MRC's House of Cards

28 Pages·1.975 MB·English

by  Anita Elberse

9-515-003
REV: JUNE 6, 2019
ANITA ELBERSE
MRC‘s House of Cards
Asif Satchu and Modi Wiczyk, co-chairmen and co-chief executive officers at independent
production company Media Rights Capital (MRC), took a moment to reflect on one of the more unusual
twists in their careers in Hollywood. It was March 13, 2011, and the two best friends and former
Harvard Business School classmates had just heard two visiting Netflix executives make an offer for
what was arguably MRC’s most ambitious project to date, a television series titled House of Cards.
Netflix, in its first major move in original programming, had proposed to license the exclusive first-
window rights to two full seasons of thirteen episodes each. Moreover, Netflix had promised MRC
could retain ownership of the content and would have total creative control. “I can’t think of any other
deal of this size made by an independent studio for decades,” said Wiczyk.
MRC was a relatively new player in the entertainment industry. It had established a reputation for
what Wiczyk called “director-driven projects” in film, bursting onto the scene with the Academy-
Award-winning Babel in 2006, and following it up with titles such as Brüno, The Invention of Lying, and
The Adjustment Bureau. In 2008, Satchu and Wiczyk had decided to branch out and produce content for
television, too. The company had quickly become more ambitious in the size of its investments in that
sector, but House of Cards promised to take things to another level entirely.
The tale of politician Francis Underwood’s masterful scheme to vault himself to the highest circles
of power, House of Cards was based on a critically acclaimed mini-series of the same name that had
aired in the UK in the 1990s, which in turn was an adaptation of a bestselling novel. MRC had secured
the rights, assembled a highly talented team of the filmmakers David Fincher, Joshua Donen, and Eric
Roth as executive producers, Beau Willimon as writer, and Kevin Spacey as lead actor, and had enabled
them to develop their ideas for well over a year.
In March 2011, MRC executives had begun to pitch the series to each of the major premium cable
networks in the US—“the obvious candidates,” as Wiczyk put it—including AMC, FX, HBO,
Showtime, and Starz. The executives had approached Netflix only to prepare for a possible second
revenue window in video-on-demand, but to their surprise Netflix executives had quickly made it
known they were prepared to make a bold step into the world of original programming.
As thrilled as Satchu and Wiczyk were about Netflix’s offer, accepting it—and thus forgoing a
sought-after one-season offer from a traditional premium cable network—raised major concerns, for
instance about MRC’s ability to secure international rights fees, to obtain sufficient marketing support,
to gain the necessary credibility in the marketplace, and to satisfy artists and other key constituents. As
Satchu and Wiczyk walked out of the conference room at their Beverly Hills office and said goodbye
to their guests, promising them a swift decision, they debated what to do. Was Netflix the right partner
for MRC? And if so, how should they respond to the offer?
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The Television Landscape
By 2011, the U.S. television industry was a $200-billion industry.1 Of the 117 million households in
the U.S., 98% owned at least one television set, 90% subscribed to basic cable (for about $50 per month),
52% paid for premium cable content for additional fees, and 75% owned a computer with Internet
access. On average, Americans watched nearly five hours of television per day.2 Three types of
television networks—broadcast networks, basic cable networks, and premium cable networks—
distributed the programs they viewed, while online services such as Netflix increasingly played a role
in giving consumers access to video content (see Exhibit 1).
Broadcast Networks
Broadcast networks, such as ABC, CBS, FOX, and NBC (known as “the big four”), provided
programs to hundreds of so-called “television stations” across the country, which in turn distributed
them to local households. Some of these stations were owned and operated by the networks
themselves, while others were “affiliates” owned by a third party. Broadcast networks primarily relied
on advertising revenues, which they generated from selling national and local spots on their own
stations, and from selling national spots on affiliate stations (while the affiliate stations kept the
revenues from local spots).
In 2010, advertisers paid nearly $25 billion to the broadcast networks, accounting for a third of all
television-advertising expenditures.3 That stemmed from the popularity of the broadcast networks,
which could draw tens of millions of viewers for their top shows. But the television industry was
rapidly evolving, and with new channels and technologies giving viewers more options, the broadcast
networks had seen their market position weakened. Broadcast ratings had declined more than 20%
since the 2000-2001 season (see Exhibit 2).
