Netflix, Inc. (Nasdaq: NFLX) is facing a litmus test in the handling of its popular “House of Cards” drama following sexual misconduct allegations against its star that helped set off a national conversation about workplace behavior.
“How Netflix handles the scandal is important because, while Netflix does not produce the show directly, ‘House of Cards’ and Netflix are co-branded, and a misstep could hurt the Netflix brand even though Netflix management has nothing to do with the scandal,” Midtown Partners analyst Rich Tull says.
Fifteen men have made allegations against Kevin Spacey, the popular star who portrayed President Frank Underwood on the show. After the first allegation by actor Andrew Rapp was made public, Spacey issued a statement of apology saying he did not remember the encounter, but attributed it to “deeply inappropriate drunken behavior.”
Spacey also acknowledged in the statement that he was gay, and was widely derided for using his apology as an opportunity to come out.
Netflix made the decision to no longer work with Spacey on “House of Cards” or any other projects. Netflix classifies “House of Cards” as a “Netflix original” on its platform, but the show is actually produced and owned by Media Rights Capital and licensed by Netflix. Tullo estimates that the show has drawn an average of 5 million viewers per season over its five-season run.
When it debuted in 2013, the show was part of just a handful of original content on the platform, but Netflix has been aggressively investing in original content ever since. The company said it plans to invest another $8 billion in original content in 2018 as it moves toward its goal of making 50 percent of its total library original.
By increasing the amount of Netflix-branded content and by owning the content rather than licensing it, Tullo says Netflix will limit the amount of damage a single scandal can have on the company’s brand and/or bottom line.
According to Midtown’s Google Trends research, Netflix investors can take comfort in the fact that “House of Cards” passed the torch as Netflix’s most popular show well before news of the Spacey scandal broke. Tullo says the company’s hit sci-fi show “Stranger Things” is now 200 to 300 percent more popular than “House of Cards.”
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