Netflix on target with originals

Netflix’s refusal to release viewership data for House of Cards — a position reiterated yesterday by Reed Hastings in the company’s first-quarter earnings call — has frustrated many in the traditional TV business as they try to figure out whether the series is a “hit,” or not, as that term has long been understood by the industry.  Now, Netflix has given them something else to worry about.

In their first-quarter letter to shareholders, Hastings and CFO David Wells hint that Netflix has developed something of a secret formula for producing hits that it also will not be sharing with the rest of the industry:

On February 1, we premiered all 13 episodes of House of Cards to enormous popular and critical acclaim. The global viewing and high level of engagement with the show increased our confidence in our ability to pick shows Netflix members will embrace and to pick partners skilled at delivering a great series. The high level of viewer satisfaction implies we are able to target the right audience without the benefit of existing broadcast or cable viewing data and the strong viewing across all our markets gives us faith in our ability to create global content brands in a cost-effective, efficient way.

In other words, Netflix’s decade’s worth of fine-grained, proprietary data on the viewing habits of specific, individual users allows it to invest in or produce series at a much higher rate of success than the notoriously risky, hit-or-miss, knock-off driven traditional TV business. To underscore the point, the letter goes on to note that the network’s newest series, Hemlock Grove, “was viewed by more members globally in its first weekend than was House of Cards and has been a particular hit among young adults.”

If that track record holds, it’s worth more than mere bragging rights. TV is a terribly wasteful business, with millions thrown away on producing pilots that never make it to air, and a high rate of failure among those series that do. If Netflix has figured out how to improve on that success rate, even if only marginally, it means it can spend money more efficiently than its programming rivals and attracting more A-level talent.

The screenwriter William Goldman famously wrote that, “In Hollywood, no one knows anything.” Netflix might beg to differ.