Netflix is ​​experimenting with the Knives Out sequel, but sticking with limited theatrical releases

Daniel Craig returns as Benoit Blanc in Glass Onion: A Knives Out Story.

Netflix

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Some theater owners and industry analysts are wondering if the streaming giant will reconsider its opposition to the traditional Hollywood movie release model as it seeks new ways to boost sales.

This Thanksgiving, Netflix plans to release “Glass Onion: A Knives Out Story,” the sequel to the 2019 hit “Knives Out,” in select theaters for a week before offering it to subscribers a month later.

The streamer has reportedly shelled out $400 million for the rights to two sequels after the original Knives Out grossed $312 million worldwide on a budget of just $40 million. The first film’s box office performance, in turn, provoked questions about why Netflix limited the launch of Glass Onion to just one week in just 600 theaters.

And with a thin pipeline of big movie releases this year, cinema owners want more from Netflix.

“We’re excited that they’re experimenting and giving us an exclusive window,” said Brock Bagby, chief content and development officer for B&B Theaters, which has more than 50 locations in 14 states. “But we wish it was longer and we wish it was wider.”

Some Netflix executives reportedly lobbied co-CEO Ted Sarandos earlier this year to consider longer theatrical stints and wider releases for some films, but Sarandos scrapped the idea. The company’s top executives have repeatedly said that the future of entertainment lies in streaming.

According to some on Wall Street, Netflix could benefit from a more flexible approach to movie releases. That could help generate more box office revenue and attract filmmakers with the prestige that can come with theatrical releases.

“If anything, the past year has shown that Netflix is ​​open to and needs new revenue streams,” said Mike Proulx, vice president and research director at Forrester. “Incremental subscription revenue alone just won’t reduce it going forward.”

Continue reading: Netflix wants investors to focus on earnings, not subscriber numbers

That’s partly why Netflix is ​​adding an ad-supported tier to its service after so many years of resistance, he said.

Michael Pachter, an analyst at Wedbush, said he understands that Netflix doesn’t make films to capitalize on theatrical releases and that the company’s priority is to keep its members happy. “But that ignores the fact that filmmakers firmly believe in theatrical performance as a measure of success,” Pachter said.

Netflix executives are sticking to their decision to show Glass Onion in just 600 theaters for a week. The company’s strategy in the past with limited theatrical releases — such as with Martin Scorsese’s The Irishman — has been to create excitement for subscribers when the film arrives on its service. That’s the game here, too, the company said during Tuesday’s earnings video.

“We’re committed to entertaining our members with Netflix movies on Netflix,” Sarandos said during the call.

He said that Netflix put films in festivals and gave them limited runs in theaters because filmmakers demanded it.

“There [are] all sorts of debates all the time, back and forth, but there’s no question internally that we make our films for our members and we really want them to watch them on Netflix,” he said.

Netflix declined further comment.

I’m still tinkering

“One thing Netflix has historically been successful at is iterating, experimenting, and finding what works best for its members and shareholders,” said Ralph Schackart, research analyst at William Blair. “It then focuses on what’s working and backs away from what’s not working. We believe part of Netflix’s historical success has been its willingness to be flexible and try unconventional methods.”

He said Netflix likely won’t commit to a longer theatrical release window until it sees whether that strategy can benefit its business.

Additionally, Dan Rayburn, a media and streaming analyst, said there’s no publicly available data to suggest that Netflix would make more money from subscriptions over the long term if the company got more of its movie content into theaters.

Of course, theatrical releases come with marketing costs, and Netflix has been reluctant to spend money promoting features played for limited engagements.

And while theatrical releases could open up a new revenue stream for Netflix, Forrester’s Proulx noted that theaters may not be as relevant as they used to be. According to Forrester’s Consumer Energy Index and Retail Pulse survey, released in December 2021, 54% of US adults who use a streaming service said they would rather watch movie premieres via streaming.

Still, people are returning to theaters after pulling out early in the pandemic, particularly for action and horror films and established franchises. “Halloween Ends” made its domestic box office debut over the weekend for $41.25 million, although it also launched on Universal’s Peacock streaming service at the same time.

There’s also a case for making decisions on a case-by-case basis, especially for a movie like Glass Onion, given how well the first part of the franchise did in theaters in late 2019 — especially considering it did that way there are few big films that will hit theaters before the end of the year.

The original “Knives Out,” which had a $40 million production budget, generated $26.7 million in its opening weekend and held audiences’ attention for weeks before seeing a further surge in ticket sales for the December break experienced holidays. By the end of its theatrical run, it had grossed $165 million at the domestic box office and $312 million worldwide.

“The benefits of a longer theatrical run for Netflix appear to outweigh any downsides,” said Shawn Robbins, chief media analyst at BoxOffice.com. “This is not an unproven original film like the streamer has made mostly for its platform in the past, but a sequel IP with star names and strong commercial potential.”

He also noted that Netflix valued filmmaker Rian Johnson’s sequels so highly because the original film was so successful during a long and exclusive theatrical run under Lionsgate.

“Without the latter component, would Netflix have invested so much in ‘Glass Onion’ and its eventual sequel, if at all?” said Robbins.

The deal for two sequels to Knives Out was announced in March 2021 and is said to be worth around $400 million. Johnson was to retain complete creative control and original film star Daniel Craig would return for both films.

“Like the first movie, the legs could be really strong,” said B&B’s Bagby of Glass Onion.

Disclosure: Comcast is the parent company of Universal, Peacock and CNBC.

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