Basic Cable Networks
Cable networks came in two types: basic and premium cable networks. Dozens of basic cable
networks, including Comedy Central, Food Network, Lifetime, Syfy, TBS, TNT and USA, generated
revenues from both advertising sales and license fees paid by cable and satellite operators (such as
Comcast and DirecTV) for the right to distribute their content. Although the reach of individual cable
channels was generally smaller than that of any of the big four broadcast networks, collectively the
basic cable networks now produced higher ratings than the broadcast networks (also see Exhibit 2).
Basic cable networks were often associated with “syndicated content,” meaning content that had
run on the broadcast networks first (such as the series Friends, a popular NBC series in the 1990s, now
airing on TBS). But many basic cable networks also produced original shows of their own. Some, in
fact, made significant investments in high-quality scripted programming more often associated with
premium cable networks—FX and AMC were two notable examples.
FX In 2002, the basic cable network FX, then mostly known for reruns of Buffy the Vampire Slayer
and X-Files, made a bet on a high-end original drama series called The Shield. Defying the rules of
conventional police dramas, The Shield profiled a morally ambiguous group of inner-city police officers.
Episodes cost over $2 million to produce, much higher than most cable series at the time.4 The show
premiered to 4.8 million viewers, making it the most-watched debut of any scripted basic-cable series.5
FX rapidly became a top-ten network among adults in the 18-to-49-years-old demographic. From 2002
to 2007, the year before The Shield's run ended, FX’s advertising revenues more than doubled, from
$142 million to $322 million.6 The show won critical acclaim, too: The Shield was awarded a Golden
Globe for best dramatic television series, and Michael Chiklis became the first actor from a basic-cable
series to win an Emmy for outstanding lead actor in a drama series. “FX had been showing re-runs of
[the 1980s sitcom ] Married with Children for ten years,” said Wiczyk. “Then they have one good show
with The Shield, and bam, they are a big network.” By 2011, FX had followed up with other provocative
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dramas, including Nip/Tuck, Rescue Me, and Sons of Anarchy.
AMC American Movie Classics (AMC) underwent a similar transition. Known for its
comprehensive library of classic and modern films, AMC dove into original scripted programming in
2007 with the launch of Mad Men, a show about advertising executives in the 1960s. Mad Men’s audience
grew from one million television households during its first season to three million in its fourth season,
and won many industry awards, including the Emmy for outstanding drama series—three years in a
row.7 In 2009, airings of Mad Men produced a modest $2 million in advertising revenues, but also
seemed to have helped AMC secure higher license fees.8 Before Mad Men, cable operators were
rumored to pay AMC 20 cents per cable subscriber per month; after four seasons with the hit show,
AMC earned 40 cents.9 AMC went on to launch Breaking Bad, a drama series about a high-school
chemistry teacher turned methamphetamine dealer, and The Walking Dead, a zombie horror series. In
2010, the latter show became the most watched drama series in basic-cable history.10
Premium Cable Networks
Premium cable networks such as HBO, Showtime, and Starz, were free of advertising and relied on
subscription fees paid by viewers—an additional $10 or $20 that came on top of the basic-cable package.
Initially, these networks primarily showed feature films in an exclusive window after their theatrical
run, but in recent years the premium cable networks had invested heavily in original series.
HBO A subsidiary of Time Warner, HBO set its reputation for bold, artistic, and sophisticated
programming with its iconic show The Sopranos, a drama about an Italian-American mafia family.
Launched in 1999, the series collected 111 Emmy nominations and 21 Emmy awards during its six-
season run.11 The network solidified its positioning, captured by the tagline, “It’s not TV, it's HBO.,”
with a strong line-up of subsequent series including The Wire, Entourage, and Game of Thrones. By 2010,
the network spent an estimated $1.5 billion on original programming.12 In pursuing its original content,
HBO tended to give writers, actors, directors and other cast and crew a greater level of creative freedom
than the broadcast and basic-cable networks. HBO was not afraid to order a second season when the
first was still underway so as to give a show sufficient time to build an audience—a practice most other
networks shied away from.
