DIGITAS PERSPECTIVE

Behind House of Cards: Harbinger ofWhat?

Netflixs House of Cards has been the talk of the media industry since it was released. It has spurred numerous articles and discussions about binge watching, original content, cord cutting, and the future of video in general. Most of the dialogue is centered around Netflix as a disrupter for two reasons. First, its release model that made the entire season available at once, and second, by its investment in original content. I agree that Netflix has done two bold things but they arent harbingers of anything huge just yet. My thoughts below are intended to bring some perspective to the conversation.

Content Release Model

People have written about whether or not it was a good idea for Netflix to release an entire season of its series all at once. But this is already Netflixs foundational approach so in that sense, it hasnt done anything new at all. The difference only appears because we think of House of Cards as a traditional TV series available on a new channel. If you were to think of House of Cards as one long movie, then this release schedule would seem totally normal and the investment would suddenly appear inexpensive if you consider it by the hour of content ($50 million per hour for a two-hour movie, or $2.5 million per hour for a twenty-six hour series). In fact, movies have had serialized components for some timejust think about Harry Potter, James Bond, and even Flash Gordon. Netflix is perhaps recalibrating a definition of TV content, but they are not doing anything they havent been doing since they started. The only harbinger here is that we may need to coin a new term for content.

Content Investment: Will it lead to Cord Cutting or Unbundling?

YouTube made headlines last year by investing $100 million in channel partners. Netflix, according to most sources, invested $100 million in 26 episodes of one series. Both of these investments were frequently analyzed as harbingers of cord cutting and unbundling. The theory is that you can get great content without paying for stuff you dont care about, unlike the current packages from cable operators. Consider Netflixs eight dollars per month streaming subscription versus NPDs reported average cable bill of $86 per month. In the short term, if youre willing to forego variety and relevance, you can probably save some money (assuming you want an Internet connection in both cases). But I see two issues here for consumers: content and personal budget. Content When people talk about unbundling or cord-cutting, they generally assume that their wide variety of content choices will continue to exist and that they will simply access them in a new way. But a prime contributor to the volume of quality content is subscription revenue for cable networks at scale. Cord cutting reduces those payments, and that will eventually reduce the amount of quality content thats produced. One potential, long-term outcome is fewer cable networks providing niche, interesting content. The reason this wont simply be a collection of the same revenue in a different way is noted below. Personal Budget The average person watches over five hours of TV per day (not including laptop or desktop viewing). At $86/month, a typical consumer is paying about $0.57 per hour for content. Putting

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aside the unlimited streaming services (which are a limited form of bundling) and focusing on individual pieces of content, there is evidence ($1.99 for an episode on iTunes or Amazon, $12 movie tickets, $35 TV series season pass) that typical consumers might easily wind up paying $10 or more, per day, for their select, unbundled content. At $300 per month, this is vastly more expensive, and its unlikely consumers will stand it which is the current value of bundling. It provides more, better content at lower cost for now. In the short term, a person would need to have Amazon Prime, Hulu Plus, HBO Go, and Netflix to even approximate the variety of quality content currently available. So what is House of Cards really a harbinger of? Ultimately Netflix was able to generate massive publicity and reinvigorate a healthy dialogue about content creation and distribution all by behaving the way that it always has, with just a minor twist or two. Now its up to us to be more realistic and long-term thinking about what this will mean.

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Eric Korsh, VP/Group Director, Brand Content, Digitas Eric.Korsh@digitas.com Twitter: @EricKorsh This piece originally appeared in MediaPost.

February 2013