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Credit: Kyle Calzia
Glass Onion: A Knives Out Mystery, will be released worldwide on Netflix on December 23, 2022. Joining the slew of Original Movies hosted on their platform in lieu of traditional theatrical releases, Netflix paid $465 million for the intellectual property rights to two sequels of the award-winning Knives Out. Whether it is released with a hybrid theater-streaming strategy or solely on Netflix may determine the future of the movie industry post-pandemic.
Pandemic Woes
It is no secret that the COVID-19 pandemic unsettled the movie theater industry. Knives Out, released months before the pandemic, earned over $311 million against a budget of $40 million. Movies of similar popularity and critically successful stature did not fare so well during the health crisis. For example, a hot product Marvel movie, Black Widow, grossed only about $379 million worldwide, a weak showing when compared to ten of its sister Marvel movies released before the pandemic, each of which grossed well over $1 billion worldwide. Disney’s Encanto, released in 2021, grossed about $256 million worldwide as compared to $1.66 billion for the pre-pandemic Lion King. Disney Pixar’s Lightyear, released in 2022, grossed about $226 million whereas Toy Story 4 grossed over $1 billion in 2019. Although the brunt of the pandemic dissipated by the end of 2021, its effects on the theater industry will be permanent.
Growth of Streaming
Like many other community establishments, movie theaters were closed to consumers for years, enabling the growth of streaming services like Netflix. As of 2021, box office earnings were still 50% less than what they were before the crisis, falling 71% in 2020 as ticket sales fell 80% that same year. Worldwide ticket sales in 2019 amounted to a record $42.5 billion. However, 2020 figures were a dismal $11.8 billion, increasing to $21.3 billion in 2021. Comparatively, the global movie streaming industry amassed almost $60 billion in 2021.
In 2020, Netflix attracted about 36 million new subscribers. In 2021, they added an additional 18.2 million, totaling about 220 million worldwide. In that time, their profits increased from $2.76 billion to $5.1 billion. Blockbuster films produced by major studios who traditionally partnered with cineplexes began to replace that strategy with a hybrid one, hosting their movies on streaming services after a short stint on reel. Encanto was broadcast in theaters for one month before arriving free on Disney+. Lightyear was in theaters for six weeks before becoming free to stream on Disney+. Black Widow was streamed and released in theaters on the same day, compelling a lawsuit by its leading star. Although the hybrid release strategy pioneered by Netflix will replace the traditional three-month theatrical release window with one much shorter and monetarily efficient, Netflix has not yet decided whether to release Glass Onion theatrically.
Almost 50% of movie theater patrons have not returned post-pandemic. As theater attendance shrinks and streaming services grow, major studios developing big-budget cinemas with prolific actors will normalize a hybrid business model. First by contracting to distribute their films in theaters, and then by contracting to license those same films to streaming services allows maximum profit capture from both channels.
A New Business Model
Netflix is no stranger to hybrid releases, highlighted by their new pattern of securing exclusive intellectual property rights for hit pictures. For example, lauded director Martin Scorsese’s The Irishman, which was screened physically for 26 days before being digitally streamed on Netflix, was purchased for exclusive worldwide streaming by Netflix for $159 million. In 2022, the Russo Brothers’ The Gray Man was released limitedly for one week before becoming available on Netflix. With a budget of $200 million, it was the costliest Netflix Original ever developed, rivaling the budgets of major film studios. Furthermore, Netflix purchased exclusive worldwide rights to stream Wish Dragon from competitor Sony Animation Studios after its theatrical distribution became infeasible, and likewise purchased exclusive worldwide rights to stream The Woman in the Window from competitor Disney. As Netflix transitions from streaming to studio, its industry-leading model will soon replace traditional screenings by combining content creation and content consumption into one platform easily accessible from any device, a strategy competitors would be wise to follow.
A Long List of Winners
In 2021, Netflix invested about $17 billion on content creation, and expects to spend $18 billion in 2022. With its movies now eligible to receive Academy Awards, Netflix will shift from its long-tail approach into one far more mainstream as it accommodates the artistic wishes of leading actors, producers, and directors.
Knives Out was nominated for Best Original Screenplay during the 2020 Academy Awards. Just last year, The Power of the Dog, produced and distributed by Netflix for about $45 million, was nominated for twelve Academy Awards, establishing the legitimacy of the Netflix studio-streaming model to industry insiders. Now attracting winners, Netflix can continue to expand its creation and hybrid-distribution strategy by leveraging the popularity and acclaim of its recent ventures. No doubt Glass Onion will be a respectable film, joining Academy Award-winning Netflix Originals like Roma and Ma Rainey’s Black Bottom.
A Look at Legal
Netflix won the rights to Glass Onion over competing bids from Amazon and Apple. A dynamic market has developed where leading streaming services are willing to compete for exclusive rights to develop and distribute recognizable intellectual property, excluding those unable to afford or purchase from capitalizing on this trend. Amazon spent $1 billion to obtain and develop the intellectual property rights to Lord of the Rings, exhibiting that the industry is willing to pay previously inconceivable sums to obtain recognized content to supply new modes of access.
By various contracts and licensing agreements, each leading streaming service invariably hosts different content than its competitors. Because Disney, through a series of billion-dollar acquisitions, now owns Pixar, Marvel, and Star Wars, three of the highest-grossing franchises of all time, Netflix must explore alternative routes to effectively compete with Disney+. Frantic content licensing between streaming services and entertainment studios will become the norm, although licensing between streaming services may remain viable as products are traded as necessary. The fragmented nature of existing platforms highlights the centricity of IP, where, for example, HBO Max streams only HBO content, Paramount+ streams only Viacom content, and Disney+ streams only Disney content. IP exclusivity in the industry is becoming concentrated, propelled by Disney ending Netflix’s license to stream Disney content, by NBC’s hit show The Office leaving Netflix for NBC’s own Peacock, and by licensing agreements that force many movies and shows to exit Netflix monthly, only to find a new home thereafter.
An Optimistic Future
Although Netflix remains threatened by the growth of competitors owning prized IP to popular exclusive content and by those able to outbid Netflix to own and develop such IP, a pipeline of exclusive content and originals will keep Netflix central to the transition within the movie industry. This is becoming more common with each blockbuster film released, whether licensed or developed endogenously. Acquiring rights to the fledgling but respected Knives Out franchise, in which major Hollywood actors are tied, not only represents a change in movie industry operations, but is a risk and reward scenario that will prove to be permanent and profitable.
Netflix is now crucially involved in creating the franchises of the future, of which Glass Onion is a part. Even with the upside risk, Netflix will become the industry’s major movie producer and distributor by employing a licensing and purchasing strategy coupled with hybrid releases, streamlining the Hollywood industry efficiently for a mainstream and digitally astute audience.