Netflix’s Risky Bet on Original Programming

Netflix (s NFLX) is reportedly in talks to score its first original programming, bidding against cable networks like HBO (s TWX) for the rights to a new project called House of Cards that would star Kevin Spacey and be directed by David Fincher. According to Deadline, which first reported the news Tuesday, Netflix would commit to two seasons — or 26 episodes — of the program, a pretty unprecedented amount for a show no one has seen.

A Risky Bet

While the original $100 million price tag cited by Deadline has been called high in multiple later reports, Netflix would still be investing a fair amount in an unprecedented project. Even if the cost per episode runs closer to $3 million, as Media Memo’s Peter Kafka posits, rather than the $4-$6 million that had originally been expected, that still put the price tag for a single series at about half the amount that Netflix has been paying for entire libraries of long-tail content. It recently did deals with ABC (s DIS) and CBS, (s CBS) both of which gave it access to their library content, with each deal being rumored in the $150-$200 million range.

But as Will Richmond pointed out at VideoNuze, original production also goes against some of Netflix’s core values — like running a business built on long-tail, personalized content recommendations. It’s been best at creating an environment that has many choices and helping users find the right one for them, not necessarily trying to drive its users to view a certain type of content. Funding high-quality, serialized programming that a number of its users might want to watch isn’t necessarily in Netflix’s DNA.

Not Just Reruns

Then again, before last year, Netflix wasn’t in the business of striking deals with studios for exclusive access to their movies, essentially cutting premium cable networks out of the equation. Instead of relying on premium cable networks like Starz and Epix to stream their on-demand content, or waiting years for popular titles to fall out of the pay TV window, Netflix bet big on a deal with indie studio Relativity Media that would give it exclusive access to the indie studio’s movies. It looks like that bet will pay off, as The Fighter, with Academy Award winners Christian Bale and Melissa Leo, will soon appear exclusively on Netflix, rather than going to one of the cable networks.

Netflix’s bold bid for original programming comes at the same time that various cable networks and distributors have dismissed its ability to disrupt their core businesses. The overwhelming sentiment in Hollywood seems to be that Netflix will get the scraps that no one else wants. “What used to be called ‘reruns’ on television is now called Netflix,” Comcast CEO Brian Roberts told the Wall Street Journal (s nws) a few weeks ago. Time Warner (s TWX) chief Jeff Bewkes has been equally dismissive in the past, saying that he believes Netflix will be a place for low-value content that networks and studios can’t syndicate anywhere else.

By bidding on an original show like House of Cards, Netflix is sending a message to the cable networks and distributors: “If you won’t license shows to us, we’ll cut our own deals for the shows you want.” In the same way that a shrewd end-around with indie studios gave it access to an Oscar-winning movie before anyone one else, Netflix is going to TV producers directly and cutting out the networks they’ve previously depended on to fund their shows. And, as Kafka points out, that could give it some leverage as it strikes future network deals.

Premium Content Will Go On, With or Without the Networks

One of the arguments cable networks and distributors like to make about the effect that Netflix — and online video in general — has on the broader TV ecosystem is that by disrupting current business models, Netflix is essentially destroying the engine through which high-quality content is created. That is, by drawing eyeballs elsewhere, Netflix and others could cripple the broadcast and cable networks’ ability to fund production of future shows. But Netflix’s bid shows that high-quality content will continue to find funding, even if it’s not through existing or traditional channels.

While no deal is done yet, Netflix’s interest in House of Cards shows that the online video service is serious about bringing high-quality content to its subscribers, with or without the cooperation of existing channels. Surprisingly enough, that could be good news for the future of what we think of as “TV programming.”