Is the Netflix Movie Model Broken?

With the release of Netflix’s $200 million action movie The Gray Man this past weekend, Matt is joined by Bloomberg’s Lucas Shaw to discuss Netflix’s movie strategy, the perception that it makes mock blockbusters, its marketing choices, and what it needs to do to be competitive.

In this excerpt, Matthew and Lucas discuss Netflix’s movie release strategy, and whether the streamer might shift toward theatrical rollouts and individualized marketing campaigns for its biggest films.

Matthew Belloni: Scott Stuber, who’s been [at Netflix] several years now, he has been very public in The New York Times and elsewhere, saying that they are not just a volume play anymore, that they are trying to be more targeted. He got a little bit of shit within Hollywood for this quote that he gave to The New York Times last fall. He said, “If you have the budget to make 14 movies and you only have 11 great ones, let’s just make 11.” Which, a lot of people said, “Oh, great, so Scott is just going to make the good movies. If we had only thought of that.”

But I think what he’s saying is those movies you mentioned that don’t make any impact and nobody can remember 10 minutes after they watch them, that’s not what he wants to do. He wants to do more movies like The Gray Man, which is getting a real release, they’re doing a full worldwide press tour. They’re actually spending money to market the title individually, which for Netflix, you’d think that would be a normal thing but it’s actually not. They don’t actually spend money to market individual titles very much, and they’re doing that on this one. You wrote a little bit about that this week. Is that going to be something we’re going to see more often now? Netflix putting money behind individual movies?

Lucas Shaw: Yeah, they’ve started to do it more. I mean, if you look just in the last month, I think they bought national TV spots, which is one sign that they’re marketing it, for three or four different movies. They bought it for Hustle, which was the Adam Sandler movie that LeBron [James] produced. They did it for The Sea Beast, this animated movie. There was one other that I’m forgetting, and The Gray Man. The film team at Netflix in particular—and not just them, really—the programming team across the company wants to market their titles more, the marketing team would like to market everything more. It’s really at the top. My sense is, at the top of the company, there’s always been this aversion to doing it because the whole game has been, “We have the captive audience, let’s just feed them what they need using the algorithm.”

Belloni: And that doesn’t work in movies. It really doesn’t. I think the evidence shows that Netflix has a brand problem when it comes to movies, in part because there’s a perception that their movies are not as good as the theatrical ones, but I think it’s because they don’t create events around these movies. You look at the way that these theatrical movies are marketed. That’s where the awareness and the impact comes from. It’s not that these movies are that much better, although many of them are or they have elements that are designed to be theatrical and thus a little bit more populist. But it’s that these movies get theatrical marketing campaigns, and if Netflix starts to do that, I think they will start to see a little bit more resonance with their titles.

Shaw: And it could lead to them playing theatrically. I mean, that’s one of the big hold-ups in their conversations with feeder chains is that Netflix doesn’t want, can’t/won’t, commit to marketing the movies.

Belloni: Yeah, so let’s talk about that. Do you think ... I mean we’ve seen Netflix have limited releases for these movies. They can’t play them in the big theater chains because they don’t adhere to some kind of a window, an exclusive window—although that’s interesting because the traditional studios are increasingly bypassing that traditional window, as well. But Netflix cannot get deals with these big theater chains to show the movies. So they end up putting it in like 400, 500 theaters. They don’t release box office numbers, so we have no idea how The Gray Man did in theaters last weekend; I talked to one source close to the Cinemark chain who said it did not do very much business, which is interesting because you’d think that even though it’s going to play in a week on Netflix, there still would be a theatrical audience for Ryan Gosling and Chris Evans, but they don’t have that, and they don’t seem to be willing to give that window that might generate some attention in theaters before going to Netflix. Do you think that will change?

Shaw: Well, it’s interesting that you say that on The Gray Man because when I was driving to the premiere for that movie last week, there were three or four billboards for it on Sunset Boulevard in L.A. and I noticed that on one of the biggest ones, there were two dates for the movie’s release. The big one was July 22, which is the release on Netflix, and then the one for theaters was much, much smaller. And so it doesn’t feel to me like Netflix or anyone involved in this is trying to push people to theaters. They just want to make people aware of the title and they’d rather them watch it on Netflix, and I think that is a roundabout way of giving my answer to the question because it doesn’t seem like they’re committed to the idea yet. Like there are some people at Netflix who want to put their movies in theaters, they want to market them. The windowing issue should not be an issue anymore; as you noted, all these other studios are basically doing the same thing. It just requires the company to believe that there is value in putting the movie in theaters financially, in terms of marketing, and that it’s not going to make their users feel like Netflix is not worth the value.

Belloni: Right, exactly, I think that’s where the hang-up is, is that they are so focused on the user-value proposition for Netflix that they feel that if you give these movies, let’s say, a 30-day theatrical window, that the user of Netflix won’t like that, and I tend to disagree. We’ve seen example after example of movies that are huge on streaming after their short theatrical window. Look what happened with Encanto for Disney. It made [over] $200 million worldwide in theaters, then goes on Disney+ and becomes gigantic on Disney+, and we just saw the first half of the year the two biggest things on streaming for music were the Encanto soundtrack and “We Don’t Talk About Bruno,” the song. So I think there is a way to do this, but Netflix has to want to do it. And I wonder if the financial pressures that they are experiencing right now with the stock price and with some of the layoffs they’ve had and the ad tier that is coming to the service, if maybe they would explore theatrical distribution as a revenue generator.

Shaw: It seems like a bit of a no-brainer when you have movies at the scale of The Gray Man, Red Notice, The Old Guard, which you referenced. They have the sequel to Knives Out coming out later this year, which made, what was it, $400 million or something in theaters. Also just the success Netflix has had with some of the output deals they’ve done, that Disney deal that gave them a bunch of the Star Wars and Marvel movies, they’ve now got a new Sony deal that’s going to give them future Spider-Man and those—there’s a huge audience for them. There’s a reason Netflix is willing to pay hundreds of millions of dollars for those rights, so why not put your biggest movie in theaters for a month and then people who don’t want to go to theaters or who want to watch it again will watch it on Netflix?

This excerpt was lightly edited for clarity.

Host: Matt Belloni
Guest: Lucas Shaw
Producer: Craig Horlbeck
Theme Song: Devon Renaldo

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