Netflix, Inc. (NFLX), Facebook Inc (FB): House of Cards Changes Everything

Netflix, Inc. (NASDAQ:NFLX) is not releasing ratings data for its first original series House of Cards, but based on the evidence at hand it looks like a remarkable success. The company says it’s the most watched title in its library ever, the critiques have been mostly positive and the series has been widely acclaimed by viewers: House of Cards has a score of 9 in both Metacritic and IMBD. More importantly, this has huge implications regarding Netflix as an investment.

Big data, big success

Creating a successful movie or TV series is a notoriously difficult venture; even the most renowned actors and directors have experienced their fair share of failures. Since fixed costs are unusually high, content creation is a business in which there is a lot of money to be made or lost depending on viewership. The way Netflix, Inc. (NASDAQ:NFLX) has created House of Cards is nothing short of amazing, and it has some very important implications for the future of the business.

Netflix has access to enormous amounts of information regarding the viewing habits and tastes of its more than 33 million members, and House of Cards proves that the company knows how to utilize that information in order to create successful content.

Using its enormous database, the company discovered that the same subscribers who liked the original BBC House of Cards production were also inclined to watching movies starring Kevin Spacey or directed by David Fincher. A remake of the series including Kevin Spacey and directed by Fincher should then be a big hit. There is obviously much more to a successful series than matching big data and reaching conclusions, but knowing what viewers want is an invaluable advantage.

The company analyzes every detail it can possibly track: not only ratings and recommendations but also geo-location, device information, social media interaction and other data sources. This is critical when it comes to creating new content or buying it from other sources, and it puts Netflix, Inc. (NASDAQ:NFLX) in a position of strength versus other industry players.

That´s why the company´s recent integration with Facebook Inc (NASDAQ:FB) is much more than a simple adaptation to social networks or some free advertising for Netflix. The new social integration will allow users to show their viewing history on Facebook Inc (NASDAQ:FB), and also what their friends are watching and recommending. Netflix is most certainly planning to capitalize all that information as much as possible from multiple angles.

Competitive strength in a crowded space

When it comes to Netflix as an investment, the biggest long term risk is the competitive landscape. There is little doubt on the fact that online streaming is a promising business, and Netflix, Inc. (NASDAQ:NFLX) has the first mover advantage, but other players like the voraciously competitive, Inc. (NASDAQ:AMZN) have entered the scene lately, and this poses a major risk for the company and its investors.

Amazon has disrupted different business areas over the last years, and the company is famous for putting sales growth over profitability and aggressively expanding its market share even if that means having razor thin, or perhaps negative, profit margins. Since it generates big operating cash flows in online retail, Amazon has deeper pockets than Netflix, Inc. (NASDAQ:NFLX), and that´s a serious problem when it comes to competing for content over the next years.