Netflix Sees ‘House of Cards’ as ‘Toe in the Door’ for 4K Technology

Netflix also is “taking a wait-and-see approach” to Comcast’s proposed $45.2 billion stock purchase of Time Warner Cable, Yellin said, declining further comment. Comcast’s proposed acquisition of Time Warner Cable would give it more control of the U.S. broadband networks, likely making net neutrality central to the debate over the proposed merger, cable industry analysts have said. Comcast operates Streampix, a competitor to Netflix, raising questions about whether it would favor its own services over those of others, analysts said. Comcast has argued it’s currently the only cable operator subject to the FCC’s net neutrality regulations, having agreed to them as part of its 2011 acquisition of control in NBCUniversal. Comcast agreed to abide by the FCC’s open Internet rules until January 2018. Analysts have also said that Comcast’s bid for Time Warner Cable also could slow Netflix’s talks with cable operators about being carried as part of subscription services. “We have talked to everyone” including Comcast about being carried as part of a cable subscription, Yellin said.

As movie studios increasingly produce films in 4K, Netflix will have a ready-made library of Ultra HD content that can be paired with its own original series that also will continue using the technology amid increased availability of production equipment, Yellin said. The second season of House of Cards launched with 13 episodes Feb. 14, but Netflix said the availability of 4K streaming content will hinge on the arrival of new 4K LCD TVs from LG Electronics, Samsung, Sony, Vizio and others capable of decoding HEVC H.265. Netflix also said 4K streaming will be at 15.6 Mbps, vs. the 5.8 Mbps for 1080p content.

"Studios want to produce in 4K and they want their movies there and they want consumers to see their content in the best format possible,” Yellin said. “It’s not just going to be our original series, but also our partners who are going to produce” in 4K. The amount of 4K content available for streaming is “miniscule” at the moment and it’s “going to take years for 4K to establish itself,” Yellin said. Netflix will eventually segment 4K titles within its content library so that service can recognize when an Ultra HD set is being used to view the titles and most networks will be capable of delivering 15.6 Mbps, Netflix has said.

"We shot programming in 4K and are showing it,” but for widespread adoption “you have to have TVs out there and it’s a chicken-and-egg problem,” Yellin said.

The 4K technology will likely benefit from Netflix’s increased spending on original content, which could be 10 percent to 15 percent of operating expenses by 2016, Chief Content Officer Ted Sarandos has said (CED May 31 p1). Netflix also is seeking to issue $400 million in senior debt due 2024 with a 5.75 percent interest rate that could be used to fund production of original content and expansion in Europe. As of Dec. 31, Netflix had $1.2 billion in cash and cash equivalents and $500 million in debt with a 5.35 percent interest rate.

Netflix also continues to build its base of kids-oriented content, Yellin said. The Turbo Fast Action Stunt Team (FAST) TV series was the first original children series stemming from Netflix’s production agreement with DreamWorks Animation. The first five episodes of the 26-episode season were released Dec. 24 in the U.S. and the 40 countries where Netflix is available. Produced by DreamWorks and animated by Titmouse, it’s based on the 2013 computer-animated film Turbo. “We are going to do a portfolio” of original children’s programming and Turbo FAST is the first of “many coming with the long-term deal” with DreamWorks, Yellin said.

Netflix launched a kids’ section in 2010, advanced the effort with introduction of user profiles and continues to weigh use of password-protected areas as a means for providing some parents a means for governing what their children are watching, Yellin said.

"We want to continue to get better about giving the power user parent the ability to control things,” Yellin said. “A small minority” of parents use the controls Netflix has available. “Can we do better than V-chip and give these parents better control?” Yellin asked, referring to a technology that was required to be built into TVs in the U.S. starting in 2000 as a means for blocking programming based on its rating category. V-chips had a built in numerical password, but could be overridden by reading the TV manual and finding out how to reset it to “0000."

"We are trying to figure these things out and this is all in brainstorming mode because we don’t want to create too much friction,” Yellin said. “Kids can go on the Internet and search for anything and how much responsibility should Netflix take directly when a kid can jump off one app and into another?"

While videogames consoles were once the major means for kids to access Netflix -- Nintendo’s Wii was among the first -- those devices have been supplanted for streaming by tablets and Internet-capable TVs, Yellin said. Apple’s iPad is among the leading devices kids use for Netflix, but Internet-capable TVs are “rapidly catching up” to tablets and “it’s getting to be neck and neck” between the two products, he said. Yellin wouldn’t say how many children use Netflix and the percentage using tablets and smart TVs to access the service.