The strategy brought the network great critical acclaim: in 2010, for instance, HBO won 25 Emmys—
more than any other network.13 The strategy also helped HBO grow its business. By 2011, even if churn
continued to be a concern (about ten million U.S. households dropped the service each month, while
another ten million subscribers signed up each month), the network averaged close to 30 million U.S.
subscribers. HBO generated $4 billion in annual revenues, half of which it shared with cable and
satellite operators.14 In foreign markets, the network had around 40 million subscribers and was
expected to generate $1 billion in revenues in 2011.15
Showtime In the late 2000s, Showtime, a network owned by CBS Corporation, started to mirror
HBO’s strategy of investing heavily in premium original programming to supplement its feature-film
programming. Boasting the slogan, “TV. At Its Best.,” Showtime’s biggest hit was Dexter, a series
named after its protagonist, a police expert by day, vigilante serial killer by night, and a show that
blended suspense, action, comedy, and other genres. In 2010, a year in which Dexter drew 2.5 million
viewers and was renewed for six seasons, lead actor Michael C. Hall won a coveted Golden Globe for
best actor in a television drama.16 Scheduled to premiere in the fall of 2011 was Homeland, a
psychological thriller about a CIA agent and her relationship with a U.S. Marine Sergeant who has been
held captive by Al-Qaeda. The series was adapted from an acclaimed Israeli television series, Hatufim
(“Prisoners of War”).17 Showtime had an average of 19 million subscribers in 2010, up from ten million
in 2000.18
Starz Since its launch in 1994, the programming lineup of premium cable network Starz, owned
by Liberty Media, consisted almost entirely of Hollywood movies. But in 2008, Starz produced its first
original drama series, Crash. It was based on the 2005 film Crash, an ensemble drama about race
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relations, which had won three Academy Awards, grossed close to $100 million at the box office, and
was once the most-rented DVD in Netflix’s history.19 However, Crash never gained much traction as a
television series. The show had fewer than 100,000 viewers at the end of its second season, and did not
continue for a third.20 The offbeat comedies Party Down and Gravity did not fare any better.21 Starz’s
2010 gladiator epic Spartacus drew a much larger audience, pulling in over a million viewers.22 Camelot,
another big budget series thought to cost $7 million per episode, was due out in 2011.23 Starz averaged
17 million subscribers in 2010.24
Online Video Services
The growing ubiquity and popularity of high-speed Internet had given rise to a range of new ways
to watch audiovisual content. By early 2011, American Internet users spent an average of 30 minutes a
day watching videos online.25
They could do so through three types of services, which in 2011 largely served as secondary
windows for previously aired television content (also see Exhibit 1). First, in what was known as
electronic sell-through (EST), consumers could purchase videos for streaming or downloading through
online stores such as Amazon, Apple’s iTunes store, and Google’s The Android Market. Second,
consumers could freely watch videos using advertising-supported video-on-demand (AVOD) services
such as YouTube, Hulu, and broadcast-network-branded websites (e.g., ABC.com). Hulu, a joint
venture between NBCUniversal, Disney, and News Corp. (which together owned a range of broadcast
and cable networks), provided the widest range of premium, professionally produced television
content, including shows such as House, The Office, and The Daily Show with Jon Stewart. Hulu had
roughly 30 million users of its free service. 26
A third category, subscription video-on-demand (SVOD) services, included Amazon Instant Video,
Hulu’s paid service, Hulu Plus, to which 1.5 million users subscribed for $7.99 per month,27 Netflix,
and various cable-network-branded online channels. For instance, consumers who subscribed to HBO
and Showtime through their cable operator could access these networks’ online offerings, HBO Go and
Showtime Anytime. Like their corresponding networks, both did not show advertisements. Amazon
Instant Video was included in the online retailer’s $79-per-year Prime free-shipping service, and
offered 5,000 movies and television shows to about five million subscribers.28 The largest player in this
category, however, was Netflix.
Netflix Founded in 1997, Netflix had originally built a business delivering DVDs by mail. Users
paid a monthly subscription fee (which depended on how many DVDs a person wanted to be able to
hold at any given time), created a profile, set up a queue of DVDs they wanted to watch, and received
DVDs roughly in the order of that queue. Its subscriber base grew from under one million in 2002 to
over six million in 2006.29 In 2007, around the time the company delivered its one billionth DVD, Netflix
began to transition towards on-demand streaming, which allowed users to instantly watch an
assortment of movies and television series through Netflix’s site.30
Initially, Netflix’s collection of video-on-demand movies primarily featured back-catalog titles.
