How Netflix is ​​keeping directors away from traditional box office revenue

Netflix I’m not interested in bringing movies to the theatre.

The company’s leaders say they view the theatrical film release as a “outdated” model. But for more than a decade, streamers have invited some of Hollywood’s biggest directors to create content exclusively for that platform.

Martin Scorsese, Alfonso Kualon, Bong Junho, Spike Lee, Guillermo del Toro and the big-screen Darlings directed all the films for the streaming service without the promise of a wide range of theatrical releases.

Most recently, Netflix begged Greta Gerwig to the director’s seat after winning the rights to the book series for CS Lewis’ “The Chronicles of Narnia,” and signed Leanne Johnson to make two sequels to “Knife Out” in 2019, home to Kathryn Bigelow’s first film release.

While many of these creatives promote the importance of theatrical experience, most of the Netflix projects are expected to win a wide range of cinema releases and long-term releases. In most cases, Netflix movies will be released in a limited number of theaters for a week.

In fact, Gerwig’s “Narnia” film has earned its two-week exclusive global debut at IMAX from Thanksgiving Day in 2026.

Netflix has been able to move Hollywood talent away from traditional theatrical models by providing a viewer pool of over 300 million subscribers who requested anonymity to discuss industry movements, as well as an audience pool of over 300 million subscribers. It also becomes an Auterre heaven where films may not be made due to expensive budgets or dangerous genres.

“What Netflix offers filmmakers is an attractive combination of deep financial pockets and a wide range of creative latitudes,” says Paul Delgalavedian, senior media analyst at ComScore. “This is impressive as it’s enough to portray some of the biggest names in filmmaking today behind and in front of the camera, and most of these notable names have made a career on the big screen canvas of cinemas.”

As far as Netflix has confused traditional Hollywood models, analysts and box office supporters have been arguing about why streamers embrace a more traditional theatrical approach. Each year, research from box office analytics companies is featured on behalf of one of Hollywood theatre trade groups that conclude that viewers are more likely to stream movies released in theaters.

“For most other traditional media companies, the pendulum appears to have returned to the idea that yes, theater adds value to the film,” said Robert Fishman, an analyst at Moffettnathanson.

A Hollywood insider told CNBC that Netflix leaders have long admitted that money remains on the table because they don’t adopt the typical theatrical model. However, Netflix co-CEO Ted Sarandos said there are no plans to change the company’s box office strategy.

“It’s complicated for Netflix and it’s distracting from what they’re trying to do,” said industry analyst David Poland. “And that would potentially lose money.”

Sarandos has repeatedly stated that Netflix’s purpose is to provide content to streaming subscribers. Audiences paying for that service should get it as soon as possible and will not wait for the expanded theatre window to pass.

Netflix is ​​benefiting from a partnership with Sony. Sony will offer exclusive US streaming rights to the theatrical releases of the studio after Streamer closes in theaters. With the agreement, Netflix gets fresh content without box office risk.

Of course, keeping subscribers happy is just part of the strategy. Netflix saves millions of marketing costs by skipping theaters, industry experts said. Typically, the marketing budget for a film is half of what it was spent on production.

So, films like Russo Brothers’ “The Electric State” reportedly cost $320 million if they go to theatre. This is an investment of nearly $500 million before the play’s opening, with the studio splitting ticket sales at cinemas.

In particular, this film was originally planned to be produced below. Universal The studio was transferred to Netflix after Universal executives balked on a sudden budget, people familiar with the issue told CNBC.

The success of Netflix films is based on viewers. This is a metric that can’t be compared to box-offices. According to Netflix’s Tudum site, “The Electric State” was streamed by 25.2 million subscribers in its first three days on the platform. This is about a third of what Netflix’s “red notifications” were generated during the three-day release of 2021. “Red Notice” is Netflix’s best performing film to date, with over 239 million views.

It’s difficult for directors and other creatives to dismiss the audience Netflix brings, a Hollywood insider told CNBC. This is one of the reasons why Netflix has been able to attract well-known directors, writers and producers over the past decade.

Netflix is ​​flexible with wallet strings. “Electrical Condition” is just an example. Scorsese’s “The Irishman” saw the studio hand over the film for balloon budgets, but Netflix intervened and won the rights. The film went home empty-handedly during the 2020 ceremony, but won 10 Oscar nominations.

“Netflix is ​​funded, purchased and involved with directors who are truly quality filmmakers around the world because they are interested in winning awards, nominations and more,” Poland said. “The existence of these films is a homage to Netflix.”

The streamer has at least one best photo candidate at the Academy Awards since 2019.

The company is not shy about spending money to secure top talent either. It has been signed into numerous advantageous first look deals with creators who offer exclusive rights to review new projects, purchase or distribute them before being offered to other buyers. Past deals have run the gamut between television and film, including creators such as Tyler Perry, Antoine Fucua, Shonda Rhymes and Jennifer Lopez.

Netflix is ​​more targeted for the deal, as seen when he wrote a two-picture deal with Johnson for the sequel to the 2019 film “Knives Out.”

“It would be difficult for creatives to turn down financial resources to realize their creative vision, and despite wanting to see their films on the biggest screen possible, [they] We created the calculus that making the film come true and being presented on major streaming platforms is a bargain worth making,” Delgalavedian said.

Wall Street doesn’t seem to mind Netflix’s movie strategy. The company’s stock is valued at nearly $1,300 per share, with a 45% increase since January and a 90% rise over the past year.

According to the company, Netflix is ​​expected to spend around $18 billion on content this year. It doesn’t say what percentage of that funding is compared to film and television production. The company currently forecasts revenues to $44.5 billion in 2025.

Insiders said these types of investments may require consumers to be aware of more price increases. Moffettnathanson’s Fishman said Netflix will continue to weigh its value proposition to determine whether it needs to increase the cost of its service.

If Netflix continues to create content from top creators, analyst companies expect prices to rise.

Disclosure: Comcast is the parent company of NBCuniversal and CNBC.