A button for launching the Netflix application is seen on a handheld remote control on this photo illustration in Warsaw, Poland on April 25, 2019.
Jaap Arriens | NurPhoto | Getty Images
There’s an enormous money query haunting Netflix.
In recent times, the streamer has spent big on flashy, blockbuster-style motion movies like “The Gray Man” and “Red Notice,” which ran the corporate $200 million each. The movies are the primary steps in bids to spark event-level franchises. But they’re costly, and it’s unclear how impactful they’ve been for Netflix’s bottom line.
Meanwhile, the platform’s smash hit “Stranger Things,” a supernatural thriller with horror undertones, has turn into a transparent cultural touchstone. The series, which just released its fourth season, has inspired Halloween costumes and videogame versions of the monster-filled alternative universe.
While the show has the same budget to those high-octane motion flicks — around $30 million per episode, or greater than $200 million per season — its success has led some within the industry to query whether high-budget features are value Netflix’s investment.
Netflix’s streaming rivals have begun to shift their very own content strategies to be able to spend less on direct-to-streaming film content. Warner Bros. Discovery CEO David Zaslav said Thursday his company has been unable to search out an “economic value” in producing big-budget movies for its streaming services.
“We have seen, luckily, by having access now to all the info, how direct-to-streaming movies perform,” Zaslav said in the course of the company’s second-quarter earnings call. “And our conclusion is that expensive direct-to-streaming movies … isn’t any comparison to what happens if you launch a movie within the movie, within the theaters.”
Netflix doesn’t often release movies in theaters, unless it’s searching for Academy Award eligibility, so it budgets for movies knowing that its only option for recouping spend is thru subscription growth.
That is why analysts have pointed to the horror genre as a possible avenue for Netflix.
The horror genre, specifically, typically comes with lower production costs, making these sorts of movies ideal for the box office as they often rake in significantly more in ticket sales than they cost to make.
Blumhouse and Universal’s “Get Out” cost just $4.5 million to provide and went on to generate greater than $250 million at the worldwide box office.
And while “The Gray Man” is ready to be developed right into a franchise, Peter Csathy, founder and chairman of advisory firm Creative Media, suggested Netflix is overlooking franchise opportunities in horror that would save the corporate tons of of tens of millions per film.
“Scream,” “Insidious,” “Halloween” and other horror film series have won over fans of the genre, as low-budget alternatives to dearer franchise endeavors like Fast and Furious, Star Wars, Marvel or Lord of the Rings.
“The production costs are a sliver, a fraction, a small fraction of what it’s for these huge bets which might be made,” he said. “And why not go for a reasonable sure thing that hits your targeted demo? Why not put your money there, fairly than doing these big prestige plays?”
Plus, Csathy added, the target market for the horror genre also happens to be young — the demographic advertisers and streamers need to tap into.
Netflix has seen success from past horror releases including its “Fear Street” trilogy and has plenty of Netflix Original releases within the genre including “No One Gets Out Alive” and “There’s Someone Inside Your House.”
Michael Pachter, an analyst at Wedbush, suggested Netflix could get more for its money by sticking with a lineup of horror and rom-com projects, each of which are likely to be relatively low-budget. With more modest budgets, missteps aren’t as big of a deal.
“The cool thing about low budget is you’ll be able to make mistakes,” he said. “Big budget, you only cannot make any. For those who screw up, you are screwed. So which is riskier, a $150 million movie or three $50 million movies?”
A part of the scrutiny on Netflix’s content spend stems from the dearth of clear metrics across the financial performance of streaming-first shows and flicks.
Box office tallies for theater releases and TV ad revenue are tried-and-true metrics. With streaming-only platforms, viewership data varies from service to service and paints an incomplete picture for analysts trying to find out how a movie or television show has actually performed.
A bill upwards of $200 million for a movie like “The Gray Man” is harder to clarify when there is no visible financial gain at the tip of production, like studios see in box office ticket sales. Streaming subscribers pay flat monthly or annual fees to access all available content. Netflix argues its content keeps users on the platform and handing over subscriber fees.
For Netflix, the push into big-budget movies is a option to burnish its image and quiet criticisms that it churns out mediocre content. The corporate has shored up its balance sheet, is money flow positive and has a three-year window before a good portion of its debt matures, giving it some wiggle room to spend.
It’s unclear how much Netflix spent per film for its “Fear Street” trilogy, and there is limited data around its performance on the platform. But Nielsen rankings estimated that “Fear Street 1994” generated 284 million viewing minutes during its first week on the service and “Fear Street 1978” tallied 229 million minutes. It’s unclear how the third film, “Fear Street 1666” performed.
What’s more, the fourth season of “Stranger Things” has turn into just the second Netflix series to cross 1 billion hours viewed inside the first 28 days of availability. In fact, comparing Netflix’s movies to its television series is a bit like comparing apples to oranges, nevertheless it’s the very best data analysts have access to so long as the corporate keeps quiet about content spend and success.
Many entertainment experts have tried to crunch the numbers on how streaming hours translate to revenue, retention and, ultimately, the strength of Netflix’s business. But much of how Netflix decides what to greenlight and what to cancel stays a mystery to analysts.
Based on Netflix’s own data, “The Gray Man” amassed greater than 88 million hours in worldwide viewing during its opening weekend on the service, 60 million fewer hours than “Red Notice” pulled in the course of the same period last November. “Red Notice” stayed in the highest spot of Netflix’s top 10 list for 12 days, while “The Gray Man” was usurped after just eight days.
As of Friday, the film holds the fourth spot on the list behind “Purple Hearts,” “Tower Heist” and “Age of Adaline.”
So, was “The Gray Man” value its $200 million price tag? It appears to have have hit some behind-the-curtain metric for Netflix, which is moving forward with a sequel and a by-product.
“Netflix, obviously has the info and the methodology that they consider is accurate, to find out what is that this success at Netflix and what is not,” said Dan Rayburn, a media and streaming analyst. “If [‘The Gray Man’] had bombed by their definition of bombing, whatever that’s, we do not know, they’d not have announced an expanded deal.”
As for the way Netflix makes its content selections, Rayburn says that while data will not be currently widely available, that would change once the streamer enters the ad market.
“Whether or not they want to offer us data or not, we’re gonna get more data because the years go on, since the promoting side,” he said. “That is gonna help us higher understand content.”
Disclosure: Comcast is the parent company of NBCUniversal and CNBC. Universal is the distributor of the Halloween franchise and “Get Out.”