Netflix could not compete with the premium cable networks, which had bought the rights for movies
and television shows from the major Hollywood studios in comprehensive, long-term deals worth
hundreds of millions of dollars (also see Exhibit 3). Also because broadcast and cable networks often
had locked up subsequent rights, Netflix was not able to stream some movies until nine years after
their theatrical release.31 But in 2008, Starz announced it would make 2,500 of its movies, television
shows, and other content available via Netflix. The deal included movies that were a part of Starz’s
exclusive first-run agreements with Disney and Sony Pictures that covered such movies as Spiderman
3, No Country for Old Men, and Pirate’s of the Caribbean: World’s End. With the deal between Starz and
Netflix, which cost the latter an estimated $30 million per year, Netflix subscribers could stream these
movies as soon as they made their debut on Starz, at no additional charge.32 Starz’s original series Crash
was also included in the deal.
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By March 2011, Netflix reported a subscriber base of 24 million users in the U.S. alone. Its revenues
were $2.2 billion in 2010, up from under $1 billion in 2006 (see Exhibit 4).33 More than 60% of Netflix
subscribers streamed content online, where they could choose from an estimated 20,000 movies and
television episodes that were available for instant viewing.34 Those subscribers who only wanted to
watch online paid a subscription fee of $8 per month. Netflix continued to sign more content deals. For
instance, it paid Warner Bros. $200,000 per episode for the rights to stream all one hundred episodes of
Nip/Tuck after the series had concluded its run on FX.35 With the availability of entire series, many users
were glad to partake in “binge viewing,” the act of viewing subsequent episodes for many hours in
one sitting. This allowed viewers to catch up on serialized shows before the next airing on television.
In September 2010, Netflix began to expand internationally by offering its unlimited-streaming plan in
Canada; the company was expected to report 800,000 new subscribers and $12.3 million in revenues
from that market for the first quarter of 2011.36 Netflix had plans to expand to other international
markets in the second half of 2011.
Selling Television
Each year, executives from television production divisions of the major Hollywood Studios (such
as ABC Studios, which belonged to Disney, and Warner Bros. Television, which belonged to Time
Warner) and from independent production studios (such as Endemol and Imagine Entertainment)
pitched hundreds of ideas for new television shows to broadcast and cable networks.
Broadcast versus Cable
For the broadcast networks, the cycle was highly structured and similar each year. Production
companies pitched ideas and submitted scripts in the fall. The networks decided which scripts were to
be made into pilot episodes in January and February, providing funding for their development. Pilots
were produced during the next two months. In early May the networks made their picks for series for
the fall schedule based on those pilots and how they tested with audiences. That schedule in turn was
presented to advertisers at the annual “upfront market” during which the lion’s share of the advertising
space for the upcoming season was sold. Only a small fraction of ideas pitched made it through the
entire process; one industry estimate put it at 1%.37 And the majority of those new series were canceled
within their first season.
The broadcast networks had a tight grip on the creative process, explained Wiczyk: “When the
network buys the rights to a script, network executives play a role in picking the writer, the director,
and the cast, they provide notes on every draft, they work on budgeting and scheduling, and help make
the pilot. They are highly involved in all creative decisions.” He added: “No one says pilots aren’t
useful, but it’s clear that when you deal with the broadcast networks you subject yourself to the views
and decisions of a third party.”
Cable networks, and in particular the premium cable networks, had a more flexible approach.
“Premium cable networks are year-round developers,” said Joe Hipps, who as vice president of
television development oversaw the creative process for MRC’s television activities. “They will listen
to pitches for new shows throughout the year.” But even there, most ideas never made it to the screen:
“Out of all the pitches they receive, the cable networks might develop a hundred scripts over the course
of two years,” said Hipps. “Maybe ten of those developed projects will make it to the pilot stage, and
of those five might actually become series.” The misses were expensive, explained Wiczyk: “Pilots for
shows on cable networks can cost between $10 million and $20 million, while regular episodes tended
not to cost more than $6 million.”
Compared with broadcast networks, cable networks usually granted production companies a
greater degree of creative freedom. HBO and Showtime, in particular, were known for catering to high-
profile filmmakers such as Steven Spielberg and Martin Scorsese and writers such as Aaron Sorkin and
David Chase by taking a more hands-off approach. That method fit Wiczyk’s vision: “I believe in artists
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being accountable to their audience,” he said. “That manifests itself in thorough creative discussions in
the course of making films or television series. But those discussions should be with other artists—not
with executives.” Hipps agreed: “You never know, creatively, what is going to work. But with too
many cooks in the kitchen, ideas can easily get watered down.”
