TV TRENDS

Netflix has ordered a new psychological thriller series from Damages creators Todd A. Kessler, Daniel Zelman and Glenn Kessler (KZK) that centers on a family of adult siblings whose secrets and scars are revealed when their black sheep brother returns home. The 13-episode first season, from Sony Pictures Television, will premiere exclusively for Netflix members to watch instantly in all Netflix territories.

"We were spellbound after hearing Todd, Glenn and Daniel's pitch, and knew Netflix was the perfect home for this suspenseful family drama that is going to have viewers on the edge of their seats," said Cindy Holland, vice president of original content for Netflix. "Their work on Damages was truly ahead of its time and we're proud to be bringing our viewers this upcoming series."

"We are absolutely thrilled to be creating an original series for Netflix -- a company committed to cutting-edge storytelling in a vibrant, new space.  We're equally excited about our relationship with Sony Pictures TV, which continues to provide us with unwavering creative support.  We've always wanted to put our spin on a family saga and examine universal themes of family in a way that has never been seen before on television.  The series is a tightly wound thriller that explores the complex bonds between parents and children, brothers and sisters, and the rivalries, jealousies, and betrayals at the core of every family," said Todd A. Kessler, Daniel Zelman and Glenn Kessler.

"The guys worked so hard to come up with the right idea after the success of Damages," said Jamie Erlicht, president of programming and production for Sony Pictures Television. "It took almost a year to fully develop the pitch and their patience paid off with the incredible reaction in the community, especially at Netflix, the perfect home for this show."

Set to begin production in early 2014, the series explores the wounds and emotional demons that lie at the core of a contemporary American family. Kessler, Zelman and Kessler will serve as executive producers of the one-hour drama that will be produced by Sony Pictures Television for Netflix.

Together, the Emmy and Golden Globe nominated Writers/Executive Producers Todd A. Kessler, Daniel Zelman, and Glenn Kessler co-created the award winning legal thriller "Damages." Todd A. Kessler also wrote and produced the second and third seasons of HBO's "The Sopranos"; Michael Mann's "Robbery Homicide Division," and the first season of NBC's "Providence."

Kessler began his career as a playwright working with David Rabe, and segued into film and television when Spike Lee hired him as a screenwriter. Kessler graduated Magna Cum Laude from Harvard University with a degree in Dramatic Literature and Playwriting, and has twice been a Visiting Artist at Harvard, teaching screenwriting seminars. He has been nominated for seven Emmys and three Golden Globe Awards, as well as a Writers Guild of America Award and a Producers Guild Award.

Daniel Zelman has co-authored seven screenplays. Zelman's first collaboration with the Kesslers was on "The Inside," a series the brothers created for FOX. Before turning to writing, Zelman received his master of fine arts degree from New York University's Tisch School of Arts Graduate Acting Program. Zelman went on to appear as an actor in film, television and on-stage in New York, where he acted in many Off- Broadway Plays and on Broadway in Tony Kushner's Angels in America. Zelman has been nominated for three Emmy Awards, a Golden Globe award, a Writers Guild of America Award and a Producers Guild Award.

Glenn Kessler began his career as a playwright and an actor in film, television, and on stage. He segued into television writing working on Michael Mann's CBS drama Robbery Homicide Division. Since then, Kessler has created dramas for 20th Century Fox, Universal, USA, and Imagine Television. Kessler holds a Master in Fine Arts from New York University's Tisch School of the Arts Graduate Acting Program. He graduated with honors from Harvard University where he earned a degree in English and American Literature. Kessler has been nominated for three Emmy® Awards, a Golden Globe® award as well as a Writers Guild of America Award and a Producers Guild Award.

In an industry first, the Netflix-only series House of Cards scored nine nominations — and three wins for directing, casting and cinematography — at the recent prime time Emmy awards. Netflix also scored nominations for a Netflix-only season of the sitcom Arrested Development, which previously aired on the Fox network.

While House of Cards was shut out of the acting categories it was nominated in, the Netflix original series is prominent in the company’s strategy to transition from purely a distribution engine for movies, television and other content to a creator of its own programming. And Netflix has plenty of company — fellow distributors Hulu, Amazon and YouTube are also developing their own slate of programs. The Internet and the power of data analytics are creating new opportunities for companies to define their audience and target programming to viewers’ likes and dislikes more closely than ever before.

The success of House of Cards, a political drama based on the British miniseries of the same name, was followed by an equally strong debut for Orange is the New Black, based on author Piper Kerman’s memoir about her time in prison. During a recent earnings call, Netflix executives noted that each of its new shows has improved upon the first week ratings of the previously debuted program.

Winning an Emmy draws attention to Netflix from people who didn’t have the service and wouldn’t have signed up otherwise. Casting Kevin Spacey in the lead role certainly got our attention. House of Cards drew in more incremental customers. The fact that the company outbid HBO for House of Cards shows that Netflix is now in the same league as a more traditional distribution channel for high-end TV shows.

Many of Netflix’s competitors are in a similar position. Last February, Hulu, a joint venture of NBC, Fox and ABC, launched its first original scripted series, Battleground, which followed political campaign staffers trying to elect a candidate to represent Wisconsin in the U.S. Senate.

