Now You Know Why Spotify Has Plans To Take On Netflix And HBO

In March, we reported that Spotify is out pitching potential partners on a plan to offer a streaming video service with premium, original content.

The source who told us about this pitch said Spotify "wants to do the House of Cards thing that Netflix is doing."

Now we know why.

Netflix reported earnings last night, and they have investors going gaga.

The company's stock is up 25%!

Many credit the "House of Cards thing" for Netflix's success.

Briefly, here is the business case for a show like House of Cards on Netflix or Game of Thrones on HBO:

• The show costs a lot of money to produce.
• But that's OK, because the money goes toward making the product good and bringing in star actors and star directors.
• The quality and the star power are generate buzz, which will cause people to sign up for subscriptions for Netflix or HBO.
• (Think about the people who started paying for Showtime this year for "Homeland.")
• Those new subscribers are too lazy to quit Netflix, HBO, or Spotify after they finish watching the show they signed up for. So they stay members for 10 years, paying $120/year or more.
• (Yesterday, Netflix CEO Reed Hastings said only 8,000 people quit Netflix after watching all of House of Cards. Netflix has 30 million subscribers.)
• Over a long time, millions of people paying $120/year more than recoups the cost of making the high quality show.