The Netflix app launch button is shown on the remote control in this photo illustration in Warsaw, Poland on April 25, 2019.
Yap Aryan | Norfoto | Getty Images
There is a big money question that haunts you Netflix.
In recent years, the streaming company has spent a lot on flashy action movies like “The Gray Man” and “Red Notice,” which netted the company $200 million each. Movies are the first steps in bidding to spark event-wide franchises. But it’s expensive, and it’s unclear how much of an impact it will have on Netflix’s bottom line.
Meanwhile, the platform’s success of “Stranger Things,” a supernatural thriller with horror undertones, has become a definite cultural touchstone. The series, which just launched its fourth season, has inspired Halloween costumes and video game versions of an alternate universe full of monsters.
While the show has a similar budget for high-octane action flicks — about $30 million per episode, or more than $200 million per season — its success has prompted some in the industry to question whether the high-budget features are worth the Netflix investment.
Netflix’s streaming competitors are starting to change their content strategies in order to spend less on live-to-stream movie content. Warner Bros. Discovery CEO David Zaslav said on Thursday his company She couldn’t find “economic value” in making big-budget movies for streaming services.
“We’ve seen, fortunately, with now access to all the data, how the streaming movies are performing,” Zaslav said during the company’s second-quarter earnings call. “And our conclusion is that streaming movies are very expensive…not comparable to what happens when a movie is released in motion picture, in cinemas.”
Netflix often doesn’t release movies in theaters, unless it’s seeking Oscar eligibility, so it budgets movies knowing that its only option to recoup the spend is through a subscription boost.
That’s why analysts have pointed to the horror genre as a potential medium for Netflix.
The horror genre, in particular, usually comes with lower production costs, which makes these types of films ideal for the box office because they often generate far more ticket sales than they cost.
Blumhouse and Universal Get Out cost just $4.5 million to produce and went on to gross over $250 million at the global box office.
And while The Gray Man is set to be developed into a franchise, Peter Csathy, founder and chairman of consultancy Creative Media, has suggested that Netflix ignore opportunities for the franchise in awe that could save the company hundreds of millions from each movie.
“Scream,” “Insidious,” “Halloween,” and other horror movie franchises have won fans of the genre as low-budget alternatives to more expensive franchise endeavors like Fast and Furious, Star Wars, Marvel, or Lord of the Rings.
“Production costs are a fraction, a fraction, a fraction of what it is for these huge bets being made,” he said. “And why not go for something inexpensive sure that hits the target demo? Why not put your money there, instead of doing these prestigious plays?”
Additionally, Csathy added, the target audience for this type of horror is also young people – the demographic advertisers and streamers want to take advantage of.
Netflix has seen success from previous horror titles including the “Fear Street” trilogy and has had a number of Netflix originals in the genre including “Nobody Gets Out Alive” and “There’s Someone Inside Your House”.
Michael Butcher, an analyst at Wedbush, suggested that Netflix could get more for its money by committing to a bunch of horror and rom-com projects, both of which tend to be relatively low-budget. With more modest budgets, the pitfalls aren’t huge.
“The great thing about a low budget is that you can make mistakes,” he said. “Big budget, you can’t make anything. If you mess up, you’re turbulent. So which is more dangerous, a 150 million dollar movie or three 50 million dollar movies?”
Missing metrics
Part of the scrutiny of Netflix’s content spending stems from the lack of clear metrics around the financial performance of first-stream shows and movies.
Box office statistics for theatrical releases and TV ad revenue are tried and true metrics. With streaming-only platforms, viewing data varies from service to service and paints an incomplete picture for analysts trying to determine how a movie or TV show is actually performing.
A bill of more than $200 million for a movie like “The Gray Man” is hard to explain when there’s no visible financial gain at the end of production, like the studios you see at box office ticket sales. Streaming subscribers pay a fixed monthly or annual fee to access all available content. Netflix argues that its content keeps users on the platform and hands over subscription fees.
For Netflix, the push for big-budget movies is a way to polish its image and quiet criticism that it produces mediocre content. The company has boosted its balance sheet, which is cash flow positive and has a three-year window before a large portion of its debt matures, giving it some wiggle room to spend.
It’s unclear how much Netflix has spent on each movie for its Street of Fear trilogy, and there is limited data about its performance on the platform. But Nielsen estimates that “Street of Fear 1994” generated 284 million minutes of viewership during its first week on the service and “Fair Street 1978” had 229 million minutes. It is unclear how the third film, Street of Fear 1666, performed.
Moreover, the fourth season of “Stranger Things” became the second Netflix series to exceed one billion watched hours during its first 28 days of availability. Of course, comparing Netflix movies to its TV series is a bit like comparing apples to oranges, but they’re the best data analysts to have as long as the company is silent about content spending and success.
Many entertainment experts have tried to analyze numbers regarding how hours of broadcasting translate into revenue, retention and, ultimately, the strength of Netflix’s business. But much of how Netflix decides what to give the green light and what to cancel remains a mystery to analysts.
Based on private Netflix data, “The Gray Man” garnered more than 88 million hours watched worldwide during its opening weekend on the service, 60 million fewer hours than “Red Notice” pulled over the same period last November. . “Red Notice” remained at the top of the Netflix Top 10 list for 12 days, while “The Gray Man” was raped just eight days later.
As of Friday, the film ranks fourth on the list after “Purple Hearts,” “Tower Heist,” and “The Age of Adalene.”
Was The Gray Man worth $200 million? It appears to have hit some benchmarks behind the scenes for Netflix, which is moving forward with a sequel and resurgence.
“Netflix clearly has the data and methodology that they think is accurate, to determine what is this success at Netflix and what is not,” said Dan Rayburn, broadcast media analyst. “if [‘The Gray Man’] Bombed by their definition of bombing, whatever that is, we don’t know, they wouldn’t have announced an extended deal.”
As for how Netflix chooses its content, Rayburn says that while the data isn’t currently widely available, that could change once you stream. Enter the advertising market.
“Whether they want to give us data or not, we will get more data as the years go by, because of the advertising aspect,” he said. “This will help us better understand the content.”
Disclosure: Comcast is the parent company of NBCUniversal and CNBC. Universal is the distributor of the Halloween and “Get Out” franchise.
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