disney

Netflix, Independent Cinema, and Hollywood’s New Business Model

The other day The Ringer published a piece about Netflix and their original movie strategy. The piece, entitled Netflix and Shrill listed the original movies that Netflix has already released in 2018 and challenged readers to see how many they recognised. For most people, the most familiar title will have been The Cloverfield Paradox. This was an $XXm space horror film that became part of the Cloverfield franchise. However the studio that made it, Paramount, got cold feet and decided to sell the thing to Netflix lock, stock and barrel. They promptly gave it a surprise release right after the Super Bowl, during which of course, they promoted it.

But what about the rest of the titles in Sean Fennessey’s piece? Well only three others on the list actually resonate with me at all – Mute, Kodachrome and Mercury 13. The former because it’s a Duncan Jones film, and the latter two because I just added both to my Netflix List.

Netflix gets films in a few different ways. It sometimes licences big name studio films either directly from the studios or via third party rights packages. That’s the way most of those familiar titles end up on the service. However, those titles are probably only licenced for a specific period of time. That’s why you get lists of movies that are coming off the service.

Then there are those it acquires at film festivals. The model for smaller independent titles has often been to scrap together funding from wherever, then pitch up somewhere like the Sundance Festival and try to get a distributor to take on the picture, getting it into theatres and, importantly, marketing it. The latter is expensive, and it’s the reason why titles sometimes end up unseen even though funding had been found to actually make them. Netflix’s preferred model is to buy the global rights and buy out the film in perpetuity. But sometimes that’s not possible because different territory’s rights may have been given up as part of the funding model. Furthermore residual rights for home release like Blu Ray or iTunes may reside with someone else.

Finally, there are Netlfix original productions – those that are put together on paper and then shot specifically for Netflix. These are labelled “Netflix Originals,” although confusingly, so are those acquired at places like Sundance. When Netflix owns the film in totality, they get to release it globally and own it in perpetuity on every platform. They control whether you can ever even see the film somewhere like iTunes.

What all this means is that the list at the top of The Ringer article only completely applies to the US. That said, when I checked, all but one of the films was also available in the UK.

I recently read a really good new book called The Big Picture by Wall Steet Journal reporter Ben Fritz, who has long covered the entertainment beat. The book goes through deep into the current Hollywood business model, because it has changed fundamentally inside the last ten years. You only have to look at the table in The Ringer piece.

Fennessey notes that the six major Hollywood studios have released a total of 25 films in the first 16 weeks of 2018. During that same period, Netflix has also released 25 films!

But there’s a reason for that. Hollywood has just dropped out of the middle market – those $30-$80m or more production films that weren’t based on franchises, relying instead on audiences turning out to see stars. They included thrillers, romantic comedies and more serious fare. Fritz’s book takes a really good look at the model that yet used to hold up Hollywood, because some of those titles in the past might have lost money, but others would have made decent cash.

However in the scheme of things, Hollywood was only make 10% and now for a studio like Disney it’s closer to 30%. That’s because they don’t these days make films that aren’t based on franchises or other known intellectual property.

Most famously Disney has Marvel. But they’ve also got Star Wars, their own animated back catalogue now being remade in live action, Pixar (who are perhaps the only real originators of new stories at the moment, even if they themselves are relying more than ever on franchises. Did we really need another Toy Story, or did the trilogy end perfectly before?), and coming soon Indiana Jones.

Fritz’s book looks closely at the travails of Sony. In part because they were the studio that were considered the most talent friendly in the past. Amy Pascal who led the studio had great rapport with the talent and was as a result Sony was home to lots of those kinds of mid-budget films, while only really having Spiderman as a top tier franchise.

The other reason the books uses Sony as a case study is because of the massive email hack. All those communications ended up online and viewable to all. These caused Sony enormous damage at the time, not least when studio heads bad-mouthed people in some of those emails. But Fritz uses them to illustrate some of the inside thinking at Sony as they realised that they desperately needed franchises, and at the same time were struggling with their most valuable asset in Spiderman. As long as they kept making new Spiderman movies on a semi-regular basis, Marvel wasn’t able to grab back arguably their biggest property.

This is all important in light of The Ringer piece because it explains why the number of studio releases this year equals the number released by Netflix. If it wasn’t for Netflix, it’s not clear how those movies would get released at all!

