IBC
Netflix rarely releases data about its content but recently
broke cover to claim that 45m accounts – nearly a third of its total – had
streamed the Sandra Bullock thriller Bird Box in its first week on
the platform, a record for a Netflix film, apparently.
At face value the statistic is extraordinary. All things
being equal, were the Susanne Bier-directed film released in cinemas, it would
have racked up nearly half a billion pounds in just one week based on an
average ticket price of £10.
By contrast, in the week of Bird Box’ release Mary
Poppins Returns topped the UK box office for the second week in a row with
£7.4m followed by Transformers prequel Bumblebee (released the same
day as Bird Box) at just over £5m from an approximate audience of 700,000
and 500,000 respectively.
There are several reasons why this is not a fair comparison,
but there are many other reasons why this lifts a veil not only on Netflix’s
SVOD strategy but on the way Hollywood is being forced to change its business
model to compete.
After all, this is the year when box office revenues for
movies are predicted to be overtaken by OTT revenues for the first time.
Bird Box blindfold
Bird Box received lukewarm reviews but propelled by
Bullock’s star power, the gimmick of having to perform tasks blindfolded and a
marketing campaign on par with that of a major theatrical release, became a
social media sensation with thousands of people and celebs posting videos
mimicking the set-up. Netflix deftly inflamed the craze by calling for greater
care while doing it - but not to desist entirely.
While Netflix’ data secrecy calls for caution there can be
no doubt of the soaring demand to stream movies at home, nor of the importance
to streamers of securing original must-see content.
It’s not just any old content that subscribers want either
but premium shows and quality movies that they can’t get anywhere else. This
holds as true for Netflix as it does for Hulu, Amazon, Sky or the forthcoming
Disney+ and is the reason why content budgets are rocketing while the risk of
not returning investment is increasingly high.
Better-tasting popcorn
Netflix itself has an evolving love-hate relationship with
cinema. The company famously began as a mail order service for DVDs and
continued to adopt an aggressive attitude to disrupting what it sees as
outmoded distribution models.
Last year, chief executive Reed Hastings remarked that the
only innovation cinemas had to offer was better-tasting popcorn, and content
chief Ted Sarandos declared that Netflix is “choosing to be about the future of
cinema.”
With the studios ringfencing the traditional cinema-first
release window, Netflix opted to copy the success of its TV originals by
investing in feature-length content exclusive to its platform.
Some of these might be critically derided – such as the
multi-picture deal with Adam Sandler (which nonetheless proved such a hit that
Netflix signed another four-film pact with the comic in 2017) – and Brad
Pitt’s War Machine, which cost $60m and was widely considered a dud.
But with the combination of astutely weighed subscriber data
and shrewd marketing Netflix seems to have hit on a number of successful
formulae.
These include rom-coms, such as When We First Met,
Naked and #realityhigh, a genre which Hollywood has all but given up
on in recent years to concentrate on massive-budget tentpoles; local or foreign
language films like Ramón Salazar’s Sunday’s Illness, Alice
Rohrwacher’s Happy as Lazzaro greenlit or acquired in part to plug
regulator and country-specific quotas; and prestige projects which have the
dual function of enticing A-list directors to the platform and of generating
awards-buzz respectability.
This strategy, initiated less than two years ago, can also
be read as a deliberate strike at Cannes, the most prestigious film festival
and arguably the most righteous. Its organisers have banned films from
competition that (in compliance with French law) do not have a theatrical
release before streaming online. In 2017 that included Netflix original Okja but
not much else. This year Cannes’ stance backfired when festivals like Toronto,
New York and Venice embraced Netflix financed Awards-baiting films like Coen
brothers’ The Ballad of Buster Scruggs, making the festival seem on the
wrong side of history.
Over the past year Netflix has seemingly undergone a
Damascene conversion by granting a limited cinema release to those of its films
with most chance of winning an Oscar. For example, Paul Greengrass’ docudrama
of Norway’s horrific massacre 22 July was given a simultaneous cinema
and online debut, and Netflix minted a 70mm version of Roma for a
handily-timed theatrical outing this month when Oscar voting ends. Such a move
is also designed to woo directors of the calibre of Greengrass and the Coens.
