Netflix, 'House of Cards,' and the Golden Age of Television

TV is replacing movies as elite entertainment, because players like Netflix, HBO, and AMC are in an arms race for lush, high-quality shows

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"The goal is to become HBO faster than HBO can become us."

And there was Netflix's strategy, in one sentence, as revealed to GQ by Ted Sarandos, chief content officer, on the eve of the company's new exclusive series, House of Cards. It sounds like a straightforward threat to the entire pay-TV model: The streaming upstart taking on the premium cable darling in the hopes of convincing millions of subscribers that you don't need a set-top box to get great original television; you just need an Internet connection and a few bucks a month for Netflix.

Netflix's original-programming move is competition for cable. Our attention is finite, as is time. The more time we spend with Netflix, the less time we spend on cable, the less valuable cable is, blah blah blah, this argument is familiar to all of you. But for now, don't consider the Netflix Effect -- and, in particular, its foray into exclusive shows -- a turning point in cord-cutting wars. Consider it instead simply a great moment for great television. The market for super-deluxe-high-quality TV programming is getting deeper.*

WELCOME TO THE GOLDEN AGE (OF TV. NOT FILM.)

To explain why Netflix's new obsession with original programming is great for lovers of great TV, we have to go on a brief detour. In 2010, when Netflix streaming was still in its infancy, Edward Jay Epstein, the excellent chronicler of the business of Hollywood, wrote a little column answering a big question: Why is TV replacing movies as elite entertainment?

His old-school answer: Follow the money.

Hollywood is technically in the story-telling business. But it's really in the franchise-building business. The top 40 movies of all time are practically all sequels, adaptations, and reboots. Most of them have fight scenes and explosions. In a global industry where the top-grossing films make about two-thirds of their revenue outside of the U.S., and marketing budgets stretch into the tens of millions, the surest way to build profit for a studio is to make or buy a franchise. Then you sell sequels and merchandise and TV rights and never ever stop until you can go home after watching Fast and the Furious 6 at the multiplex to lay on your Fast and the Furious bed sheets, and play with your 2 Fast 2 Furious action figures while watching Five Fast on TNT ... in Beijing.

As Hollywood has gone global and mass-mass-market, different incentives for select television networks have helped to fill the void in quality entertainment. Here is Epstein explaining the rise of HBO as an original programming powerhouse:

HBO executives [created their] own original programming designed to appeal to the head of the house. Here it had several advantages over Hollywood. It did not need to produce a huge audience since it carries no advertising and gets paid the same fee whether or not subscribers tune in. Nor did it have to restrict edgier content to get films approved by a ratings board (there is no censorship of Pay-TV). And it did not have to structure the movie to maximize foreign sales since, unlike Hollywood, its earnings come mainly from America. As a result, HBO and the two other pay-channels, Showtime and Starz, were able to create sophisticated character-driven series such as The Wire, Sex and the City, The L Word, and The Sopranos. As this only succeeded in retaining subscribers and also achieved critical acclaim, advertising-supported cable and over-the-air network had little choice but to follow suit to avoid losing market share. The result of this competitive race to the top is the elevation of television.

Now consider "Mad Men" and "Breaking Bad." Neither is making AMC a billion dollars in Asia, but both helped the network find an even more dependable money-hose: cable. AMC used these shows with small but clingy followings to demand that cable providers carry their network and pay 40 cents a month for each subscriber. Today, both have audiences in the low single-digit millions. If they were movies, they would be flops. Instead, they make AMC a cable staple for tens of millions of pay-TV households who indirectly pay AMC more than $360 million a year in cable fees.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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