When Netflix (NASDAQ:
) decided to buy House of Cards, the new hit drama starring Kevin
Spacey, it did not scoff at the hefty price tag. According to
and numerous other publications, the streaming video giant agreed
to pay $100 million for the first two seasons.
While this might sound like a decent investment (and seems to
), $100 million is an awful lot of money to spend on a show.
"When you're Netflix and you just give carte blanche to these
producers, they don't give a s***," Rich Tullo, Director of
Research at Albert Fried and Company, told Benzinga. "You're
giving entitlement to a movie producer to do whatever they want.
Sometimes it works out great because it's creativity. Other times
it works out horribly because you're paying $50 million for
someone that's collecting product placement on the other
Indeed, House of Cards received a bit of
for interjecting a number of products into the show, including a
for Sony's (NYSE:
) PS Vita.
"When you get something like a George Lucas license, I have a
lot of trust in him that he will do his best," said Tullo. "His
best may not be good. But I have a lot of trust in him. When you
give a license to someone like Kevin Spacey, I don't know what I
get. He's not a producer. He's just kind of in league with a
Tullo does not know the full details of the Netflix/House of
Cards deal, but he said that the process of building a show is no
picnic. He thinks that Netflix is giving producers too much
"Dealing with producers is not fun," said Tullo. "They're very
smart, most of them are attorneys, and they kind of live from
hand-to-mouth to get funding for their [project]. It's kind of
like the IPO market. Once they get the funding, the few that work
after the IPO are few and far between."
On the other hand, Tullo praised AMC (NASDAQ:
), which he believes Netflix should acquire.
"AMC has 96 million cable subscribers," said Tullo. "That
provides the cash flow in order to develop original content
programming. Then when they do develop new, original content
programming, you get a show like The Walking Dead, which demands
$350,000 to $600,000 in advertising for a 30-second spot.
"I think that kind of model for original content works better
[than Netflix's model] because you get the 10 million viewers
monetized every week. We think there's a synergy there between a
company like Netflix and AMC."
Tullo said that he feels Netflix overpaid "somewhere between
20 to 40 percent" for House of Cards.
"I don't think the show should have cost $50 million a year to
produce," he added. "To put this into perspective, Downton Abbey
is $40 million to produce. That's an expensive show to produce
because it's a period piece on location. That's gonna drive the
cost up quite a bit."
That said, Tullo is a fan of some of Netflix's original
projects -- including Turbo F.A.S.T., the exclusive DreamWorks
) series coming in December. However, that animated series is
based on a film due this summer. If that film flops, it could
have a detrimental impact on the series before it arrives.
"If it works, it succeeds -- if it doesn't, it's not a big hit
to the shareholder," said Tullo.
With few options in Netflix's arsenal, Tullo said that he
keeps "pounding the table that they should buy AMC."
"AMC's stock keeps going up -- now it will cost them 25
percent more to execute on a strategy that we think will work for
them," he said. What Netflix does in buying new content is
creating losses. What AMC does in buying original content is
Louis Bedigian is the Senior Tech Analyst and Features Writer
of Benzinga. You can reach him at 248-636-1322 or
firstname.lastname@example.org. Follow him
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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