The streamer not only finances films (in the case of Roma)
but picks up rights either from festival premieres (such as Come Sunday starring
Chiwetel Ejiofor which aired at Sundance) or those discarded by studios. In the
latter camp fall, The Cloverfield Paradox, Alex Garland’s Annihilation and
Andy Serkis’ Mowgli: Legend of the Jungle (the latter two given a
brief theatrical run) none of which were deemed likely to set the box office
alight and may or may not have made a return for Netflix.
Cinema takes a hit
Box office revenue is already being hit from a number of
quarters. This year, OTT revenues will overtake theatrical revenues for the
first time, according to Ampere Analysis. SVoD has already surpassed cinema in
the US, and the trend is widening to include European and Chinese markets. All
in, OTT is predicted to reach US$46 billion in 2019, beating worldwide box
office receipts of US$40 billion.
Among the chief reasons given by Ampere is the high price of
tickets.
“There’s clearly an appetite for content among some
consumers whether on the big screen, or a smaller one,” noted senior analyst
Toby Holleran.
“The key for cinema is to understand that while SVoD
subscribers are more avid cinema goers, this may not always be the case.
Therefore, the shared experience of watching a film on the big screen must
remain an enticing – and realistically priced – one.”
There’s growing evidence that breakout Netflix hits are also
denting the prospects of theatrical releases. Analytics firm Vault modelled the
potential impact of Netflix sci-fi hit Bright. Reportedly costing $90
million, the effects-heavy blockbuster starring Will Smith landed on 22
December 2017, the same weekend as Star Wars: The Last Jedi and Jumanji.
According to Vault, the film would have taken $40m had it been shown in
cinemas.
“Whilst a $40 million opening isn’t exactly considered a box
office record, it did create headaches for the Jumanji marketing
campaign,” suggests author David Stiff.
Vault calculates that Jumanji lost $10m-15m as a
result of the clash and further predict that Bright would have gone
on to gross $128m – not bad for a film which received poor reviews and further
testimony to the data-mining accuracy of Netflix’ machine. It seems able to
pinpoint the mix of stars, story and format which will appeal when commissioning
projects and generate wider audiences for films that might otherwise suffer at
the box office because the films remain on the platform building word of mouth
(as happened with Bird Box, Bright and Annihilation).
Studios play the franchise game
The battle for content and the seismic shift to
direct-to-consumer video pioneered by Netflix created the hottest M&A last
year when Disney beat Comcast to 21st Century Fox. It also electrified the most
eagerly anticipated business launch this year.
Disney+ will put the world’s biggest media company in direct
competition with Netflix but analysts are unsure of the outcome. On the one
hand Disney has to invest billions of dollars in content just to keep pace with
the likes of Netflix which set aside $12 billion in 2018. At the same time, it
will release much of this content on its new platform, waving goodbye to the
licence revenue it would have received from third parties.
This is most notable in the case of Netflix where, according
to Variety, Disney stands to lose $300 million a year by pulling all its
content from its rival.
On the other hand, that content is among the most valuable
in the world. Aside from 7,000 TV episodes and a 500-movie catalogue it
includes the sprawling Marvel and Star Wars universes, both of which have new
feature instalments due in 2019 and live action TV spin-offs in the works (Star
Wars: The Mandalorian is in development).
Jon Favreau’s The Lion King and animated
sequels Toy Story 4 and Frozen 2 will also be shown first
on Disney+ (outside of cinema).
There is the also the potential to spawn abundant content
opportunities with Avatar,James Cameron’s sci-fi extravaganza which is
prepping a first-of-many feature sequels for 2020.
“The single worst thing Disney could do is launch a DTC
product that consumers find underwhelming,” analyst Todd Juenger of Bernstein
Research wrote in Variety. “We struggle to see how Disney can simultaneously
make this [sustained] investment while also de-leveraging [paying down the debt
on Fox]. We fear they will either underinvest in the DTC product, or fail to
deliver.”
Disney is not thought likely to rip the floor from under its
third-party carriage deals entirely. Its September 2016 deal with Turner for TV
rights to air Star Wars movies runs until 2022 – by which time the
new OTT service from AT&T-owned WarnerMedia will be long up and running. It
will offer content from Turner, HBO and Warner Bros.
Wooing prestige projects
While Hollywood studios are gambling their future on mega-budget
‘universe’ expansion, a host of small to mid-sized features – among them the
passion projects of pedigree directors - are being dropped. Netflix is there to
pick up the pieces.