Meanwhile, Amazon last April released the pilot episodes for 14 new shows and asked for feedback from viewers to decide which would be given full series orders. Critical reaction to the pilots was mixed, but Amazon green-lit “Alpha House,” a political buddy comedy starring John Goodman; Betas, a show set at a Silicon Valley start-up; and three children’s programs. Like its submission process for the Kindle, Amazon accepts scripts from anyone, and then pays writers $10,000 if a project is chosen. If a developed script becomes a full-fledged series, the creator gets $55,000 and up to 5% of Amazon’s net receipts from licensing, royalties, and bonuses.

Content and distribution go together like love and marriage. You can’t have one without the other. We have Disney’s 1996 purchase of the ABC Television Group and Comcast’s more recent acquisition of NBCUniversal.  Companies can come from either the distribution or content production side and diversify by leveraging their strengths. For instance, Netflix and Amazon have built-in distribution much like cable providers and can easily push original content through those networks. Creating their own content means the companies become less dependent on other content producers, who can command lucrative licensing agreements because distributors know that audiences are attracted by proven hits.

In theory, if the online channels can use original content to attract new groups of viewers who wouldn’t otherwise subscribe, they can invest the extra money in producing more in-house series and features and recoup those costs over time. In contrast, the traditional content licensing model requires Netflix and others to constantly go back to the bargaining table with content owners and renegotiate when licensing contracts expire.

As of June 30, Netflix had $1.32 billion in current content liabilities — funds that have to be paid to content owners such as Disney, CBS, NBC and others. For 2013, Netflix said in regulatory filings that it expects spending on original content to be less than 10% of what it pays for streaming content overall. About 5% of Netflix’s $3 billion content library is original content, the filings show.


The ROI of Original Content

The bet on original content has gone about as well as it could. Netflix hasn’t disclosed what it paid for Spacey and the other production costs for its original content, but did report in Securities and Exchange Commission filings that the company will be able to amortize original content quickly and count it as assets. In a licensing model, both Amazon and Netflix face higher costs to distribute content from traditional producers because they pay more for exclusivity and often bid against each other, Hrebiniak notes.

Netflix’s biggest return on its original shows will be in differentiating the service from its rivals. The economics are such today, given the proliferation of free content, that there is not a lot of economic incentive for firms to construct high-quality content unless it is truly differentiating. So the content [distributors] have maybe more incentive than the content developers.

CEO Hastings, along with CFO Wells, outlined the case for original content in a second quarter investor letter in July. “Hulu and Amazon Prime Instant Video continue to license some exclusive content and develop their own originals. We have ‘House of Cards’ and many others; Hulu has ‘Battleground,’ and Amazon Prime Instant Video will have ‘Alpha House’. All are quite good and quite different. All three services are becoming more distinct from one another, like HBO, Showtime and Starz are distinct from one another,” Hastings and Wells wrote.

Later on a second quarter conference call, Hastings elaborated and said the goal was to create ongoing brands for Netflix. “If we do it right, these will turn into real franchises — that is, ‘House of Cards’ Season 2 … Season 3, Season 4 will be just tremendous assets for the company.”

This is a matter of having privileged access to customers and exploiting a fixed cost to do as much business as you can. House of Cards was a shrewd investment.

Hastings cautioned that it’s still early in Netflix’s original content experiment, but there are promising signs of an early payoff. Due to the launch of Arrested Development and the fan base that followed, Netflix reported that it added 630,000 net subscribers in the U.S. during the second quarter of 2013, compared to 530,000 in the same quarter a year ago. As of June 30, Netflix had 38 million streaming customers in 40 countries.

Although Hastings said the real impact of the company’s original content plans will play out in the years to come, experts at Wharton say Netflix appears to be off to a strong start. They noted, however, that what constitutes a hit or a flop is different for online programming than it is for traditional channels. If an online show attracts a niche audience to subscribe to a particular service and those viewers become long-running customers, it can pay off even if the overall viewership numbers are lower than those for a typical program airing on a broadcast or cable network.


The Data Advantage

Netflix, Amazon and Hulu enter the content sphere with a key advantage: data. The subscription nature of their businesses and the data collection mechanisms built into their systems means the companies are all in a position to know hourly what customers are watching, how they interact with content and what their preferences are. Using that information, the firms can also develop original content based on specific demographic or preference information, further cutting dependence on Hollywood.

The really interesting question is whether these new online distributors can use their vast stores of customer data to integrate with content more effectively than traditional media providers. Netflix or Amazon knows much more about what kinds of content its customers want than a cable company, and they have leading-edge expertise in big data analytics to make use of that knowledge. Netflix can make decisions about what content to acquire based on more intelligent metrics than the usual audience demographics or betting on certain stars. And it can leverage their recommendation engines to push customers to content, which they have been doing all along. Only now some of the content is their own.

Netflix, Amazon and Hulu tend to have a closer relationship with their subscriber bases than a traditional television network. These digital companies are all developing a clientele that’s comfortable and happy to be doing business with them.

As more and more consumers opt to view content via the Internet, the playing field may eventually level, although Netflix and Amazon have a significant head start. For example, HBO could garner similar analytics through its HBO Go app.

What’s unclear at the moment is whether new outlets for original programming will dilute the market for high-end productions. Obviously, there isn’t room for infinite content, but there is definitely room for multiple providers.  Customers have multiple tastes and the mass market has fragmented.

Marquee actors will benefit from bidding wars. Once one service starts a show like House of Cards, others will try to find an actor with a marquee name. People on the level below Spacey are likely to be telling their agents to make sure they also look at projects from Netflix and others.

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