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'House of Cards' in First Flush of Potential

Netflix premiered its first original production, House of Cards, to strong critical acclaim, but the question of whether the reported $100-million production could be the first online series to become a major syndicated property remains an open one.

Both Media Rights Capital, which fully financed the series, and Netflix, which outbid more traditional networks for first-run rights, would only comment that they do not disclose financials. Netflix also doesn’t disclose streaming numbers, so how well House of Cards is quantifiably doing is currently an unknown.

Media Rights Capital already has some ancillary revenue streams in place for House of Cards. First, it owns international rights to sell the show in territories where Netflix is not present, with deals in place with Canal Plus in France and Spain and Sky Deutschland in Germany, and other deals pending. Netflix’s streaming service is currently available in the U.S., Canada, Latin America, the U.K. and Ireland.

MRC also retains the series’ second-window rights, which it could, in theory, sell again to Netflix, along with video and syndication rights. MRC maintains traditional windows for both video and syndication sales, with the home video and DVD window beginning four orfive months from the show’s Feb. 1 launch, and syndication sales commencing four or five years from now.

How all that will pan out remains yet another question. “I can’t speculate on the future as the industry is constantly evolving,” says one executive close to the production. “Netflix looks very different today than it did four years ago, or even a week ago. We don’t know what syndication will look like. We have no benchmark—no other show has ever been released like this.”

House of Cards’ syndication potential also begs the question of who might buy it. The series, which stars Kevin Spacey and Robin Wright, is analogous to HBO’s The Sopranos, says Dan Cryan, research director for digital media at market research company IHS: It’s an expensive, signature show produced specifically to draw people to the service. But if one draws that analogy out further, The Sopranos did not syndicate well. A&E famously acquired it for a record-setting $2.5 million an episode, but viewers—even those who had not seen the show on HBO—did not show up to watch the series on basic cable.

HBO has in fact withdrawn from syndication. The network’s most successful syndication deal was for Sex and the City, which it sold into broadcast and cable syndication, first on TBS and WGN and later on E! and Style. But unlike more successful syndication sitcoms, such as Warner Bros.’ Friends and Sony’s Seinfeld, Sex and the City ran for only one cycle. Later, HBO sold Entourage and Curb Your Enthusiasm into broadcast syndication but had to withdraw the shows after one year because they were not drawing large enough ratings to be profitable.

As a result, HBO has changed its strategy, keeping all of its shows exclusive to itself and making all seasons of them available to subscribers via its on-demand streaming service, HBO Go.

“One of the reasons that HBO isn’t putting their stuff out there is because it hurt HBO’s perceived value,” says one syndication executive. In other words: If you put Entourage on TV stations and no one watches it, was it a good show to begin with? Better to lure viewers to subscribe to HBO and let them find out for themselves.

That’s probably true for Netflix as well, which styles itself as an online HBO, says Cryan.

“In markets where Netflix is active, with the possible exception of a DVD release, it behooves Netflix to keep House of Cards for itself,” says Cryan. “What does it do to the value of a Netflix subscription if the series shows up on Spike?”

Another problem with the potential syndication of House of Cards is that the perfect customer for the highly serialized show is Netflix itself, which is why the SVOD service might end up licensing the show’s second window as well instead of letting it go to someone else.

For now, the best way to look at the $100 million spent to produce House of Cards (which is not necessarily what Netflix paid MRC to license the show) is as an aggressive marketing play.

“Think of it as a subscriber acquisition or marketing cost,” says David Bank, managing director, media equity research at RBC Capital Markets. “Think about where [Netflix] is in the dialog right now. House of Cards represents the greatest promotional bang for Netflix’s buck.”

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