Netflix, Inc. (NFLX): What if “House of Cards” Comes Tumbling Down?

The damage
But the failed bet didn’t kill Netflix. It was a measured risk, no more than the financial platform could handle. Likewise, the House of Cards generation of fresh content is small enough that Netflix will survive a total failure — or five.

Let’s get back to a more recent comment from Hastings:

We’re willing to try a little bit more riskier work than we’ve done with a little bit of our budget, and then we’re going to see how it goes. … I don’t know if it’s anything we’d bet the farm on, but we’re certainly willing to try it with a small percent of the budget in House of Cards and then two or three other smaller ones that we would look for. And if we’re successful with it, then we would expand our circle of confidence a little bit more, a little bit more. So we’ll take it step-by-step and year-by-year.

Baby steps, buddy.

If the production cost of House of Cards comes out to $50 million in 2013, and the somewhat lower-profile shows add up to maybe $100 million all in all, you’ve got $150 million of new risk on the table this year. The company spent $2.5 billion on streaming licenses last year, and expects to pony up just a bit more in 2013.

The worst-case scenario
So Netflix is risking maybe 6% of its content budget on original shows, for starters. And in the meantime, this is how the revenue and working capital situation has evolved since that old Red Envelope gamble:

NFLX Revenue TTM data by YCharts.

If this works out, that’s great — a solid reason for people to try the service and maybe stick around if they like it. There might be a few million long-term subscribers in it for Netflix on the upside. But if not, it’s hardly an all-in bet. I’m not losing any sleep over the faint possibility that House of Cards comes tumbling down, followed by all of the other in-house series.

If worse comes to worst, Frank Underwood may never get his dream job. But Netflix will absolutely live to stream another day.

The article What if “House of Cards” Comes Tumbling Down? originally appeared on Fool.com and is written by Anders Bylund.

Fool contributor Anders Bylund owns shares of Netflix, but he holds no other position in any company mentioned. Check out Anders’ bio and holdings or follow him on Twitter and Google+. The Motley Fool owns shares of Netflix. Motley Fool newsletter services have recommended buying shares of Dreamworks Animation SKG and Netflix.

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