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Netflix, Inc. (NASDAQ:NFLX) announced that Glass Onion: A Knives Out Mystery, the much-anticipated sequel to the 2019 hit Knives Out, will hit theaters in the United States, United Kingdom, Ireland, Italy, Germany, Spain, Israel, Australia, and New Zealand for a week starting from November 23. The movie will be available for Netflix subscribers a month later on December 23. In the U.S., the film will be screened in 600 theaters across AMC, Regal, and Cinemark chains. This will be the first-ever Netflix film to debut in theaters. The company calls this a sneak preview event as the film will only be screened for a limited time. As discussed below, I consider this a very positive move as a Netflix shareholder.
The Rationale Behind The Theatrical Release
Netflix’s subscriber growth is slowing down, which is not news anymore. The company is banking on its ad-supported tier to revive subscriber growth, but this is likely to hurt ARPUs and profit margins. At a time when Netflix is facing these challenges, it makes sense to tap into every new opportunity that could bring in revenue. Ticket sales will obviously help the company with this, but I believe Netflix is focused on the long term as it has always been in the last 20 years.
There are a few reasons why Netflix should consider getting into theaters more often.
First, Netflix has built a reputation for producing award-winning movies that go on to be loved by the audience. A few years ago, Netflix may not have been considered a big name in Hollywood, but that has truly changed for the better in recent years.
Major Academy Awards won by Netflix
| Category | Winners |
| Best director | Alfonso Cuarón – Roma |
| Jane Campion – The Power of The Dog | |
| Best Supporting Actress | Laura Dern – Marriage Story |
| Best Foreign Language Film | Roma |
| Best Animated Short Film | If Anything Happens I Love You |
| Best Documentary Feature | Icarus |
| American Factory | |
| My Octopus Teacher | |
| Best Documentary Short Subject |
The White Helmets |
|
Period. End of Sentence. |
|
| Best Production Design |
Mank |
| Best Cinematography |
Roma |
|
Mank |
|
| Best Costume Design |
Ma Rainey’s Black Bottom |
| Best Short Live Action |
Two Distant Strangers |
In addition to these wins, Netflix movies Roma, The Irishman, Marriage Story, and Mank were nominated for the Best Movie award as well.
Netflix’s success at the big level should be monetized better and the best way forward would be to consider releasing movies to theaters before they are available for streaming. This is easier said than done as Netflix needs to avoid cannibalization, but this sure is a strategy worth considering.
Second, Netflix has shifted its focus to high-budget movies of late in a bid to attract new subscribers. There is no better way to attract eyeballs than a box office hit, and I believe success at the theater will trickle down to its streaming business as well. With theatrical releases of movies, Netflix will be expanding its horizons by going in front of potential subscribers who are yet to pull the trigger.
Netflix’s most expensive movies
| Movie | Budget |
| The Gray Man | $200 million |
| Red Notice | $200 million |
| The Irishman | $160 million |
| 6 Underground | $150 million |
| Outlaw King | $120 million |
| Triple Frontier | $115 million |
| The Mitchells vs. The Machines | $110 million |
| Bright | $106 million |
| The Midnight Sky | $100 million |
| Army of the Dead | $90 million |
Source: MovieWeb
Releasing films in theaters, in my opinion, will help Netflix earn more bang for the buck while attracting new subscribers to its streaming business. With the company now planning to focus on big-budget movies, it makes sense to look for opportunities outside of the streaming platform.
Third, Netflix needs to keep up with its competitors. The likes of Disney+ and Apple TV+ have already explored this option with the latter striking a deal with Top Gun: Maverick producers. Failing to embrace the theater could create an opening for Netflix’s closest rivals to gain market share, which is something Netflix cannot afford.
As an investor, I am excited to see what awaits Netflix in the theater, and depending on the success (or the lack of it) of Glass Onion: A Knives Out Mystery, the company may discuss a new strategy to fully explore the opportunities in this space.
Did Netflix Choose The Right Movie?
First impressions do last, which is why it’s important to make a good first impression. When I told my wife about the planned theatrical release of the new Knives Out movie, her initial reaction was Netflix should have chosen a better movie to go out to the public. I agree, this is not a Marvel franchise and it’s not as if the world is counting the days until the release of this film. That being said, I believe this is not a bad choice.
The original Knives Out movie starring Daniel Craig and Chris Evans in 2019 has a high rating of 7.9 on IMBD and was a nominee for the Best Original Screenplay award at the Academy Awards. The film performed surprisingly well at the Box Office too, bringing in $311 million on a budget of $40 million. Glass Onion: A Knives Out Mystery trailer, which was released around a month ago, has already garnered more than 12 million views on YouTube as well, which is substantially higher than the views for the trailers of some of the most highly anticipated Netflix movies and TV shows in recent times.
| Name of the movie/TV show | Views for the trailer on YouTube as of October 7 |
| Glass Onion: A Knives Out Mystery | 12 million |
| DAHMER – Monster | 4.6 million |
| Luckiest Girl Alive | 4 million |
| Enola Holmes 2 | 4.4 million |
| Me Time | 5.8 million |
| Spiderhead | 8.2 million |
| Blonde | 9.8 million |
Source: YouTube
Although there might not be a notable buzz around the movie, I believe Glass Onion: A Knives Out Mystery is not a bad choice for Netflix to experiment with a theatrical release.
Long-Term Implications
Netflix, depending on the success of the upcoming Knives Out movie at the box office, is likely to focus more on producing big-budget movies that suit both the couch and the theater. This will, however, be another growth initiative that would require the company to invest substantial amounts of money in producing content, and for this reason, the market may not reward the company in the short term. That being said, I believe Netflix is pursuing the right strategy to expand into untapped market segments.
Takeaway
Netflix is finding it difficult to grow its subscriber base, and Mr. Market is not pleased with this. The company and its shareholders will face a difficult few quarters before growth revives, but I believe Netflix is making strategic decisions that are likely to boost its profitability in the long run. This consolidation phase, therefore, seems like a good opportunity for growth-oriented investors to consider investing in NFLX.
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