Will ‘Arrested Development’ be a Cost Center or Profit for Netflix?

Will ‘Arrested Development’ Be A Cost Center Or Profit Unit For Netflix? http://t.co/U47hnHCz

MediaPost asks a very good question about the likely profitability to Netflix of reviving Arrested Development, but ultimately Netflix, like cable companies before it, may fund a program that isn’t profitable directly, but indirectly contributes to the bottom line of the whole channel.  Mad Men on AMC is unlikely to be directly profitable for AMC but it raises the profile and perception of the network and is worthwhile as a result.

On the positive side, Ashkan Karbasfrooshan, writes:

What it lacked, was viewers, or at least, enough viewers to please big media marketers, sliding from six million to four million viewers from season 2 to 3.

Mind you, just because those numbers don’t make economic sense for on-air or cable television, it might for Netflix.  Earlier this year, TechCrunch made the case with another cult-classic that was flatlined too soon, according to its fans: “‘Firefly’ averaged about 4.5 million viewers when it was on the air in 2002. Let’s say that Netflix could convert just 500,000 of those to paying customers (who weren’t previously) in order to continue watching the show. That would be a half million people paying at least $8 a month. That’s $4 million a month in revenue. And $48 million a year. And you can assume most would end up as multi-year subscribers.”

After an interesting discussion of why it may not work so well for Netflix, Ashkan is still positive on the idea (as am I):

Lastly, I’ve always argued that with the marginal cost of digital production and distribution sliding towards zero, it remains to be seen if content is a cost center or a profit unit.  It’s possible that “Arrested Development” will become a cash cow for Netflix, as a higher-than-expected percentage of its viewers subscribe to the show — but it’s more likely that Netflix is experiencing the equivalent of a big, splashy marketing campaign that Netflix’s CEO, Reed Hastings, hopes will turn around the company’s sagging goodwill and stock price.

2 thoughts on “Will ‘Arrested Development’ be a Cost Center or Profit for Netflix?”

  1. Network and Cable have the limited bandwidth of channels. There “Arrested Development” had to compete (internally) with other properties for position in the line-up. If another property can pull 20% more ad revenue, it matters not the artistic merit. Netflix and other internet distributors do not face this channel constraint. So Netflix is motivated to expand offerings right up to the point where marginal cost of a new property = marginal revenue of same.

    Inevitably, this introduces additional pressure on development costs. Inexpensive shows can be added to Netflix for less potential revenue.

    Until internet video distribution models can provide some workable sort of ppv economics (analogous to the networks’ advertising revenue based on Neilsen points) Netflicks will not be able to outbid the established distributors for name directors, writers and actors. And we will continue to see less big names, and an in-exaustable supply of less expensive talent on the interwebs.

    1. Ultimately the networks are not going to sustain the same economics. The downward revenue will guarantee that.

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