If you know me, then you know how much I love going to see movies in movie theaters. If you follow me on social then you have seen me make a big stink about how the pivot to streaming is bad. One could fairly presume that this is because I have a romantic notion when it comes to cinema due to my emotional attachment to movie theaters. To be fair, I do. I mean, my very first job was at a movie theater and I got that job the day after I turned 16.
Still, that isn’t why I have been championing movie theaters and warning about the limitations of streaming. The reason is that movies and TV shows costs a lot of money to produce and there is no way that studios can cover those costs on the revenue streaming brings in.
Netflix has been spending tons of money to produce content to keep people coming to their app. This week they reported that they are losing subscribers. Given that Netflix only has two levers for revenue 1) subscribers and 2) raising rates on those subscribers this was very bad for them. How bad? Well, look at their stock price above.
They lost over $100 dollars per share. That’s, uh, a lot.
Netflix blamed this on a few things, including password sharing. I think the problem is more straightforward - they are spending way too much to produce way too much content and are losing too many subscribers.
If I were in the Netflix board room I would suggest the following:
Cut down on production (decrease spending)
Go to a weekly release model for Netflix shows (increase revenue)
Get Netflix movies into the movie theater for three weeks (more revenue)
Suggestions 1 and 2 are related. Netflix produces so much content because they need to keep viewers engaged so they won’t cancel their subscriptions, or as it is known, to reduce “churn.” If they are producing less shows and releasing those shows on a weekly schedule that can help reduce churn.
As of right now somebody might subscribe to Netflix for 1 month to binge watch the latest season of Stranger Things and then cancel it. If the 10 episodes of the new season of Stranger Things runs for 10 weeks then that’s 3 months of revenue coming in from a subscriber. It’s just basic math that 3 months of getting paid is better than 1 month.
Now as for suggestions #3, putting movies in the theater, as of right now their movies largely just drop onto their platform. Any single Netflix produced movie is as profitable as any on of their shows. Putting them in a theater for 3 weeks can help them bring in box office revenue for those movies. It can also help build buzz for the movie so that when it drops on the service, it isn’t lost in the shuffle. It will no longer be at the mercy of a placement on the home screen, but something people are seeking out to watch.
Which brings me back to movie theaters and why they are the better business model. Traditionally, here is how movies made money:
Theatrical release
Home video/DVD/Blu-ray
Being licensed for cable TV.
Streaming has more or less replaced that third tier. Disney movies are going to Disney+. Warner Brothers movies are going to HBO Max. Universal movies are going to Peacock (for the most part). Paramount Movies are going to Paramount+.
However, movies still make the bulk of their revenue from movie theaters. The most profitable movies of the last year or so have been theatrical exclusives. Studios that prioritized theatrical basically did really well. Then they have another chance to make some money via iTunes/Amazon/Blu-ray before settling on whatever streaming service they will go.
Streaming is a one tier and done business model. As we saw from Netflix this week, that can cost you.
What I Watched:
In a movie in which Nicholas Cage plays Nicholas Cage, “The Unbearable Weight of Massive Talent” could have just been a one joke film. Fortunately, it is so much more than just Nic Cage Meme: The Movie. It’s a great story of a creative that sacrificed his family for his career, in addition to having really fun performances from Nic Cage and Pedro Pascal. I really enjoyed it.
What I Read:
I’m just going to lean into the Nic Cage of this week’s edition and recommend this book, “Age of Cage: Four Decades of Hollywood Through One Singular Career” by Keith Phillips. It tracks the course Hollywood has taken over the last few decades through the career of Nic Cage.