Deal-making
Television series were typically financed through common ownership, co-production, or deficit
financing.
Common Ownership First, oftentimes broadcast and cable networks acquired shows from
studios that belonged to the same company or conglomerate (as in the network ABC purchasing from
ABC Studios which also belonged to Disney). By some estimates, major Hollywood studios sold
between 60% and 75% of their programming within their corporate umbrella.38 At the same time,
however, it was not uncommon for production companies to license shows to networks belonging to
competing conglomerates. The hit show Two and a Half Men, for instance, aired on CBS (which was
owned by CBS Corporation) but was produced by Warner Bros. Entertainment. HBO produced
virtually all of its shows in-house: In 2010, HBO owned 95% of the original programming it carried on
its channels.39
Co-Production Second, networks and studios could co-produce television series, making both
responsible for the production costs but also giving both a stake in the revenues of the series across its
different release windows. Co-production was a popular approach for premium cable channels. For
example, AMC’s The Walking Dead was co-produced by AMC Studios and three other production
companies.
Deficit Financing Third, the go-to method for independent production companies but also
frequently used by companies owned by the major conglomerates, studios could rely on “deficit
financing.” The practice involved a network paying the studio a license fee in exchange for the right to
air a series. The fee usually covered only between 60% and 80% of the cost to produce the series,
however, hence the term. The initial deal typically gave the network the rights to the “first window”
for a limited amount of time in the domestic market, while the studio retained ownership of the series
and could sell the rights for subsequent windows and foreign territories.
In either case, revenues after the first window—through sales in international markets, video-on-
demand and home video, and syndication—were crucial to a series’ overall profitability. Those
windows could be highly lucrative for a select few winners in the marketplace. For example, HBO had
secured $2.5 million per episode from international sales for Game of Thrones—easily making it the
network’s best-selling series internationally—before the series had even premiered in the U.S.40 HBO’s
True Blood: The Complete Second Season’s DVD sales reportedly totaled more than $40 million in the U.S.
in 2010.41 And while only 10% to 15% of first-run shows made it to syndication, the rewards could be
staggering: the comedies Friends and Seinfeld earned over $3 billion each in syndication.42
“You can lose a lot of money or make a lot of money,” observed Wiczyk. Liz Jenkins, MRC’s senior
vice president of corporate development and strategy, agreed: “All studios are trying to make their
business less volatile, but the problem is that the industry is driven by the whims of consumers. To
minimize your risk as a studio, you don’t want to accept a low rate for your deficit financing and hope
for syndication to bail you out—you want to get a reasonable rate of return in the first season.”
Media Rights Capital (MRC)
Media Rights Capital’s roots could be traced back to an independent study project at the Harvard
Business School. “Asif and I were both students in the Class of 1999. He was my hall mate and my
section mate,” explained Wiczyk, adding jokingly: “He had really good cereal, which is why we became
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best friends.” Having interned at independent film studio Miramax in the summer between his first
and second year, Wiczyk was fascinated by the question what it took to, as he put it, “unlock value” in
the film industry: “You need to have access to and understand an ocean of information in order to
properly evaluate films and film rights. I thought that if you could gather all that data and use it on
behalf of the artists, then you could build an interesting company where you could capture economic
value but also provide artists with control and independence.”
After graduating, Wiczyk joined the studio Summit Entertainment and later the talent agency
Endeavor (“I shot myself out of cannon in Hollywood in order to gather the necessary skillset,” he said)
while Satchu worked on his own start-up outside the field of entertainment, Suppliermarket.com,
which he sold after two years for $1.1 billion. Satchu went on to found Storage Now, which became
Canada’s third largest self-storage company, which he also sold. Then, in 2003, the two friends set out
to raise a modest amount of capital to get MRC off the ground. “Asif and I had been in constant contact
over the years and he was always quite engaged in the independent study idea,” recalled Wiczyk.
Satchu saw the entertainment business as a challenge: “First, there are very few entrepreneurs in
entertainment. Most people work at the major studios. The business is run by an oligopoly that is
focused on keeping new entrants out.” He added: “Second, whereas other businesses are very
numerically driven, in the entertainment business the numbers can lie. You have to make million-dollar
decisions based on scripts—on words on a page—and the range of outcomes is massive. There’s a much
larger human component to it than anything I had done before.”
