Netflix may be missing an opportunity in horror movies

A button to launch the Netflix app is seen on a remote control in this illustration photo in Warsaw, Poland, April 25, 2019.

Jaap Arriens | NurPhoto | Getty Images

There’s a big question of money haunting Netflix.

In recent years, the streamer has spent big on flashy blockbuster-style action movies like “The Gray Man” and “Red Notice,” which cost the company $200 million each. Films are the first steps in deals aimed at triggering event-level franchises. But they are expensive, and their impact on Netflix’s bottom line is unclear.

Meanwhile, the platform hit “Stranger Things,” a supernatural thriller with horror undertones, has become a clear cultural benchmark. The series, which just released its fourth season, has inspired Halloween costumes and monster-filled alternate universe video game versions.

While the show has a similar budget to those high-octane action flicks — around $30 million per episode, or more than $200 million per season — its success has led some industry players to wonder if the big budget features are worth Netflix’s investment.

Netflix’s streaming rivals have started changing their own content strategies to spend less on direct-to-stream movie content. The CEO of Warner Bros. Discovery’s David Zaslav said Thursday that his company has been unable to find “economic value” in producing big-budget films for its streaming services.

“We’ve seen, fortunately, now having access to all the data, live movie performances,” Zaslav said during the company’s second-quarter earnings call. “And our conclusion is that expensive live movies … are not comparable to what happens when you launch a movie in theaters, in theaters.”

Netflix doesn’t often release movies in theaters unless it’s looking to be eligible for the Oscars, so it budgets for movies knowing that its only option to recoup expenses is subscription growth.

That’s why analysts have pointed to the horror genre as a potential avenue for Netflix.

The horror genre, in particular, usually comes with lower production costs, which makes these types of films ideal for the box office, as they often bring in far more ticket sales than they cost to make. .

Blumhouse and Universal’s “Get Out” cost just $4.5 million to produce and grossed over $250 million at the worldwide box office.

And while ‘The Gray Man’ is set to become a franchise, Peter Csathy, founder and chairman of consultancy Creative Media, has suggested Netflix overlooks horror franchise opportunities that could save the company hundreds. millions per film.

‘Scream’, ‘Insidious’, ‘Halloween’ and other horror movie series have won over fans of the genre as low-budget alternatives to more expensive franchise efforts like Fast and Furious, Star Wars, Marvel or Lord of the Rings.

“The production costs are just a sliver, a fraction, a small fraction of what these huge bets that are being made are,” he said. “And why not go for something safe and inexpensive that hits your targeted demo? Why not put your money in it, rather than making those big prestige games?”

Additionally, Csathy added, the horror genre’s target audience also happens to be young – demographic advertisers and streamers want to tap.

Netflix has seen the success of horror releases past, including its “Fear Street” trilogy, and has a number of Netflix original releases in the genre, including “No One Gets Out Alive” and “There’s Someone Inside Your House. “.

Wedbush analyst Michael Pachter suggested Netflix could get more bang for its buck by sticking to a range of horror and rom-com projects, both of which tend to be relatively low-budget. With smaller budgets, missteps aren’t as significant.

“The cool thing about a low budget is that you can make mistakes,” he said. “Big budget, you just can’t make it. If you get it wrong, you’re screwed. So which is more risky, one $150 million movie or three $50 million movies ?”

Missing Metrics

Part of the scrutiny of Netflix’s content spending stems from the lack of clear metrics around the financial performance of first-running shows and movies.

Box office tallies for theatrical releases and TV ad revenue are proven metrics. With streaming-only platforms, audience data varies from service to service and paints an incomplete picture for analysts trying to determine a movie or TV show‘s actual performance.

A bill of over $200 million for a movie like ‘The Gray Man’ is harder to explain when there’s no visible financial gain at the end of production, as studios see in sales tickets at the box office. Streaming subscribers pay a fixed monthly or annual fee to access all available content. Netflix argues that its content keeps users on the platform and remit subscription fees.

For Netflix, the push towards big-budget films is a way to burnish its image and assuage critics that it produces mediocre content. The company has strengthened its balance sheet, is cash flow positive and has a three-year window before a significant portion of its debt comes due, giving it room to spend.

It’s unclear how much Netflix spent per movie on its “Fear Street” trilogy, and data on its performance on the platform is limited. But Nielsen’s ratings estimated that “Fear Street 1994” generated 284 million viewing minutes in its first week on the service and “Fear Street 1978” totaled 229 million minutes. It’s unclear how the third film, “Fear Street 1666,” played.

Additionally, the fourth season of “Stranger Things” became only the second Netflix series to cross 1 billion hours watched in the first 28 days of availability. Sure, comparing Netflix’s movies to its TV series is a bit like comparing apples to oranges, but it’s the best data analysts have access to as long as the company is quiet about content spending and Success.

Many entertainment pundits have tried to crunch the numbers on how streaming hours translate to revenue, retention, and ultimately Netflix’s business strength. But much of how Netflix decides what to greenlight and what to cancel remains a mystery to analysts.

Based on Netflix’s own data, “The Gray Man” racked up more than 88 million hours of viewing worldwide in its opening weekend on the service, down 60 million hours. than “Red Notice” during the same period last November. “Red Notice” topped Netflix’s top 10 for 12 days, while “The Gray Man” was spoofed after just eight days.

On Friday, the film takes fourth place on the list behind “Purple Hearts,” “Tower Heist” and “Age of Adaline.”

So, was “The Gray Man” worth its $200 million price tag? It seems to have hit a behind-the-curtain metric for Netflix, which is moving forward with a sequel and a spin-off.

“Netflix obviously has the data and the methodology that they believe is accurate, to determine what’s that success at Netflix and what’s not,” said Dan Rayburn, media and streaming analyst. “Whether [‘The Gray Man’] had bombed according to their definition of bombing, whatever it was, we don’t know, they wouldn’t have announced an expanded deal.”

As for how Netflix makes its content choices, Rayburn says that while the data isn’t currently widely available, that could change once the streamer enters the advertising market.

“Whether they want to give us data or not, we’re going to get more data over the years, because of the advertising side of it,” he said. “It’s going to help us understand the content better.”

Disclosure: Comcast is the parent company of NBCUniversal and CNBC. Universal is the distributor of the Halloween franchise and “Get Out”.

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