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Netflix Signals Move Into Original Programming

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Just think of the possibilities: Buffering, The Vampire Slayer! Or…Queue’ve Got Mail! Or wait, wait, how about…what? Puns no good? Fiiiiine.

Yep, Netflix looks to be getting into the business or producing original programming. The New York Post reports that the rental giant is “close to a mega-deal for Media Rights Capital’s new original series, “House of Cards,” outbidding major cable networks HBO and AMC in the process.”

Negotiations are still underway, but the deal, which would have Netflix paying for two seasons of the show, is said be worth around $100 million.

But why would Netflix get into original programming, a game that is notoriously difficult and not always profitable?

Shira Ovide at the WSJ offers this:

Possibility One: Netflix wants to be the next HBO. If that’s true…Netflix would need to add roughly 926,000 more customers to pay for the series, at the company’s 2010 rate of revenue per subscriber.

Possibility Two: Netflix new TV series is a ruse. What they really want is leverage in negotiations with the TV and movie companies. Netflix owes media companies more than $1.2 billion over the next several years for the rights to show movies and TV shows to 20 million subscribers. Media companies love cashing these checks, of course, but they’re getting spooked that Netflix has too much power. They want more money. In the meantime, media companies also can afford to push Netflix around like a little sister. Sure, we’d love for you to buy our newly released DVDs. Oh, lil’ sis, but we’ll make you wait 30 days. Oh, yes, please steam our TV shows online. As long as they’re the episodes from last year. Don’t forget who’s boss, the media companies said. Time Warner CEO Jeff Bewkes compared Netflix to the Albanian army.

Here’s where “House of Cards” could get interesting. It gives Netflix something it didn’t really have before: leverage in negotiations. If Netflix doesn’t get what it wants — allowing subscribers to rent new DVDs right away, for example, or getting the rights to TV series actually airing right now — it can threaten to make 10 more “House of Cards” series and put a real dent in HBO, or your cable company.

Either way, with Netflix continuing to face increased competition from companies like Amazon and Facebook, both of which are actively pursuing the video streaming business, the move certainly helps Netflix stand out.

Not that anyone should have any immediate concerns over the state of Netflix's business: the company has a 61 percent share of the digital movie market, with Comcast trailing behind with just 8 percent.

POSITION:  No positions in stocks mentioned.