January 31, 2013 6:47 pm

House of Cards helps Netflix cut the cord

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Kevin Spacey and Robin Wright in a scene from Netflix's "House of Cards"©Reuters

Reed Hastings, Netflix’s chief executive, calls the company's 'House of Cards', starring Kevin Spacey, 'a defining moment' for internet TV

The Washington preview screening this week of House of Cards had the air of a typical Hollywood premiere.

An audience of political journalists, pundits – even the British ambassador – was shown the first two episodes of the new, $100m series. Guests mingled afterwards with Kevin Spacey, Robin Wright and other House of Cards stars, sipping champagne and nibbling canapés.

There is one crucial difference between the series and other expensively produced TV shows featuring A-list film talent more familiar to audiences from their appearances on the big screen. House of Cards , a US political drama, will be aired only on Netflix, the subscription video service, and all 13 episodes will be made available simultaneously around the world Friday.

“It’s the first time anyone has done something like this, taking a big-scale production that costs millions of dollars per episode and released it all at once,” Reed Hastings, Netflix’s chief executive, said in an interview with the Financial Times. Last week in his quarterly letter to shareholders, he hailed the House of Cards launch as “a defining moment in the development of internet TV”.

“Two years ago [when Netflix acquired the series] it may have been a big gamble,” he said. “But now that gamble is looking very good because of the growth of internet TV and the quality of the show.”

The series is the most expensive original web series ever produced. Directed by David Fincher, who made hits that include The Social Network, Fight Club and The Girl with the Dragon Tattoo, it is based on the 1990 BBC series of the same name. Netflix outbid established premium cable channels – including Time Warner’s HBO – when it acquired the series and, with five other original programmes in production, intends to use new “originals” to retain subscribers – and attract new ones.

Netflix and rival online video providers such as Amazon, which also has a subscription service, and Hulu, which is owned by Walt Disney, News Corp and Comcast, hope to capture viewers who are “cutting the cord” with cable and satellite television. Put off by the rising cost of cable subscriptions, which are being inflated by the rising costs of sports media rights, many viewers are seeking cheaper alternatives online.

Original production is more cost effective for Netflix and its rivals, said Richard Greenfield, an analyst with BTIG, in a research note. “With the cost of exclusive syndicated content escalating as competition builds, success in original programming . . . should help Netflix better manage its spending.” This will allow it to “give up on less important content that it originally paid for to build scale”.

The House of Cards launch coincides with a resurgence in Netflix shares, which rose sharply last week when the company said it had attracted more subscribers in the pre-Christmas period than it had expected, taking its global customer base to 33m.

Investors have endured a turbulent two years. In the summer of 2011 Netflix shares touched a high of $300, but after a series of missteps, including a botched price increase and rebranding, went into a downward spiral, falling as low as $53. They roared back to life last week, rising 70 per cent, and are now hovering at $165.

Mr Hastings said the company was used to the rollercoaster ride. “We went public 11 years ago at $7.50 and promptly traded down to $2.50 so our stock has always been volatile and that takes a strong stomach. But throughout the ups and downs our north star has always been to build the best internet TV network.”

When the stock tumbled last year the company was mentioned as a takeover target. Carl Icahn, the activist investor, built a 10 per cent stake and criticised the board. The value of his stake has since increased by more than $600m.

Mr Hastings said shifting consumer habits were moving in Netflix’s favour. “As the internet grows, we grow.” He added: “A reason piracy is so big is because people are frustrated . . . they might be able to get the first two or three seasons of a show like Mad Men but not all five. We’re trying to change that.”

With Netflix’s biggest bet on original content about to air, relations have even improved with Time Warner, HBO’s parent. The two companies have clashed over the years but Netflix recently struck new content deals for programming made by Turner Broadcasting and Warner Brothers, two Time Warner subsidiaries. “We wrote big cheques,” said Mr Hastings. “It has a habit of improving things.”

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