THB # 179: Do Count Your Minions Before They Hatch

The fog we are coming out of in the film/tv industry is the one where we convince ourselves that you can minimize risk and still mine massively profitable television shows and movies.

It’s becoming clearer and clearer that the last 7 years of Netflix as The King of Streaming and legacy media companies chasing the Wall Street success of Netflix is very much like the DVD bubble of the early 2000s… the difference being that the DVD Gold Rush had a very quick turn from investment to cash, whereas streaming is, with the exception of Netflix, a replacement business that is literally never going to equal the domestic profitability of legacy revenues during the lifetime of anyone reading this.

Allow me to simplify that mush… Streaming won’t generate significant profits for anyone until they are streaming for at least 7 or 8 years and those profits will not match, for legacy companies, profits from what they did before streaming. Netflix will likely start pushing profits harder in, literally their 16th or 17th year of streaming (they started streaming in 2007, started streaming originals in 2013, and it’s only fair to note that cash profit has not been their primary metric for success until a few months ago).

These details are not up for dispute… unless you think it is too generous an estimate of the streaming future. None of these companies are claiming they can make streaming profitable any more quickly. Change is exciting, but it is what it is.

DVD, on the other hand, exploded into a cash flow opportunity 3x - 5x what existed before it (theatrical and post-theatrical windows) within a couple of years of its commercial existence.

And then, from its height, DVD became a marginal revenue stream in less than a decade.

Unless your only business is streaming - aka Netflix only - you are trying to make streaming replace all the long-held, highly successful revenue positions you have had for decades.

This reflects a business school argument from Freshman year. Would you rather have a company that sells a $100 watches to a million people or that sells million dollar watches to 100 people?

The reason to make this conversion to streaming for legacy companies - I’ve repeated this too many times, apologies - is the international business. Netflix is already deep into international. Everyone else is chasing. The endgame for legacy media businesses is a much bigger bite of the world, consistent revenue directly under their control. Domestically, they will all be in a negative revenue position from where they are now.

Legacy companies refused to take streaming seriously until Netflix proved the potential of international subscriptions… because it is a loser domestically. (And they are conservative and boring… yeah… but not really the math.)

So what does this have to do with Minions: The Rise of Gru?

Well… the project of turning theatrical releases into TV fodder is, first and last, about avoiding risk.

The core reason why Netflix has not been a theatrical releasing company in any real way is… avoiding risk. Marketing for a wide release movie worldwide is basically $50 million to $250 million, regardless of what the film cost to make. That low end is very rare, but it reflects movies that are studio small and will only get serious releases in the United States and Canada. But even if you assign that number to Netflix’s alleged “80 movies a year,” that’s $400 million at the bottom. Figure in some of their bigger titles and it’s no less than $1.2 billion a year more in marketing for the company.

When you are spending $1.2 billion (or more likely, $2 billion) on marketing, you need to have profitable returns on the spend.

And how do you get those?

Despicable Me - $543 million
Despicable Me 2 - $971 million
Minions - $1.16 billion
Despicable Me 3 - $1.03 billion
Minions: The Rise of Gru - estimated 3-day opening, $200 million (domestic and 61 international markets. This franchise has done over $600m international on each of its last 3 films.)

Then there is this case where Universal kept doubling down until they went from success to a jackpot:

Fast & Furious - $208 million
2 Fast 2 Furious - $238 million
The Fast and the Furious: Tokyo Drift - $159 million
Fast and Furious - $360 million
Fast 5 - $636 million
Fast & Furious 6 - $789 million
Furious 7 - $1.52 billion
The Fate of the Furious - $1.24 billion
F9: The Fast Saga - $726 million
Fast X - in production
Fast 11 - in production

People also forget that Marvel took some steps backwards before accelerating into their jackpot status:

Iron Man - $586 million
Iron Man 2 - $624 million
Thor - $449 million
Captain America: The First Avenger - $371 million

This Marvel thing seems to be going in the wrong direction now. But there was a plan and it persevered…

The Avengers - $1.52 billion
Iron Man 3 - $1.21 million

Another dip coming… but all 3 films in the dip grossed more than the first 4 Marvel Studios movies.

Thor: The Dark World - $645 million
Captain America: The Winter Soldier - $714 million
Guardians of the Galaxy - $773 million

Avengers: Age of Ultron - $1.4 billion

Ant-Man - $519 million

Captain America: Civil War - $1.15 million

Doctor Strange - $678 million
Guardians of the Galaxy, Vol 2 - $864 million
Thor: Ragnarok - $854 million
Black Panther - $1.35 billion

Black Panther becomes the first standalone for Marvel (as Civil War featured everyone… more an Avengers title than a standalone) to pass $1 billion.

Captain Marvel repeated the billion dollar based around one character thing... so there are still only 2 movies to do it.

Post-Avengers: Endgame (I include the COVID-diminished Black Widow in the Avengers window), Marvel is rebuilding again.

Shang-Chi and The Eternals launched during COVID, and happily delivered numbers comparable (given COVID) to the early Marvel standalones that weren’t Iron Man.

Doctor Strange 2 overpromised and underdelivered on the multiverse after Spider-Man: No Way Home, but still gets close to a billion.