The chief pull from a director or star’s point of view is
that a streaming platform is more likely to deliver a worldwide audience,
particularly if that project is one that studios decide are uncommercial in
subject matter or treatment.
Alfonso Cuarón’s black-and-white, Spanish-language art film
fits that mould, as does Greengrass’ 22 July. Directors, cinematographers
and editors also seem to enjoy a creative freedom at Netflix or Amazon outside
the executive confines and stricter schedules of a studio major; an indie
mentality with blockbuster budgets, if you like.
This explains why Guillermo del Toro, a classic Hollywood
outsider, has chosen to follow his Oscar winning The Shape of Water with
an animated feature version of Pinocchio for Netflix.
Martin Scorsese is perhaps the most lauded auteur to sign
online to date. His U$100 million gangster movie The Irishman was
picked up by Netflix when original studio, Paramount, got cold feet. Perhaps
Paramount did not want a repeat box office performance of Scorsese’s previous
passion project The Silence, but nonetheless it says a lot when one of the
world’s greatest directors together with actors Al Pacino, Harvey Keitel and
Robert de Niro can only get their movie funded by a streaming service.
“The Irishman is a risky film,” Scorsese told the
Marrakech Film Festival just before Christmas. “No one else wanted to fund the
picture. Netflix took the risk.”
Nonetheless the director seemed in two minds about the
decision which might seem to relegate the big screen. “Everyone can make films
today, but no one can see them. I have no idea of how the future will look in
terms of presentation of visual storytelling as we have no idea what the
developments will be.”
Amazon’s longer play
Although Amazon beat Netflix to become the first streaming
service to produce an Oscar-winning movie when Manchester by the Sea won
best actor for Casey Affleck and best original screenplay in 2016 (with
nominations for best picture and best director) it has adopted a more low-key
strategy.
Like Netflix, Amazon Studios has primarily backed
director-driven projects that appeal to art-house crowds and attract awards
attention.
Unlike Netflix, its distribution strategy is more
traditional and less disruptive. Rather than pick a fight with the studios,
Amazon offers all its movie productions – which include Woody Allen’s Wonder
Wheel, Spike Lee’s Chi-Raq, Lynne Ramsay’s You Were Never Really Here and
Luca Guadagnino’s horror remake Suspiria – a theatrical premiere.
This could be because Amazon is less interested in making
money from box office returns and home entertainment sales than it is in
attracting subscribers to spend more time on its subscription platform, Prime -
and consequently more cash on online retail.
A major 2019 release co-financed by Amazon and Warner Bros
to look out for is an adaptation of Donna Tartt’s Pulitzer Prize winning
novel The Goldfinch starring Nicole Kidman and Ansel Elgort lenses by
2018 Oscar winner Roger Deakins.
And the winner is…
According to Ovum, Netflix will account for around one in
three online video subscriptions worldwide in four years’ time. In many
countries, its market share will be well over 50%, leaving most rival apps
fighting over relatively small numbers of subscribers.
Others think Netflix could already be over-reaching itself,
particularly if Disney’s withdrawal of content from the platform is replicated
by other content owners.
“Individually any one of the big Hollywood studio groups
does not make up a huge proportion of Netflix’s catalogue, maybe 4% or 5% of
total hours,” Ampere analyst Richard Broughton told The Guardian
[https://www.theguardian.com/media/2019/jan/01/is-this-the-end-of-netflixs-golden-age].
“If one or two pull their content Netflix can plug the gap. But if the market
gets more aggressive against Netflix, it is going to get tougher.”
Ampere points out that Netflix net debt was $8.34bn at the
end of last September and that the spiralling cost of content and marketing
could see the company in a negative free cash flow of $3bn to $4bn in 2019, or
$3bn more than it earns from subscribers.
Netflix could reinvent itself as an Amazon Channels-like
aggregator, posits Ovum, handling marketing, technology, and customer support
for a range of smaller SVOD suppliers in exchange for a cut of fees from
subscriptions it brokers or manages.
But there’s always Amazon itself, a company which has
several times the market cap of Netflix and Disney as it stands and which has
already made moves into that other vital audience hot spot – live sports.
Reading between the lines, Amazon is considered the company
with the most muscle to be last one standing in home entertainment though it
will likely get there by building partnerships not knocking them down
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