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Netflix in Talks for Original Series

March 21, 2011

Netflix Inc. is in advanced talks to distribute a forthcoming television series directed by David Fincher and starring Kevin Spacey, said people familiar with the talks.

If such a deal were to come to fruition it would add a new competitor to the television industry by increasing the degree to which Netflix vies with premium-cable television channels like Time Warner Inc.'s HBO.

The discussions for the series—a political drama called "House of Cards" based on a British miniseries—is part of a growing behind-the-scenes push by Netflix to secure from Hollywood production companies more original shows that will run initially on Net flix's streaming Internet service, according to a person familiar with Netflix's plans. Original series like "The Sopranos," "The Wire" and "True Blood" have been a big part of HBO's growth over the years.

Netflix is in talks to distribute a big-budget television series starring Kevin Spacey, according to people familiar with the matter. Could Netflix's wrangling of original content - and not having to wait to distribute the content - make it a viable competitor to cable TV? The talks were reported earlier by the website, which reported that Netflix could pay more than $100 million as part of a deal for 26 episodes. A person familiar with Netflix's plans said the company is likely to pay much less than that.

Mr. Spacey's spokeswoman, Staci Wolfe, confirmed the talks on Tuesday, saying that such a deal was under serious discussion. A representative for Mr. Fincher, the veteran filmmaker behind such movies as "The Social Network," said he was traveling to Europe and couldn't be reached. A spokeswoman for Media Rights Capital II LP, the production company financing the series, declined to comment.

Under the terms being discussed, Netflix would have the right to distribute the series online before any other outlet carried it. But Media Rights Capital would be free to make arrangements for later broadcast or DVD sales, according to a person familiar with the matter.

People in the entertainment industry have watched closely as Netflix's users have increasingly adopted the company's on-demand video streaming service, for which they pay a monthly subscription fee.

According to NPD, DVD-rental company Netflix now owns 61% of the market for streaming movies online. But with competitors like Amazon and Facebook entering the digital movie market, will can Netflix hold court forever?

Until now, however, Netflix has largely relied on cheaper content—such as older studio movies and TV shows—for its streaming service, rather than pay the premium prices that new movies or original series command.

Increasingly though, the company has begun to boost its spending in deals with entertainment companies to secure Internet rights for films and television shows. Last August, for instance, Netflix agreed to pay about $1 billion over five years to Epix, a pay-TV channel owned by Viacom Inc., Lions Gate Entertainment Corp. and Metro-Goldwyn-Mayer Studios Inc., for Internet rights to films and TV shows.

Any deal by Netflix to get into the distribution of original television series will signal the company's growing clout in the entertainment business. The company finished 2010 with more than 20 million subscribers, slightly more than CBS Corp.'s Showtime and Liberty Media Corp.'s Starz, while still less than the more than 28 million subscribers to HBO at the end of the year.

But Netflix is also growing far faster than those premium channels, with a 63% jump in subscribers between the fourth quarter of 2010 and the same period the prior year. The convenience of Netflix's streaming video service has been a huge hit with customers since it came out a few years ago, giving the company an even bigger subscriber boost more recently as the service has become widely available on videogame consoles, television sets and other electronics products for watching the service on televisions.

On Tuesday, market research firm NPD Group Inc. issued a report saying the Netflix accounted for 61% of all digital movie watching—including streaming of rented movies over the Internet, purchases through Apple Inc.'s iTunes and cable video on demand services—during the first two months of this year. Comcast Corp. was in second place with 8%, while DirecTV, Time Warner Cable and Apple were tied for third place with 4% each.

Netflix's growth on the Internet is attracting a growing field of powerful competitors. Most recently began offering customers access to a video rental service with more than 5,000 movies and television shows. The service is available to subscribers to Amazon Prime, a $79-a-year membership service that allows gives customers unlimited two-day shipping on packages from the Internet retailer.

Getting into the business of betting on television shows is also a highly risky one for Netflix, a company that has become successful in part by focusing on its areas of expertise, technology and the Internet. Several years ago, the company opened up a unit within the company called Red Envelope Entertainment to acquire DVD rights for movies at film festivals and other sources. It eventually ended up shuttering the division.

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