Netflix Buries the Rayburns, but It Knows What It's Doing

By Markets Fool.com

Image source: Netflix.

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It doesn't happen often, butNetflix (NASDAQ: NFLX)is pulling the plug on one its more recognized shows. The Hollywood Reporter revealed yesterday that the third season of Bloodline will be its last after it airs next year. The gritty drama about a resort-owning family with dirty little secrets has been a critic darling and Emmy nomination magnet, but no television show lasts forever.

Tensions could be rising between Netflix and show producer Sony (NYSE: SNE). The Hollywood Reporter spells out what could be the many bones of contention between the two parties.Netflix shortened the third season from 13 to just 10 episodes. The suggestion here is that Sony's show was growing to be too expensive. Netflix also reportedly cut its licensing fees on the show.

Contrary to popular belief, sequels get more expensive. The stars and creators demand more money, expecting to be rewarded for their success. Talent can't be easily replaced, and that adds to leverage in negotiations.

Another theory is that the costs to film in Islamorada were getting out of control. Florida has scared away production crews in recent years with the elimination of tax credits, financial incentives that exist in other areas to attract movie and TV show productions. However, even Netflix content chief Ted Sarandos is willing to live with the extra costs for the sake of authenticity.

"Tax credits are a nice offset but if it doesn't fit the creative, we're not going to chase it," he said earlier this summer, discussing Daredevil sticking to Hell's Kitchen.

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Putting the burn in Rayburn

Fans of the show aren't happy about the cancellation news, of course. They've followed the dysfunctional Rayburn family through 26 episodes, and they view Netflix as the video platform that offers second chances instead of taking first opportunities away.

Netflix is the one breathing new life into The Killing and Arrested Development, two cult faves that traditional TV initially discarded. Will a network or another streaming service turn the tables by ponying up for a fourth season come 2018? It wouldn't be a surprise in this cutthroat market with so many players trying to stand out.

Outside of Lilyhammer -- Netflix's first original series -- and Hemlock Grove, Netflix has stuck with its first-run shows. Hemlock Grove didn't garner enough critical praise, but Lilyhammer actually had a higher Rotten Tomatoes score from both critics and audiences than Bloodline.

Emmy awards and strong reviews aren't enough. The math has to work, and we're not just talking about the production costs. Netflix is reportedly shelling out $10 million per episode for The Get Down, another Sony property.

For Netflix it is ultimately all about viewership. We don't have those numbers. Netflix does. It's the one that knows the number of people watching its shows and the retention rate of those viewers. It's the lone authorized miner in this data mine.

There are plenty of third-party researchers with some interesting peeks into the business. Analytics specialist 7Park Data recently revealed that an estimated 2 million different Netflix accounts watched Adam Sandler's The Do Over in June, making it the most-streamed movie in the world for May and June of this year. The first two original movies that Sandler has delivered to Netflix have been critical duds, but a lot of people are still watching them. Netflix knew what it was doing when it signed a multimovie deal with the comic actor. As much as it pains me to admit it -- as a Bloodline fan myself -- Netflix probably knows what it's doing.

If the rewards would outweigh the costs there's little doubt that we'd have 13 episodes next year and as many seasons as plausible beyond that. Netflix has the data that we can't see. Like the Rayburns, it's got some secrets that it would prefer to keep to itself.

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Rick Munarriz owns shares of Netflix. The Motley Fool owns shares of and recommends Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.