Films
MRC’s first movie was Babel, a multi-narrative drama that was directed by Alejandro González
Iñárritu, written by Guillermo Arriaga, and featured a high-profile cast including Brad Pitt, Cate
Blanchett, and Peter Wright. First screened at the Cannes Film Festival and Toronto International Film
Festival in 2006, and distributed by major Hollywood studio Paramount, the film was made for a $25-
million production budget and generated $34 million at the domestic box office and $101 million
internationally.43 Babel was nominated for seven Academy Awards, including Best Director, Best
Picture, and Best Supporting Actress, and won for Best Original Score. “Babel was a great way to start
for us,” said Wiczyk. “At the center of it is an incredibly talented director—a really strong filmmaker
with a specific vision of what they want to make.”
By 2006, Wiczyk and Satchu decided to raise more capital. ”With our first few projects, we had built
credibility with artists and investors,” said Wiczyk, who resigned at Endeavor to work at MRC full-
time. The two became co-chief executive officers. Investments from Goldman Sachs, AT&T, WPP and
ABRY Partners gave MRC the ability to spend $500 million on new content.44 “We still had hardly any
staff and had a lot to learn about how to make movies. We always said ‘We had no idea how the
celluloid got to the projector,’” said Wiczyk. “But we had become an entity that could produce movies
in an atmosphere that was friendly to filmmakers.”
Among the films MRC released in subsequent years were: Brüno, a raunchy “mockumentary” about
a gay Austrian fashion journalist starring Sacha Baron Cohen (fresh off his wildly popular comedy
Borat), The Invention of Lying, a romantic comedy about a fantasy world in which everyone tells the
truth that featured Ricky Gervais as lead actor and co-producer, Devil, a supernatural horror story
directed by M. Night Shyamalan, and The Adjustment Bureau, a science-fiction thriller about a politician
torn apart from his love interest by a mysterious organization starring Matt Damon and Emily Blunt.
In the pipeline were 30 Minutes or Less, an action comedy starring Jesse Eisenberg, Danny McBride, and
Aziz Ansari that was scheduled to be released later in 2011, Ted, a comedy co-written and directed by
Seth MacFarlane and starring Mark Wahlberg and Mila Kunis, and Elysium, a science-fiction film
written and directed by Neill Blomkamp, also starring Matt Damon.
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Television
In 2008, Satchu and Wiczyk decided to produce content for television, too. “We saw that there was
strong growth and that margins were massive in cable television. Filmmakers, who until then did not
drive enormous value in television, were becoming extremely valuable to the networks,” recalled
Wiczyk. “We said, ‘We’ve already built a practice of supporting filmmakers—they’re already working
with us—so why don't we ask them if they want to be in television, and make it attractive for them by
enabling them to develop scripts, and budget and cast shows?’” He added: “We know our guys don’t
want to waste their time and creative energy on a pilot. So we said ‘Why don't we construct the script
and go to the networks and ask for a full-season order. If nobody wanted to do that deal, that’s okay—
all we would lose was our development money.” Wiczyk described MRC’s strategy as one that was
“about making television safe for filmmakers.”
MRC took on the production of broadcast network The CW’s entire Sunday-night block, including
the reality show In Harm’s Way and the dramas Valentine and Easy Money. However, the latter were
canceled in the fall of 2008 and The CW eventually changed the direction of their Sunday lineup. MRC’s
next forays into television included the sitcom Rita Rocks on cable channel Lifetime, which lasted two
seasons, and Mike Judge’s animated comedy The Goode Family on ABC, which lasted one season.45 Two
other animated shows—The Life & Times of Tim and The Ricky Gervais Show—were “straight-to-series”
orders for HBO. Both developed a loyal following, were in their third seasons by March 2011, and
performed well in ancillary windows. “We’ve become more ambitious in the size of investments in
television,” noted Hipps. “For us, it’s all about working with people with talent.”
Online
MRC had even experimented with online channels. It partnered with MacFarlane to launch an
animated web series called Seth MacFarlane's Cavalcade of Cartoon Comedy, which consisted of fifty one-
to-two-minute episodes that were distributed over Google’s AdSense network, a collection of websites
hosting Google’s ads, and were sponsored with pre-roll advertisements. Each time a viewer clicked on
an episode, advertisers paid a fee that was split between MacFarlane, Google, MRC, and the site hosting
the video. The first video, launched on MacFarlane’s YouTube channel, received three million views in
just two days, and the series landed MacFarlane a Webby as Film and Video Person of the Year. But
not all results were favorable, remembered Wiczyk: “The bottom line on this project was best-in-class,
but the order of magnitude was pretty disappointing. We could not have done a better job with the
execution, but realized that film and television are a better use of an artist’s time. So that’s when we
talked to Seth about Ted and other films. I thought, ‘If that’s the best we’re going to do, online should
not be a focus.’”
