more fuel to the fire. Some existing subscribers are seeking out alternatives (such as Amazon Prime and Redbox Instant), and if the migrations continue then it will become harder and harder to hit those needed subscription numbers.