I’m not saying that some of them wouldn’t make it to our screens. In the US, Alex Garland’s highly regarded recent release, Annihilation, based on the Jeff Vandermeer novel, got a theatrical release. But the studio who made it – Paramount again – got slightly cold feet and sold the rights for the rest of the world to Netflix. So a film that was visually spectacular ended up going no a screen no bigger than our televisions, and no doubt for many people, no bigger than their phones. However, that’s another discussion for another day.

Had Netflix not existed, then yes, I suspect some kind of theatrical release would have happened for Annihilation – certainly in the UK. But I can’t see studios like Paramount continuing with this kind of strategy for long. Nor can I see Netflix wandering around picking up and endless succession of studio releases that the studios have suddenly got concerned about. While Annihilation is excellent, the same can’t be said of The Cloverfield Paradox which is decidedly the weakest in the somewhat contrived franchise.

The risk is that Netflix is perceived as the dumping ground for movies that have tested badly with the distributors. Of course Paramount and their ilk manage to avoid having a flop on their hands, and come out cash neutral, or perhaps with a small upside.

Meanwhile, I completely understand that filmmakers must be frustrated. They made these films to be shown on the big screen – that’s how they’re conceived and shot. You frame things differently for television. On the other hand, it has long been the case that far larger audiences will see films on television than will the big screen.

More and more, then, it’s going to continue to be Netflix and Amazon that become the homes of these medium and smaller films. What they perhaps struggle to do is sufficiently market those films.

A lot is made of Netflix’s algorithms that surface films that viewers will want to see with incredible accuracy. I don’t agree. I’ve long felt that Netflix (and Amazon) are woefully bad at surfacing their own titles. They think they know me, but they really don’t.

When Netflix emails me to alert me to a new Adam Sandler release, Netflix being the exclusive home of new Sandler releases these days (Fritz’s book details this deal), then Netflix has failed to grasp even the most basic understanding of my interests. Of course they only know what they know. They don’t know that I enjoy Westworld on Sky Atlantic; The City and the City and Howard’s End on the BBC; Endeavour on ITV. They don’t know that I saw nearly all the Oscar Best Picture shortlist at the cinema this year.

Furthermore, when big releases like Annihilation or that recent flawed Duncan Jones title, Mute are released, I have to really go searching to find them. Did either Kodachrome or Mercury 13 show up on the Netflix home page? No – I had to do a search.

Now these are titles that I’m actively aware of. What about others that I suspect I’d like if they were marketed properly? Well those are the titles that are disappearing into the depth of the platform.

It still seems remarkable to me that neither Netflix nor Amazon are able to replicate what a good physical store is able to do in showing me new titles. If I visit a branch of Fopp (about the only significant retailer of physical discs in the UK right now), I might browse at a display of films from the Criterion Collection, the BFI or Second Sight. In some instances, I simply won’t have heard of some of the titles, but I’ll still pick up discs and browse at them. I may actually buy them. The same is true in a good bookshop where as well as the latest bestsellers, the bookseller has perhaps contrived to display some thematically interesting books together on a table somewhere.

A properly released mid- budget or indie film will have press ads, posters, bus sides, and importantly, reviews. The latter is an area that Netflix and others need to work hard at. Most of the broadsheets have full time film reviewers, but in the main they don’t review streaming titles very well. The release medium seems to dictate what gets reviewed. In the past studios would “game” this. A release that was really “direct to DVD” would get a brief cinema release over a weekend just so they got notability before you spotted the title in the DVD aisle of Sainsburys the following week.

Somehow a movie poster can tell me more about a film than a small box with barely even a one line description of the title. Netflix has some incredible algorithms to test multiple images to find just the right one to appeal to me. Am I a fan of a particular actor? Then I see that actor in the image on the platform. You see something different to illustrate the same title. But beyond that, they need to work harder. Choosing to start a stream is a much more proactive choice than flicking through the channels on a remote control before settling on something.

So that’s the real reason why those movies have disappeared without me aware of them. That said, if you gave me a list of everything released at the cinema in the first few months of this, many of them too would be unfamiliar. There are a lot of films craving for attention, and only so much attention that they can be given.

I’m not going to criticise Netflix for their release strategy – but they do need to work harder on marketing of titles. Otherwise, yes, it can feel as though these films didn’t exist at all. An unfamiliar movie title in a long list remains just that. A consumer gets more excited when they seen a known property than an unknown one.

