Netflix Disrupting Netflix

I started a Substack newsletter called Getting to Greenlight this week. (I know, Substack is such a vibe right now, but I have a good reason, which will become clear in due course.) Most of my pieces there will focus on, well…how things get greenlit. But I think discussing interesting developments in the business will be On Brand, too. Hence my first post: Netflix is reportedly in talks to disrupt itself.

Jessica Toonkel reported today for The Information that Netflix recently began discussing licensing its original programming to AVOD and linear TV networks:

Netflix has discussed licensing older movies like its 2018 thriller “Bird Box,” which starred Sandra Bullock, to ViacomCBS’ CBS network, for example. Similarly, late last year, Netflix and NBCUniversal, which had just launched its Peacock streaming service nationwide, discussed Peacock licensing some older movies and shows from Netflix, such as the 2018 film “The Christmas Chronicles” starring Kurt Russell and Goldie Hawn, according to people familiar with the situation. Neither set of discussions led to a deal, however.

Toonkel points out one implication of those discussions that rings pretty true for me:

Netflix’s willingness to discuss licensing older programs suggests the company has concluded that older movies, at least, don’t help bring in new subscribers or retain old ones.

Two quick reactions:

How long until Netflix considers a true, post-Covid-19-style North American theatrical window for its movies?

The conventional wisdom is that Netflix’s refusal to release movies theatrically (other than the bare minimum required to qualify for Academy Awards) was all about their Prime Directive: Subscriber Growth. They weren’t opposed to The Theatrical Experience, nor the idea of release windows, nor, you know, making money. But NATO’s 90 day-ish exclusive theatrical window was impossible to reconcile with the streamer’s business model.

Now, though, given…

a) Covid-19’s impact on theatrical windows (i.e., theater chains are willing to be flexible about the exclusivity period),

b) Netflix’s near-saturation of their North American market (to the point that they’re finally cracking down on password sharing), and

c) This new willingness to revisit their streaming-only, all-your-window-are-belong-to-us strategy…

…experimenting with more and longer theatrical windows for Netflix’s movies (at least domestically) is the obvious next step.

To put it another way, pre-pandemic, it made sense to keep 6 UNDERGROUND and TRIPLE FRONTIER and EXTRACTION essentially streaming-only. (Subscriber growth from 2018 through 2020 certainly validated the strategy.) But in 2021, does anyone who doesn’t already have Netflix in North America think, “You know, I considered signing up, but now that RED NOTICE is in theaters, nah”?

Similarly, does anyone turn off Netflix because they can see some of their movies in a theater? Definitely not. Which means not having a real theatrical window and extracting additional revenue for titles that warrant it is suboptimal.

Speaking of suboptimal…

How pissed are you if you sold a movie or TV series to Netflix and the deal didn’t include a piece of non-subscription revenue?

I had occasion this week to contrast and compare half a dozen studio finance agreements, all of which had page after page of meticulously wordsmithed definitions for “Gross Receipts” and “Off The Tops” and “Distribution Expenses” and on and on. I have not seen a Netflix version of such an agreement, so it’s certainly possible they include the long form contract version of “The likelihood that we’ll make money from this content you’re producing in any way other than monthly subscription revenue is essentially zero, but on the utterly remote chance we do, there’s a possibility you might receive a sliver of the proceeds, under the following circumstances:…

However, I think a much more likely scenario is one in which their business affairs executives successfully removed those clauses altogether.

“Listen,” one imagines them saying, “we know your client is a big deal and has a Cash Break Zero precedent at Lionsgate or whatever but we don’t make money on our movies. That’s why we just spent a month negotiating your ‘Buy-Out Conversion Formula’ definitions. There’s no reason to keep this ‘Participations’ section in the contract because There Will Be No Participations. Seriously. Not Ever. Trust me.”

And because the agent already got a yes to “Max Quote + 25% + Back-End Buyout at 2X Base Case Theatrical Performance” (I made up half of that but seriously how do you get Dwayne Johnson and Ryan Reynolds and Mark Wahlberg to commit one of their slots to Netflix if you don’t do something along those lines?) and has already mentally spent their year-end bonus buying their neighbor’s house and leveling it to make room for a new poolhouse/dungeon/screening room/yoga studio/whatever, it’s a pretty easy thing to agree to.

It’s not like Netflix wasn’t already a full-fledged movie studio pre-pandemic. (Yes, obviously, also a full-fledged TV studio, and dozens of TV networks rolled into one, but this piece is just about movies.) But the thing that has always stood out about their strategy is their refusal to monetize their content in any way other than subscriptions. Once they started making what could have been box office hits, though, not fully exploiting their earning potential only made sense as long as there were plenty of subscriber worlds to conquer.

Those days are waning, in North America. They can declare victory and move on from the strategy that got them here. And I, for one, would love to see RED NOTICE at an Arclight.

And the chances I’d watch it again at home? The maximum.

EVP, Head of Business Development, Slated