MRC in March 2011
As of March 2011, MRC had 25 full-time staff members, including assistants (see Exhibit 5 for its
track record). “We love being a boutique. For artists, it is pretty easy to start a conversation with us,”
said Wiczyk. “We want to make two to three movies a year, and two to three television series a year.
We’re built for that. The scarce resource is great filmmakers.”
He described MRC as being “director-driven” from the start: “Directors generate the ideas. They
are the ones who have the vision for a piece of content and they are the ones who can control the costs.
They are the leaders.” Contracts with filmmakers were designed to align interests, Wiczyk explained:
“They are directly and transparently rewarded for being efficient. We motivate them to eliminate
waste. We have a track record of saying ‘Save me a dollar, I’ll get you 50 cents.’” He added: “If an artist
wants to get paid for an idea, they typically sell it to a studio that will then own it and dictate all the
terms and conditions. But at MRC, artists can get paid to develop the idea on their own, so they can
budget and cast it themselves. Then when it’s time for the idea to be realized, they can control it, and
they can much more carefully dictate the terms of how it gets made.” Giving artists a great deal of
creative freedom was part of the philosophy, Wiczyk clarified: “We think that the difference between
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us and an artist is that between an orderly and a brain surgeon. I can wheel the body in, but I should
definitely not be handling the scalpel. If content doesn’t test well I can say ‘the ending doesn’t work,’
but I can’t tell a director how to fix it.”
Developing House of Cards
The idea to pursue the rights for House of Cards came from an intern who had seen the critically
acclaimed 1990s four-episode mini-series that had aired on British public broadcaster the BBC. “We
had a company-wide meeting to brainstorm ideas, and one assistant jumps up and says ‘There was this
show in England, and all these modern anti-hero shows are just borrowing from it,’” recalled Wiczyk,
who admitted he “didn’t pay attention to it” at the time: “Months went by. And finally, I was getting
ready to go on a flight, he gave me a DVD and urged me to watch it on my laptop. I board the plane,
start watching the series, and within twenty minutes I could tell why it was a hit. It was riveting. So I
immediately investigated the rights situation, asking myself ‘how could this not be sold already?’”
Wiczyk learned that the British show had been an adaptation of a novel written by Lord Michael
Dobbs, Margaret Thatcher’s former chief of staff. Dobbs reportedly wrote House of Cards while on
vacation and emotionally recovering from the experience. Andrew Davies in turn adapted Dobbs’ book
into a mini-series for the BBC in 1990. Like the book, the show followed Francis Urquhart, a fictional
Chief Whip of the Conservative Party, as he schemed and manipulated his way to power. Many
regarded the program as one of the best British dramas ever.46 “They called Francis Urquhart ‘the
original anti-hero,” knew Hipps. “The show was a phenomenon,” Wiczyk agreed. “But Dobbs had
never been willing to license the rights to a large Hollywood studio.” In June 2008, Satchu and Wiczyk
flew to the UK to meet with Dobbs, Davies, and their agents. They agreed to license the rights to MRC.
“We pointed out that we were small and focused on protecting artists’ interests, and I think our
reputation helped us,“ said Wiczyk.
The MRC executives next presented the idea to David Fincher, director of the film The Social Network,
with whom they had a production deal in place (in which MRC paid Fincher a certain annual fee, and
he in return was obligated to present movies he wanted to produce to MRC first). Fincher was
immediately enthusiastic about the idea, and joined the project as an executive producer in July 2009,
and brought in film producer Joshua Donen and Academy-Award-winning screenwriter Eric Roth as
co-executive producers. “I knew once we had those people attached, we needed to find a great writer.
That was my job,” said Hipps. He added: “At this point, the big studios would have pitched the concept
to the networks, expecting the network to tell them how to write the script. But we decided to spend
some development money ourselves, without a broadcaster. Normally you wouldn’t dare write a script
unless you knew you had a home for it.”