The Ringer piece notes forthcoming films from Paul Greengrass and Alfonso Cuarón, both of which I’m excited to see. Netflix will also be bringing Andrew Niccol’s new SF film, Anon (It’ll air on Sky Cinema in the UK). I’m always keen to see a new film from the man who brought us Gattaca. As long as Netflix does enough to raise the profile of these films rather them just at best appearing as a meaningless title that tells us nothing, then I’m excited for their future.

The studios, however, I’m more worried about. Their strategy of shifting to fewer and bigger films runs all kinds of risks in the longer term. The words ‘eggs’ and ‘baskets’ spring to mind.

Marvel may be unassailable at the moment, but it only takes one or two duff movies, and that success can begin to slip. In his book Fritz notes that the reduced number of releases affords movie executives more time to spend on the titles that they are releasing. They can give them the time that they need, delaying releases if necessary. That’s great in theory, but even Marvel films have dates to meet, particularly if the outcome of one film leads into the next Avengers title or whatever.

The Marvel Cinematic Universe is, as he says, the world’s highest budget TV series. Audiences go and see the new Marvel films regardless of the hero, a bit like watching your favourite TV shows week in and week out. Marvel tries to structure the films a little like a TV a procedural. You can basically watch each as a standalone, but of course there’s a larger story arc underlying the series. But as we know, even the biggest TV series juggernaut, eventually falls from grace eventually.

And will audiences continue to actually go to cinemas? They’re fighting the battle by laying on bigger and better seats that can sometimes be more akin to a business class seat on a long distance flight. They’re offering in-chair food and drinks service, and we’re seeing new formats like IMAX 3D and 4DX. Yet cinema ticket prices continue to rise ahead of inflation, and they become ever more hostile environments when they don’t ensure that patrons keep their phones switched off for example.

Disney’s answer to this potential uncertainty is to get skin into the streaming game as well. With its Disney Life app in the UK, and the forthcoming bigger offering that is coming in the US, they get to do their version of Netflix. Star Wars and Disney titles will soon disappear from Netflix as a previous deal expires. Don’t expect to see further expansions of the Netflix Marvel TV series featuring the likes of Jessica Jones and Daredevil, although I suspect the existing titles will continue, with the former having just been renewed for a third season.

Disney is claiming back its catalogue, and will no doubt look towards making its own Marvel TV series, and almost certainly, a live action Star Wars universe series. Who would bet against a reboot of the Young Indy series in the future too?

Will audiences get bored of superheroes? Are there enough franchises out there? How often can the same series be “rebooted”?

Who knows. But Hollywood is betting big time on them not running out any time soon.

Netflix and Disney

Last week came news that Disney would be pulling its movies from Netflix at the end of the current arrangement, and that Disney would in future launch its own streaming service. This licensing agreement generated a vast amount of coverage, much of it ill-informed, and ignoring wider issues in the market.

There are a few key issues to discuss here.

Disney Films on Netflix

Netflix originally signed a deal with Disney back in 2012, whereby Netflix took over from a previous Pay TV deal Disney had with Starz. Library films became available immediately on the streaming service, while Netflix gained the Pay TV window rights for new Disney movies (including Marvel, Pixar and Lucasfilm) released theatrically from 1 January 2016. In reality, that means first-run films would appear from late 2016 when the Pay TV window opened.

A Note on Windowing

It’s probably worth detailing how movie studios traditionally “window” their wares.

The Theatrical Window is usually first, and theatre owners demand that films don’t get released for usually three to four months (it varies by territory, with countries like France enforcing much stricter rules). Then is the so-called Video Window with digital pay-to-own (e.g. iTunes or Google Play Video) and physical DVD and Blu-ray releases. The former is often released a week prior to the latter. Then, a few months later, comes the Pay TV window, when films end up on premium cable and satellite channels like Sky Movies in the UK, or Starz in the US. After that initial Pay TV window, films may then go into a Second Window with perhaps a free-to-air broadcaster, or streaming service like Netflix or Amazon Prime.

Obviously with both Netflix and Amazon active in making and acquiring films, they can choose to either go straight to streaming, or miss out some of the other windows. And there is talk of a Premium Video On Demand (PVOD) window between 30 and 45 days after theatrical release that would be priced high for early streaming access. Theatre owners worry about such things because if you know you only have to wait thirty days, then you might not bother going to the cinema to see a new film.

The key thing throughout all of this is that films tend to get less valuable as the windows progress.

