Streaming firms use original series to muscle into TV market


The big-budget “House of Cards” original series launched this month on Netflix highlights the growing importance of streaming video, which is ramping up competition against traditional television.

With stars including Kevin Spacey and Robin Wright, the new 13-episode series, estimated by some to have cost $100 million, is a sign of the clout of Netflix, which claims 30 million members in 40 countries and a large chunk of the streaming video market.

” ‘House of Cards’ illustrates how Netflix is transforming into a digital- (and) Internet-only cable network,” said Richard Greenfield, an analyst at BTIG Research.

Experts say these types of services will become more important as consumers begin streaming the Internet directly on their TV sets, or through adapter boxes, to watching movies and TV shows at their convenience and on demand.

This means programming from Netflix and other services can compete with cable or satellite television as well as over-the-air broadcasts, and even with premium TV outlets such as HBO and Showtime. Netflix, which launched its first original series called “Lillyhammer” last year in a Norwegian-American project, is not the only streaming service to offer its own programs.

Its chief rival, Hulu, which is backed by some of the largest U.S. broadcasters, has produced four original series in the past two years and has three more on the way. And Amazon, which operates its own instant video service, has 11 projects in the works, including original comedies and children’s programs.

These streaming services “are trying to attract subscribers with unique content,” said Michael Corty, a Morningstar analyst. “Consumers will go where they see the best value: It can be the quality of the content, or the price you pay.”

Until now, Netflix and its rivals have been competing for content from the major TV and film studios. Netflix recently signed a deal with Disney for its films, while Amazon has secured the rights to the British-produced “Downton Abbey,” which has a following among U.S. viewers.

But these deals push up costs for the streaming outlets and eat into funds that could be spent on original programs, which will eliminate the middle man for services like Netflix.

“With the cost of exclusive syndicated content escalating as competition builds . . . success in original programming, which by definition is exclusive, should help Netflix better manage (and) leverage its content spending,” said BTIG’s Greenfield.

Morningstar’s Corty said that “the long-term battle that is going on is how much time people spend on current pay TV, and watching programs on services like Amazon and Netflix.”

“For now, watching on Amazon or Netflix really hasn’t cut into the traditional viewing,” Corty said. “But if Amazon and Netflix continue to get more subscribers, it will increase the competition for consumers’ time.”

A research note from Morgan Stanley said that “an expanding original content portfolio will allow Netflix to expand its (subscriber) base beyond HBO’s.”

“Netflix will throw out the rule book for writers, directors and producers alike,” said the note from analyst Scott Devitt, who estimated that Netflix will start spending $200 million to $300 million annually on original programs. “During 2013, Netflix will have six original series debut, a major milestone for the company.”

But the traditional names in the entertainment sector do not appear worried — for now. Time Warner Chief Executive Jeff Bewkes, whose firm owns HBO, said Netflix deserves credit but that competition is welcome.

“They’re doing a great job,” Bewkes said in a recent conference call.

But noting that HBO has been doing this for 20 years and that Netflix is just getting started, he added that “it takes a while to get that up to scale.”