Hipps thought of Farragut North, a political play he had been impressed with, and invited its young
writer Beau Willimon to meet the House of Cards' executive producers. “They all loved each other,”
Hipps remembered, prompting him to hire Willimon in January 2010 to write the pilot script and ‘show
bible.’ “The bible is a document that outlines how the whole first season might go, with the
understanding that once you actually start writing you may decide to go in a slightly different
direction,” Hipps explained. “It is designed to give you a robust understanding of the characters and
the world they inhabit, and of possible story lines.” The team took a year and a half to develop the
script and bible (see Exhibit 6 and 7 for some impressions). Wiczyk put the development cost in the
high six figures: “We paid for the writer, for the producers, for the location scouts, for budgeting, for
artist renderings, and for other services by production designers and cinematographers.” He added:
“It’s unusual to take so much time to develop this kind of thing. But we wanted to give them the time
to make it right, and position ourselves to get a full-season order.”
In September 2010, the MRC executives received a first draft of the pilot script. “At that time, Fincher
indicated he didn’t just want to produce, but also direct the first two episodes. That’s a big deal. That’s
a very big deal,” said Wiczyk. “So we said ‘If we’re going to be having feature-film directors in
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television, why don’t we think about feature-film actors in television, too?’” Kevin Spacey quickly
emerged as a leading candidate for the lead role as Congressman Francis Underwood on his ruthless
quest to gain power in Washington. “He had worked with Fincher on The Social Network and Se7en, and
was a fan of the original House of Cards,” said Wiczyk. “Once the idea of Kevin Spacey came up, it was
“wow”—nobody could see anyone else in the role,” Hipps recalled. “Good artists attract good artists,”
said Wiczyk. “Now that we had a great team and solid plan for the show in place, we said ‘let’s talk to
the networks and find a home for House of Cards.’”
Finding a Deal
In March 2011, MRC took the House of Cards package—the script for the first episode, the show bible,
a proposed budget and schedule, and the information that Fincher was attached to direct and Spacey
attached to star—to the marketplace. The objective was to “find a network that had the necessary scale
and a respected reputation, and was willing to commit to making a full season,” said Hipps. The MRC
executives set up so-called “pitch meetings” with each of the major premium networks, including
AMC, FX, HBO, Showtime, and Starz. “We send them the materials in advance, and then we’ll be in a
room for half an hour to an hour with each network, talking about ideas for the show and its
production,” said Hipps. On behalf of the network, the head of programming and several other
executives usually attended the meeting; on behalf of MRC, Hipps, Wiczyk, Satchu, Willimon, Fincher,
and Roth attended. “The first question everyone always asks after seeing the script for the pilot is,
‘What’s next?,’” said Hipps. “They want to see where the show will go, and whether it has legs—they
want to understand the themes. Questions related to the production follow from there.”
Hipps, Jenkins, and others at MRC kept close tabs on the networks throughout the year so they
were well prepared for these meetings. “We track what’s on their slate, what is in their development
pipeline, and what they might be looking for,” said Hipps. “And we talked to partners like HBO as our
ideas for House of Cards were coming together—things like ‘Willimon will write,’ ‘Spacey will star’—
just to keep them warm, as they were a place we were targeting.” Hipps added: “Some networks drop
out during those pitch meetings, for instance because the costs are too high for them, or because they
already have something that’s just like it. Starz had a political drama in the pipeline and therefore
bowed out.” The other cable networks all expressed a strong interest in bidding for the rights to the
show, Wiczyk said: “We knew they were preparing full-season orders.”
The MRC executives had also reached out to Netflix. “We wanted to do a deal with a cable network,
and then partner with someone else for a second window—we wanted to have that deal in place before
we started production,” said Wiczyk. “Netflix had sworn up and down that they were not interested
in original content. So we wanted to see if they had any interest in being a second window before
entering an auction, which is why we sent them the materials a few weeks early.” What came next was
a “total surprise,” said Wiczyk: “A week later they called us and said ‘We love it, we want to do it.’ So
then we said ‘Well, so let’s talk about how that would work, with the network being the first window.’
But they said, ‘No no no, we want this to be our first major original series.’ I remember I went, ‘Wait,
what?’”
The MRC executives and other House of Cards team members subsequently met with Netflix
representatives a day after their pitch meetings with the cable networks, to discuss their plans for the
series. As the executives’ enthusiasm had not waned, they agreed to again meet a week later to discuss
business issues and deal terms.
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