Netflix Resurrected Arrested Development. Next Up: Television Itself

The New rules of the Hyper-Social, Data-Driven, Actor-Friendly, Super-Seductive Platinum Age of Television:
Rules 9 & 10

So when Arrested Development creator Mitch Hurwitz decided to listen to his fans and revive the series, Net­flix was interested. It was just beginning to develop its own original programming and was willing to pay up for marquee content. It outbid Showtime for the right to revive the show; it agreed to pay about $3 million per 30-­minute episode, about as much as it costs AMC to make an entire hour of Breaking Bad. In May Net­flix will release all 14 new episodes of Arrested Development at once.

It won’t be the company’s first foray into high-profile programming—its mobster-in-Norway dramedy, Lilyhammer, debuted in 2012, David Fincher’s House of Cards arrived in February, and ­torture-porn auteur Eli Roth’s werewolf saga, Hemlock Grove, will come out on April 19. Orange Is the New Black, a women’s-prison series by Weeds creator Jenji Kohan, is due this summer.

But those are all fairly traditional in structure. Arrested Development is exploring the more playful, outré structural possibilities offered by the new platform on Net­flix. Each episode will cover events from a different character’s point of view, like a com­edic Rashomon. There will be moments and Easter eggs that will make sense only in retrospect. There will be a suggested viewing sequence, but it will be pos­sible—even rewarding—to watch out of sequence. Cross describes the new structure as being “like if you could mash up a Venn diagram with a nautilus shell. And then put that inside a Möbius strip.”

Hurwitz may not have all the time or money in the world, but he does have unprecedented freedom. Because Net­flix doesn’t have to worry about commercial breaks or time slots, he can make episodes of variable lengths that can run in any order. (He even briefly considered designing the new season as a choose-your-own-­adventure story.) He can make television built to be binged. “In its purest form,” he says, “a new medium requires a new format.”

Ten years ago netflix was a fledgling DVD-by-mail business, trying to take over video rentals one red envelope at a time. It began streaming video only six years ago, when most of its attention was focused on ­trouncing Blockbuster. It was just two and a half years ago, in December 2010, that Net­flix began to invest more resources into its streaming than its mail service. And a year and a half ago, CEO Reed Hastings’ aborted idea to spin off his company’s DVD arm into something called Qwikster resulted in outrage, mockery, the loss of 800,000 customers in one quarter, and a catastrophic drop in stock price. Today three times as many ­Americans subscribe to Net­flix’s streaming service as to its DVD-by-mail offering, and about 70 percent of what they watch is television. Overall, 33 million subscribers stream more than a billion hours of Net­flix content every month, using one-third of peak US bandwidth to do so.

Streaming will one day make DVDs obsolete. But for now Net­flix loses money every time it converts a DVD renter into a streamer. Thanks to the high cost of licensing content and delivering streams, Net­flix makes a profit of just about $4 per quarter off each US streaming customer, versus about $15 from every DVD subscriber. For Net­flix to thrive, it needs to increase the number of customers who are paying that less profitable rate. But with more rivals entering the fray, competition is fierce. Apple, Amazon, HBO, Hulu, Sony, Microsoft, and Intel are all now bidding for the same content and eyeballs that Net­flix is. And so Net­flix faces a quandary—how can it distinguish itself to attract new subscribers and retain existing ones?

To answer that question, the company is taking a page from HBO, Showtime, AMC, and nearly every other prestige cable company that has emerged over the past decade. Those channels began by airing movies. Then they began paying for higher-­quality movies. Eventually they started making their own TV shows. The strategy paid off: In 1999, the year The Sopranos launched, HBO had 24 million subscribers; in 2007, when the series ended, it had 29 million. In 2008 Showtime elected not to renew several film deals and began investing heavily in original shows. Since 2009, on the strength of series like Homeland, its subscriber base has grown from 17 million to 22 million. Hoping for similar results, Net­flix is investing about $300 million in original programming over the next three years, 5 percent of its $6 billion content budget for that period.