Jerod Harris
Never say never with Netflix (NASDAQ:NFLX).
That’s a lesson many investors and analysts are still learning in this brave new streaming world brought on in a post-COVID landscape… and in the run-up to Netflix’s latest earnings, a timely one as well.
Overall it remains a fascinating narrative to watch unfold as Netflix, the leader and arguably originator of today’s streaming TV, has been pushed so far back on its heels it’s finally be forced to change some of its steadfast ways.
So what’s the shift and what does it mean?
First as always, some background.
Ever since Netflix went off a cliff earlier this year we’ve seen Netflix hedge on a number of things its team said they would “never” do. Chief among them, adding an ad-tier at a lower cost and beginning to pull back on its spending on new content.
Now add another big one to the list – working with movie theaters.
And this is not the same level as before where it would work with a handful of smaller chains to screen an awards movie or team up to promote a holiday film… this is a full-on pivot with a Netflix-esque twist.
The deal involves Knives Out, the Rian Johnson directed mystery franchise starring Daniel Craig and its sequel which Netflix lured away from Lions Gate (NYSE:LGF). The sequel dubbed Glass Onion, due out later this year, was expected to be a typical Netflix day and date release. In other words, Netflix would drop the movie in select theaters the same day it streams on the service.
However now the streamer has revealed that will NOT be the case and the movie will go first to theaters for what is being billed as a “one-week sneak preview” run. Running on 600 screens across the US and Canada from November 23rd to November 29th the film will then go dark for a month before its Netflix debut on Dec. 23.
It may seem like a small thing but it’s not.
This may be the biggest change in film distribution policy for Netflix since it started putting out movies.
You may remember previously Netflix had been willing to talk to chains about changing its day-and-date policy and expanding the exclusivity window… though nothing came from it.
And to be fair to Netflix the talks ultimately floundered largely because of the theaters being inflexible.
Essentially what happened was Netflix was hoping for a big theatrical release for The Irishman, the mob thriller from Martin Scorsese. The two sides went back and forth on a few windows with Netflix going so far as to offer a 45-day exclusivity period. When the chains balked, Netflix walked away and cut a deal with smaller theaters chains for a smaller 26-day window before it made its streaming premiere.
The irony in all of this is that now, post-pandemic, 45 days is basically the new standard for movies to be exclusive to theaters before going to streaming.
Another way Netflix was ahead of its time all along.
The problem had been that the theaters had insisted on 60 days, which to them was a big step down from the typical 72 days that had been the standard.
At the time – pre-COVID – theaters were still in charge and could do as they please and because of their “rejection” of the movie, we saw a big impact, including the films awards campaign taking a hit. Yes, it was still nominated but a bunch of Oscars, but it was blanked on awards night.
Now in the case of Glass Onion, while seven days is not 45 that blackout period is the key to unlocking the stalemate.
It makes the movie an event and gives the theaters something special to tout and it also gives them a cut of the first round of earnings.
Let’s be realistic, most movies make the brunt of their money in that first week period, so dangling that in front of the chains, paired with the exclusivity aspect, made this a much more appetizing endeavor.
While Netflix has said it won’t reveal the box office earnings from that week – rest assured that based on the success of the first film and the pedigree of the cast and crew, it will be a success, with the hope being we’ll see more like this in the future.
It’s a major step forward for Netflix and an olive branch to theaters as they have finally come to the realization that it is possible for theaters and streamers to work side-by-side.
“As we have often said, we believe that both theatrical exhibitors and streamers can continue to co-exist successfully. Beyond that, though, it has been our desire that we find a way to crack the code and synergistically work together. By doing so, theatres will make more money by having more titles to show, and thanks to the larger cultural resonance those movies can gain from a theatrical release, they will wind up playing to a wider audience when they also are viewed on streaming platforms.” – AMC Chairman and CEO Adam Aron
If you want to get people to theaters you have to give them a reason and seeing it on a big screen “the way it was intended” isn’t it. Yes for Cinephiles and die-hard fans that aspect will draw them out, but they were coming anyway, you have to appeal to those who are content to sit at home and wait – or watch one of the million other options on streaming.
It also embraces that “shared experience” concept that Netflix has ignored all of these years. Turns out the only thing better than a shared experience is an exclusive shared experience.
So why now? Why is Netflix suddenly changing its mind?
The short version – it doesn’t have a choice.
“Knives out” isn’t just an expression, in the streaming race it’s also reality.
It’s getting harder for streamers to stay profitable.
While the other big services can rely on other areas to bolster profits, Netflix cannot. It’s only a content delivery company, there is no extra level of protection and with the way the stock has slipped the last few quarters, something had to give.
There’s also the Red Notice effect.
Last year Netflix had an action comedy featuring three of the biggest stars on the planet – Dwayne Johnson, Ryan Reynolds and Gal Gadot. The movie did exceptionally well for Netflix and may be the one time where the streamer’s over the top and internally audited viewing numbers were actually believable.
Studios spin in streaming – it’s a fact. Yet with that trio and the Netflix machine behind it, the film was destined to be a hit from go. And that success got a number of analysts (myself included) thinking that this was a big success but also a big missed opportunity.
Red Notice could have filled theaters and made a ton of money beyond what is earned through subscriptions. But at the time Netflix was still handily on top and they didn’t need to change approach… but that was then, this is now and now we are seeing a brand new type of thinking.
It also doesn’t hurt that this is happening so close to this week earnings announcement.
This type of deal is exactly the shiny toy that Netflix’s team will look to tout as a sign that the company Is on the rebound. It also serves as a nice distraction from what will inevitably be a lot of questions about the new ad model – the details of which were conveniently just dropped.
The ad model is a whole other topic for a whole other piece as there’s lot more to unpack there than I could cover in a few sentences. Suffice say to say though, between the ad-tier details, the Knives Out deal and a pair of buzzy new series in the past few weeks, there’s a lot for investors to feel good about regardless of what the actual numbers turn out to be.
Of course, shareholders are still hoping for a sign of things going in the right direction – but at this point if you have a financial stake in the future of this company, any bit of positive news is welcome.
Again, never say never.
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