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Editorial: The Netflix Effect

In a development that everyone figured was an eventuality but is probably taking place a bit earlier in the company’s cycle than we expected, Netflix is now jumping into the original programming business.

The distribution-centric outfit outbid networks like HBO for a show called House of Cards, which has major talent like David Fincher and Kevin Spacey attached. And Netflix is jumping in with both feet, ordering a full 26 episodes of the show.

Immediately, Internet chatter turned to speculation that Netflix was gearing up to be a major programming provider, given the tens of millions of dollars they would sink into this one project when you factor in both production and marketing.

But let’s everyone slow down. Netflix isn’t going to be HBO just yet.

There is no doubt Netflix has media darling status, which also may extend to Wall Street. And rightfully so, as the company has evolved its business model on the fly in a way that companies like Tivo simply missed out on. So while being a pipe is working for Netflix, at some point undoubtedly they would experiment with being a supplier for things more than one-off events.

But remember: producing TV shows has about as low a success rate as any business. And it very simply is not a core competency of Netflix, not in the company’s DNA. In fact, some have argued it is counterintuitive to what the company was built upon.

That they are jumping in so boldly is both surprising and impressive, but it does not signal an inevitable development into a major player in the programming world. Though clearly the intentions are there.

This is not meant as a knock on Netflix. Quite frankly, we are huge fans of any forward-looking business that shows the ability to both anticipate and react on the fly. That is a rarity, as we constantly see a great idea or company die an early death because it was not smart or nimble enough to do what Netflix has done in this respect.

Rather, we are cautioning not to count your red envelopes before they are delivered. Like anyone entering —or already in—the programming game, it is rife with failure and the economics are often tough to crack.

So we’ll put House of Cards in our queue, sit back and see how it—and Netflix’s new strategy—look on the small screen soon.