How Netflix Is Pushing the Envelope With Fincher-Spacey Project, "House of Cards"

CEO Reed Hastings told investors he wasn't interested in "creative risks." But his company is betting a rumored $100 million for 26 episodes of a series no one has seen--based largely on "intuition" and the reputations of David Fincher and Kevin Spacey.

Still from the movie Seven

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."

Read More: Most Innovative Companies: Netflix

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5 Comments

  • Justin L

    The reason this is such a low risk for a company like Netflix, compared to a cable network is the simple fact that they aren't filling a timeslot. The show can tank in views, but they will have no reason to "cancel" like a network, so the people that do become fans can enjoy out their full contracted seasons.

    Generally the reason cable networks will cancel a tanking show is to free up the timeslot for something people will watch so they can sell even more ad space. Netflix, as well as their users, and users that will sign up because of "exclusive content" that I'm sure (hopefully) we will see more of from stream content providers.

  • perezz

    Swasey said that it leads algorithmic software recommendations. Audiences of current Netflix customers outside of corporate data But this is not a project like this to win new customers Netflix Fund? Not to wait and meet the base current. It makes no sense to me.

  • French T

    Swasey claims an audience exists from current Netflix customers based off of data from the company's "algorithmically driven software recommendations." But isn't the point of funding a project like this to attract new customers to Netflix? Not simply retain and satisfy the current base. Doesn't make sense to me.

    -The T

  • Max Yoder

    There's no doubt that Netflix is focusing on customer acquisition here (read: exclusive access to a presumably great content), but they're wisely hedging their bets by serving up a show that their current customers will probably enjoy, too.

    That is, if the acquisition part fails, they can count on the retention part succeeding. If neither work out, they'll probably fire the algorithm and send it to Yahoo.

  • AC Slater

    French T,

    You make an interesting point. But customer retention is critical to Netflix's success in being able to sustain (and grow) revenues in the face of their free competition, Hulu et. al. It is also critical to remember that competitors like Blockbuster offer some content a FULL 28 DAYS BEFORE netflix does. I certainly am not willing to wait 28 days.

    There are only so many times someone is going to watch re-runs of Dinosaurs before they cancel their subscription.

    -AC