On a Jan. 26 earnings call, Netflix CEO Reed Hastings told investors he was not interested in taking creative risks. "When we start taking creative risks—that is, reading a script and guessing if it was going to be a big hit and who might be good to cast in it—it's not something that fundamentally as a tech company or a company run by a tech CEO like myself is likely to build a distinctive organizational competence in," he said. "We think that we're better off on letting other people take creative risk, and get the rewards for when they do that well."
Naturally, many were surprised last week when it leaked that Netflix had outbid HBO and AMC for the rights to House of Cards, an original TV series being developed by David Fincher and Kevin Spacey. Despite the undeniable talents of Fincher and Spacey and repeated assurances from Netflix, there's no question the company is taking a significant risk here. This will mark the first exclusive TV series to premiere on Netflix (users would watch via stream)—typically, the company licenses shows that have already been produced and shown on network and cable television. And it's committed to the series for two seasons or 26 episodes—even before a pilot has been created—in a deal that reportedly could be worth more than $100 million.
Netflix chief content officer Ted Sarandos announced the deal Thursday by highlighting the "incredible acting skills" of Kevin Spacey, the "unique vision" of David Fincher, and the series' "great and timeless story." How is this not a creative risk, a move that amounts to straying outside the company's core competency? Wasn't Netflix guessing House of Cards might be a big hit—exactly what Hastings had told investors the company wouldn't do?
"There's no creative risk for Netflix," Steve Swasey, VP of corporate communications, tells Fast Company. "This is a business risk, which is very, very slight." As Swasey explains, Netflix is not producing the content, only licensing it. Thus, he says, it's David Fincher and Kevin Spacey who are taking the creative risk, and not Netflix. "Nobody came to us with a script and said, 'What about buying this?'" he adds. "They came with a whole package—David Fincher, Kevin Spacey, a storyline—it was the perfect storm of great material [and] great talent."
Since inking the deal, Netflix has sought to mitigate any concern over the project. Swasey repeatedly called the series a mere "slight risk." In Sarandos's announcement of the deal, he spent several paragraphs addressing how House of Cards represents a "slightly more risky approach" to acquiring content, yet still a "manageable risk."
As any TV exec will agree, no cast or storyline can guarantee a show's success. Remember Studio 60 on the Sunset Strip? The much-hyped NBC series in many ways boasted the same "perfect storm" of talent as House of Cards. The show starred Friends' Matthew Perry, The West Wing's Bradley Whitford, Amanda Peet, and was helmed by mythical wordsmith Aaron Sorkin. NBC, so confident in the series' potential, ordered up (only) 22 episodes before a pilot was even shot. Sound familiar?
After a strong start, however, Studio 60's ratings dropped off a cliff, and the network cancelled the show after only one season. Netflix is on the hook for two (short) seasons of the show, minimum, whether or not it tanks.
"If nobody watches it, then we would've spent money that was ill-advised. That's not likely to happen with this caliber of people," Swasey says. "We believe there will be a good audience for this, just as there is with any political drama, just as there is with any Kevin Spacey movie, or David Fincher-directed movie."
Swasey says Netflix based part of its decision to license House of Cards on data from the company's content-recommendation engine, which helped determine whether an audience for the show existed on Netflix. "A lot of this comes from our algorithmically driven software recommendations," he says. "We know what our members like and watch." But he also adds that "our intuition" played a significant role in deciding to license the series.
The real question here is whether Netflix's "intuition" for picking original content is within the circle of competency Hastings reiterated back in January. HBO, Showtime, AMC—these big cable networks have a proven track record for finding the next big series (True Blood, Weeds, Mad Men). Netflix has an algorithm to figure out the popularity of David Fincher or Kevin Spacey or political dramas, but it can't prove that House of Cards will be a success. "That's where you have to, one, accept that there is a slight risk, and two, marry the logic and the discipline with a good healthy dose of intuition," Swasey says.
"There's no formula," he continues. "There's no textbook on the shelf that you pull down and say, 'How do you run an Internet movie distribution company?' We're writing that textbook."
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