At the time of the Disney deal, media estimates were that the deal was probably around $300m a year for Disney, and was seen as a good deal for all concerned. Netflix paid big, but got big films as a result. Disney dramatically increased what Starz (or HBO or Showtime) would have paid, but as a studio they couldn’t miss with their Marvel films alongside the relaunched Star Wars series, as well as their high-performing Disney and Pixar output.

Now the deal is coming to an end, and films released from 1 January 2019 will not appear automatically on Netflix. Furthermore Disney is launching its own streaming service. More on this latter point below.

Cue lots of words about how this could be the beginning of the end of Netflix. The thinking is that if Disney can do this, then surely others can too. And that breaks Netflix’s model.

Well only up to a point.

It’s worth reiterating that this was a US only deal. The deal does not, and did not apply elsewhere. That’s not to say that Disney material hasn’t and doesn’t appear in other territories. It does. Star Wars: The Force Awakens was released just ahead of 1 January 2016, so didn’t make it to Netflix US. It did appear on Netflix in Canada however. Meanwhile Netflix UK has a number of Marvel films on its service, although these are second window films. They have already had runs on Sky as part of Sky’s deal with Disney (In the UK, Sky has exclusive Pay TV deals with most of the major US studios, usually locking out competitors for twelve months).

In Netflix’s recent earnings release, they reported that they had 94.36m paid memberships of which 49.38m were in the US. That leaves 44.99m outside the US, and that’s important. Within the next two or three quarters it seems likely that international will outstrip the US in terms of paid subscriptions. While that isn’t reflected in profits (international rollout is expensive), it’s important to remember that Netflix US is not the same as other versions of Netflix. Due to the way that the entertainment industry has historically worked, rights are sold on a territory by territory basis. Furthermore, different studios may own the rights to different films in different territories.

What this all means is that while Netflix losing Disney seems like a big deal, on further examination its notable that the deal didn’t extend to other territories. And those territories are growing just fine without Netflix serving up first-run Disney films.

Disney Already Streams

The other big part of this was that Disney announced that it’d launch a new Over The Top (OTT) streaming service once the Netflix deal ends.

A fact that has escaped many – including a large number of British news reports – is that Disney already has a streaming service. It’s in the UK, it’s called DisneyLife, launching at the end of 2015. Originally priced at £9.99 a month, making it more expensive than Netflix, in time it dropped its price to a more palatable £4.99. For that you get unlimited streaming access to Disney and Pixar movies, as well as all Disney’s TV programming. That amounts to about 400 movies available. The TV programming is both live and on-demand box sets. The service also offers Disney music and audiobooks, and it offers a 10% Disney Store discount.

That all said, new Disney films still get onto Sky Movies before they reach DisneyLife (in other words, the service doesn’t offer first run films during the Pay TV window), and Disney still sells its top films to free-to-air broadcasters like the BBC. I assume that maximising audience also means maximising merchandise revenues from those later rebroadcasts.

Whether Disney renews its Sky agreement in the future, or goes it alone in an attempt to bump up overall revenues will be worth looking out for. But it would seem that the UK has been used as a beta test market for the newly announced Disney service.

(Note that DisneyLife is a different service to Disney Movies Anywhere, which is Disney’s own brand download-to-own digital service.)

It’s notable that the UK DisneyLife does not include Marvel or Lucasfilm output. That’s likely to be either because Disney already had lucrative deals in place with Sky or others at the time of launch, or that including that output it doesn’t make quite as “clean” a service. The audience for Frozen is different to the audience for Ironman.

Perhaps, in time, Disney will want to include these properties in its streaming service, but I’m not sure. The core Disney (and Pixar) offering is very defined and a parent subscribing knows what they’re getting from a service. Offering a film like Deadpool (15 rated in the UK; R rated in the US) would not work. Yes — I know Deadpool is a Fox film and not formally part of the “Marvel Cinematic Universe,” but the possibility of R rated Marvel material is still there. Season 1 of Jessica Jones was rated 15 for its DVD release for example.

Finally, Disney just bought BAMtech, the streaming specialist company that was originally set-up in-house for Major League Baseball to stream their fixtures. It was spun off by them to offer streaming support to many companies around the world, and now Disney has bought it ahead of a larger rollout of a streaming service. Doing streaming well is hard as many companies have learnt to their costs, so this pay prove to be a very wise investment.

