Netflix may be poised to make its biggest gamble yet.
With a huge move already underway away from movies in its streaming service, Netflix is reportedly now in negotiations to take on yet another cancelled Fox series. First, it was "Arrested Development." But now they want something much more expensive: "Terra Nova."
The dino-drama was cancelled by Fox on Monday, but the network's production shingle, Twentieth Century Fox Television, hinted that it would offer the series to other distributors because of its strong international following.
Because the price tag might be too rich for cable channels, any potential future home would likely have been another network, like possibly NBC which is desperate for a scripted hit. Instead, it could be one of the original shows Netflix hopes it can use to lure more subscribers to its service.
Most of the cast could certainly return, including stars Stephen Lang and Jason O'Mara as Fox Television still holds options on those contracts. However, depending on what ABC decides to do with the coming season, the show could be without Christine Adams, the leader of the rebel Sixers mercenaries, who signed on to the pilot "Americana," according to The Hollywood Reporter.
Netflix has paid a lot of money in recent years for already-produced television shows, including a deal last April that brought past episodes of the AMC series "Mad Men" to Netflix for about $1 million per episode. Netflix also is developing a series with David Fincher, "House of Cards," that reportedly has a single-season budget of $100 million. However, that's at a price tag of just $3.8 million per episode, unlike the approximately $7 million per episode "Terra Nova" would likely need.
"Terra Nova," however, would have a much larger price tag. A single season of 12 episodes could cost as much as $75 million, if not more, because of its location shooting and its pricier special effects. But the economics model of life on Netflix is far different than the advertiser-driven life on network television. In fact, to make the numbers work for Netflix, their model would be much more similar to premium cable channels like HBO and Showtime.
Those channels base decisions on original programming on the kind of attention they receive for producing such shows, which then translate into retaining existing subscribers who may have been lured away otherwise, and bringing in new subscribers as well.
Netflix would hope that having "Terra Nova" would be a draw to the service. If it were to simply retain the 7.5 million viewers it had on Fox, having that audience buy service for just three months at current rates would generate about $179.8 million in new revenue.
However, it's likely that many "Terra Nova" viewers who would follow the show are already Netflix subscribers, and others may choose not to follow it to a new venue. Even if the new-subscriber figures were based on a more reasonable 2 million viewers, that would equate to $47.9 million for three months service. It might be a loss-lead Netflix may consider worth taking, considering the attention it will get for producing an original Steven Spielberg series.
It's not clear how investors in Netflix will react to the news. Shares for Netflix Tuesday were down nearly 2 percent to $105.19 per share. That's about a third of the company's high price of $304.79 over the past year.
Such a move could be part of Netflix's overall strategy to start providing its service to cable companies. Reuters reported that Netflix has reached out to some major cable providers already. However, some cable companies like Comcast and Verizon are already trying to offer their own hybrid services, according to The New York Times. Comcast has developed its own service called Streampix, which is now offered to its more than 22 million subscribers. Verizon inked a deal with Redbox, the DVD rental kiosks, to offer streaming content at almost half the cost of a Netflix subscription.
To sneak beyond those deals and strike out on its own, Netflix has no choice but to offer original content, and spend the money it will take to achieve that. But Netflix seems to have cash on-hand. Last year, Netflix earned a profit of $226 million on revenue of $3.2 billion. While both were up significantly over 2010, the cost of doing business is getting more expensive for Netflix as its popularity grows. While revenue was up nearly 49 percent, profit was up just 40 percent year-over-year.
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