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    Flush with success, Netflix jousts with HBO

    “House of Cards” was one of the big stories in television last year, and its highly anticipated second season was released with much fanfare Friday.
    Nathaniel E. Bell/Netflix via AP
    “House of Cards” was one of the big stories in television last year, and its highly anticipated second season was released with much fanfare Friday.

    NEW YORK — On the night of the Golden Globes ceremony last month, Netflix and HBO threw dueling parties at the Beverly Hilton hotel. Bono and Julia Roberts mingled in a tent as Netflix, the streaming service, joined forces with Weinstein Co. and celebrated a small piece of history: its first Globe, for “House of Cards,” its splashy entrant into original programming. At HBO’s party, Matt Damon and Lady Gaga sipped drinks as the cable network toasted its two awards, pushing its total to 101.

    If there is a rivalry, it is by many measures a mismatch, certainly in terms of creative achievement (HBO has also won 463 Emmys, to three for Netflix). But that has not stopped Wall Street and the entertainment media from salivating at the story line: Netflix, brash Silicon Valley interloper, driven by metrics and technology — not to mention a checkbook that makes seasoned Hollywood players blush like teenagers — takes on HBO, East Coast establishment player, in the rarefied and profitable world of quality TV.

    The competition is energizing the medium. Cable networks like HBO and Showtime and streaming services like Netflix and Amazon Prime are spending lavishly on programming and embracing new technologies, giving producers incentives to take creative and financial risks and generating an upward spiral in quality.


    The result, said Mike Vorhaus of Magid Advisors, a consulting firm, is “an arms race in programming.” Both Netflix and HBO are “seeing the best pitches from the best people,” said Rick Rosen, head of the TV division at William Morris Endeavor.

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    Netflix has a market value of $26 billion, a share price that has more than doubled in the last year, and 33.4 million US subscribers, 5 million more than HBO has domestically. This month, Netflix borrowed $400 million to finance an aggressive expansion in Europe. “House of Cards” was one of the big stories in television last year, and its highly anticipated second season was released with much fanfare Friday.

    HBO made $1.8 billion in operating profits in 2013, compared with Netflix’s $228 million. It has an estimated 100 million subscribers worldwide and a trove of content that is the envy of the entire industry.

    Jeffrey Katzenberg, CEO of DreamWorks Animation SKG, played down the idea of rivalry. “The fact is that Netflix has exploded in its success, achieved what really three or four years ago people would have said was an impossible level of subscription, and HBO has gone up, too,” he said. “I think there’s a fiction here that somehow Netflix gains are HBO losses.”

    But to services like HBO and Netflix that are supported by subscriptions, not advertisers, talk means buzz, and buzz draws customers. That is why Netflix is making noise, constantly comparing itself to a more established brand.


    Ted Sarandos, Netflix’s chief content officer, put it plainly a year ago: “The goal is to become HBO faster than HBO can become us.”

    Reed Hastings, CEO of Netflix, is routinely provocative. In a recent earnings call, he tweaked his counterpart at HBO, Richard Plepler. Asked about HBO’s endorsement of password-sharing for its streaming service, HBO Go, Hastings joked that perhaps Plepler would not “mind me sharing his account information.”

    Plepler is a politically connected executive who came up through the corporate ranks and attends White House dinners. Hastings is a Silicon Valley entrepreneur who has a master’s degree in computer science from Stanford.

    Netflix uses reams of data to make big bets on original content. HBO continues to follow its gut and experience, and to draw on longstanding relationships with industry stars.

    “House of Cards,” Netflix’s most lauded original production, was delivered nearly fully formed — with two scripts and a comprehensive outline of its plot, writers, and the director David Fincher attached — for about $200 million.


    “I think they’re very surgical in their approach,” said David Glasser, president of Weinstein Co., which will air “Marco Polo,” about the explorer, on Netflix this year. “You know very clearly the vision they have.”

    People familiar with HBO said it reviews a larger quantity of pitches, with 1 in 5 making it to the pilot stage, and usually only after close consultation with development executives. Of the pilots, about 60 percent will be aired. That model, one person said, allows it to develop lesser-known talent like Lena Dunham, the creator of “Girls.”

    The channel’s relationship with the creative community ensures it will continue to prosper, Plepler said. He cited “the line at the door of people who want to do things with HBO.”

    As Netflix moved aggressively to present original content, however, it became a threat to some of the very companies it relied on for its movie library. Studios toughened their negotiations, and a deal with Starz expired in 2012. Netflix now has its own deals with some studios. HBO has deals with four Hollywood studios locked in for several years, Plepler said, and about 78 percent of HBO viewing is in movies.