And now, Thor: Love and Thunder, which has little more than a cameo from The Guardians of the Galaxy, and will have to leg it out once people know that it is just a fun little Thor story that isn’t really attached to anything bigger. We’ll see.

Black Panther 2 lands before Thanksgiving.

Next year looks soft, commercially, as well… by comparison to Marvel’s history. Ant-Man, as a lead character, hasn’t passed $625 million so far. The Marvels are mostly newbies. And Guardians 3 will look to crack the $1 billion ceiling.

Even the biggest franchises have highs and lows. And the way you get the highs is soldiering on past the lows.

In a strange way, the studios are being protected at this juncture by the failure of their streamers.

Universal is comfortable with their 30/45 days to VOD and/or Peacock strategies for movies in some part because Paid Peacock is a minor distribution channel.

Yes, it is true that most movies do gross all they will gross domestically in 7 weekends. But Universal still gets the benefit of international business running strong without Peacock pushing their window. And almost no one signing up just to see a particular Universal release.

If these theatrical movies were going to US-saturated-and-daily-engaged Netflix at 45 days, there would surely be some easily measurable damage to theatrical as a result. (Another reason for Netflix to be scared of theatrical and for Universal not to want to make Peacock too strong too fast.)

Paramount+ - the discussion of Top Gun Maverick aside - also has the odd benefit of a weak streaming channel.

Universal has a formula, is consistent, and when the worm turns, I suspect they will adjust strategy.

Sony sings about theatrical, but keeps selling stuff to streamers, so while their theatrical posture is laudable, things are a little shady.

Warner Zaslav is saying it is muscling back up in theatrical, so they get a pass for now.

And that leaves Disney… previously the greatest power in theatrical and now, it’s greatest threat.

Why? Based on their choices in the Bob II Era, it’s fear of failure. And a misunderstanding of both the streaming and theatrical markets.

Bob & Kareem seem to want to do what no one else has done before. Only release the hits. Don’t sweat a left-behind few hundred million here or there if you think it is somehow going to win the day in the more controllable television/streaming business.

It doesn’t work.

To wit, Encanto and Turning Red both could clearly have been much more profitable than Lightyear if they had been properly/fully released.

They thought they knew the answer. They were wrong. Every studio (and critic of studios) is wrong a lot of the time. I guess they could literally stop making or releasing anything other than Star Wars or Marvel movies. But as we have already seen, there are dips in those revenues too. And every effort is extremely expensive.

With the exception of a few Searchlight movies and a Bollywood movie that was already committed to Amazon Prime as its streamer, Disney is shut down for theatrical from next week’s release of Thor-ey until November. Three months of nada.

What is the logic of doing a 3 hour Ms. Marvel limited series to introduce the character, who will be part of carrying a 2023 movie, The Marvels, instead of doing a 2-hour theatrical movie, directed start to finish by hit-makers Adil & Bilall? (Ms. Marvel could also have been one of the cheapest Marvel movies… but let’s not dig into that.)

Why would you not do a theatrical for a Tom Hanks-starring, $150m+, live action Pinocchio?

And when you get to November…

Will Strange World get a fully-energized release in November or a half- ass one like Encanto last November?

Is David O. Russell’s Amsterdam get any more than a legally-required release in November?

The logic, from outside the Mouse House, would have been easier to figure in the past. If the film isn’t that good, push it to the streamer. But that isn’t what we have seen. Yes, COVID. But some good, marketable movies are going to streaming and some not-so-good, not-easily-marketable movies are going theatrical. Moreover, what seems like some bad decision-making that has not led to any kind of Disney+ subscription surge.

The newest con in Hollywood is claiming that while a movie pushed to streaming didn’t add subscribers to the service, it is helping maintain the subscribers that already exist. Thus, no accountability… because no one outside of the company can really measure that.

There have been cases when there is little or new new content on a streaming service, so something to give more value is an argument. But not when you have Obi-Wan Kenobi and Ms. Marvel overlapping.

You’ve read me go on and on and on about the limited number of wide-release movies being put in theaters. And yeah, this story connects to that too.

But my primary point today is that huge success in this industry is a function of taking risk, the exceptions being insanely rare. When you avoid risk, you eliminate those huge successes… unless, like Disney, you are living off the success of people before you who took massive risks.

IP is great. But it rarely continues for a long period. It is cyclical. Disney is near the end of a cycle of sucking the life out of their IP. And instead of creating more, they are diminishing the power of the IP they have and much of the IP that is new and reducing it to fodder for a streaming service, where history has shown that it is very challenging to build long-lasting IP.

We are used to broadcast tv networks going up and down, great runs of shows and then fallow years of mediocrity. But Netflix - and streamers, in general - are not so easily read by their viewers. We are inundated with new content constantly.

A year ago, no one was talking about Netflix having weak programming. They were excited by the worldwide adventure and the big money being spent on “movies.” Now, half the people you talk to about Netflix talk about how mediocre the content is.

Netflix didn’t change in the last year. Perception did.

Part of it was the stock market. Part of it was competing streamers pushing out a lot of expensive content that felt a lot fresher than what Netflix is doing. And part of it is just that things change… tastes change… and it happens to EVERYONE (aside from James Cameron… so far).

Playing this game afraid is suicidal (in as much as a $50 million golden parachute is death).

Until tomorrow…