Legacy Studios are in the boutique business. And Netflix is in the big box business.
There are benefits and limitations involved with both models of the business.
But let’s not put the cart before the horse.
On Sunday, Nicole Sperling wrote about Netflix, Netflix’s New Film Strategy: More About the Audience, Less About Auteurs. Standard issue quality reported story with no one officially going on the record and every positioning themselves off the record.
The central thesis is one of the the most often uttered lines of deeply comic Hollywood absurdity in the last 60 years of motion picture history. “Let’s make better movies for less money that are more popular!”
It is not as often said as, “The check is in the mail” or “No… we really aren’t in profit, even though we have grossed 5x the cost of the movie and marketing,” but it’s a major player.
But I didn’t take a break from my 3 episode CinemaCon opus to just mock Dan Lin and Bela Bajaria… and Ted Sarandos, who is at the core of the failure of Netflix as a movie business, but somehow, someway, manages to go unnamed in this article about Netflix and their “movie” business. Nicole Sperling is a pro, but that is some straight-up bullshit.
What I felt demanded a newsletter piece is how all of this fits into the big picture of how the movie industry works (and often doesn’t).
Netflix is a company that has made 2 giant leaps into the future before the future was 100% clear. First, with subscription DVD rentals, which brilliantly understood that 3 movies a week was more than enough to fulfill the Home Entertainment needs of most people. After 15+ years of Blockbuster Video, the urge to have all those shelves of titles we never rented was played out, DVD sell-thru became price competitive with a rental and a 2-day late charge, and Netflix masterfully filled the void before people realized it was a void.
Then, as the company maxed out on DVD delivery and faced real problems with international expansion and a more chaotic set of worldwide mailing systems - with a market cap that was considered terrific, but still under $50 billion - they figured out the next step. (Reed Hastings will tell you it was always his vision… sigh…) Streaming!
Hulu existed… but that was a TV rerun thing. Netflix was a movie delivery thing… until it also became a TV thing… and soon thereafter, an original content thing.
Hooray! Success! Insane Success!
The complications that all of the Legacy companies are wrestling with right now and ovet the last 4 years kept them from competing as Netflix stormed the beach. Yes, some of them said stupid things about the future never coming while they were waiting. But the core reason not to chase that streaming success Netflix was having right before their eyes was that it was (and is) dangerous. Netflix hit $50b in market cap in 2015… $100 billion in 2018, $200 billion in 2020, and is back up over $280 billion today.
One key was doing what no one ever did before what no one will ever do again - until someone insane comes along and is truly desperate - which is spend more on content than they could earn… until a few years ago, really forced into “the choice” by COVID.
Oh… the Legacy companies were finally forced into the Streaming field 4 years and change ago… and most of them believed the Wall Street-focused idiots who screamed endlessly that the only way to compete was to spend like Netflix. Worse, most of these companies were so excited by the opportunity to have Wall St love them like it loves Netflix, that they overemphasized Streaming as part of their portfolios to their detriment… and Wall St only loves Netflix like it loves Netflix. There were a few hot moments, but they were illusions.
So what about Netflix movies?
With all love to the good people of Netflix who really, really want to believe otherwise… Netflix doesn’t make movies. They make TV movies. Netflix is the greatest TV network ever created. Massive amounts of content, original and licensed, on-demand, with as much nudity and cursing as you might light just short of hardcore porn, with no commercials… all for $10 a month.
Netflix has a symbiotic relationship with Wall Street. It started by being “a tech stock,” which it is not and really, never was. Netflix used technology brilliantly and before the mainstream of this industry. But they were never really in the tech business. Still, Wall Street held and holds them there. As long as they could maintain the image of being a fast-growth company, Wall Street would keep overpaying massively for the stock, excited about the future. This was an advantage no Legacy company has or has had for more than a few months at different pressure points.
Meanwhile, the media fell in love with the story of the end of Linear Television, which was and continues to be insanely overstated. A 30% to 40% slice lost by any segment of any industry is very, very important. But the dirty secret that none of the media seems to want to acknowledge is that for Legacy companies, Linear Television is still the most profitable segment of half of these companies and #2 to very strong non-content businesses for the other half.
Sorry… getting to the movies…
When you are spending upwards of $15 billion a year on content - which is double what any other company had ever spent on content before Netflix, even with sports rights and other high ticket price items, like $300 million Marvel and Star Wars movies and Sunday Night Football - dropping a couple hundred million on a movie that is never going to generate a dollar directly from sales of any kind doesn’t seem like that bad an idea. Make the biggest action films. Give the greatest filmmakers the kind of budgets they have never seen and will never see again.
Like Charles Foster Kane said, “You're right, I did lose a million dollars last year. I expect to lose a million dollars this year. I expect to lose a million dollars next year. You know, Mr. Thatcher, at the rate of a million dollars a year, I'll have to close this place in... 60 years.”
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