Disney Going It Alone is not Replicable

The reason that Disney is able to even contemplate a full-service streaming offering is because it has uniquely strong branding. Even the very youngest Disney film viewer quickly learns the name of the studio it comes from. They want to visit Disney Stores or visit Disney Theme Parks. I’m not at all sure that other studios have such significant branding across a wide range of output.

For example, do you know which studio is responsible for the Despicable Me franchise and its related Minions? How about Kungfu Panda? Or Shrek? Or Lego Batman?

All of those have been incredibly successful properties, but they don’t have the same consumer recognition at a studio level. I’m not saying that they couldn’t try to do the same, but that it would be hard. Most consumers, unless they work in the industry, have little to no knowledge of which studio produced which film. In today’s world, where budgets have soared, there are now multiple opening production logos at the start of feature films usually indicating many companies have stumped up the budget. What films would even be in Dreamworks or Universal branded OTT offering?

The regular concern you hear about Netflix is that its reliance on third party programming leaves it vulnerable. What if other studios pulled their output to get onto

I’m not saying that Warners, for example, couldn’t launch an OTT service off the back of their DC Universe films, but that might be a bit of a stretch. A handful of Batman, Superman and Wonder Woman films does not make a full service, even if you throw in some animated and direct-to-DVD material.

A case in point might be Sony’s Crackle service which, although advertising funded, has not really broken through in the years it has been operating. Perhaps its biggest original hit, Comedians in Cars Getting Coffee with Jerry Seinfeld is moving to Netflix.

How Many Streaming Services Are Sustainable Anyway?

In the US, the market seems to have reached the point where cable cords are being “cut” in sufficient numbers to be of major concern to the industry. Where once a consumer might spend $100 a month on a few hundred channels, only a few of which they actually watched, they’re now increasingly choosing a mixture of “skinny bundles” (Perhaps $20-30 a month for a handful of key channels, possibly internet streamed), and OTT services (Perhaps HBO Now to get Game of Thrones and Veep, or CBS All Access for The Good Wife spin-off, The Good Fight, and the upcoming Star Trek: Discovery – which notably will be a Netflix exclusive outside the US). Currently, that’s a cheaper option than the $100 bill. But how many services cumulatively would a household buy?

In the UK, the market is slightly different, but beyond Netflix and Amazon, I could also subscribe to Now TV (for subscription free Sky TV), or something like Mubi for arthouse films.

Amongst many others, the BBC and ITV recently launched BritBox focusing on UK shows that are otherwise not sold to US broadcasters. There it competes with Acorn TV’s similar streaming offering.

Meanwhile sports organisations and channels from MLB to the NFL, and the NBA to NBC Sports Gold offer paid OTT options.

How many of these individual packages is one household likely to pay for? 2? 3? 5? More?

NBC has recently announced the closure of its comedy-focused Seeso network, when many might have thought that it was NBCU’s foot in the door into the paid streaming marketplace.

It’s worth remembering that the cable bundle offer meant you get quite a lot for your money, even if you don’t watch much of it. For example, perhaps you don’t watch the food TV channels

A la carte OTT offerings mean that if you’re not interested in food networks, then you don’t subscribe to them. The corollary of that is that if you do want to watch food TV networks, you’ll probably have to pay more to see them.

The economics of 100m US cable subscribing households all contributing perhaps $0.50 a month to make the channels viable with a monthly revenue of $50m. If only 5m viewers choose to watch, they would need to pay $10 month to achieve the same revenue for those channels.

It seems likely that a lot of more niche channels will become unviable without a significant number of subscribers prepared to pay a significant fee to see them.

Netflix in the Future

Netflix has made so secret of wanting to own more of its own programming. Whether it can become completely dependent on acquired programming is questionable, and perhaps isn’t really in its business plan. But beyond the not-insignificant production costs which are eating money, once it has built up a significant library, it becomes a more attractive proposition. That is, assuming that future generations will still be at least partially interested in today’s television. While Dumbo and Snow White are ageless, it’s not clear that the same is true of House of Cards.

Netflix’s international ambitions are not insignificant either. To achieve success in these markets invariably means locally produced programming. Making locally produced shows in France, Germany, India, Brazil and the UK is not cheap. But to break properly into these markets, that’s what Netflix has to do, and that does mean a huge cash burn.

It would be a fool who tries to predict the future of a company like Netflix, and I’m not a fool!

However, I don’t see the end of Netflix’s Disney deal as nearly as groundbreaking as some would position it. Netflix probably does need to broaden its portfolio in terms of earning income. Notably they made their first acquisition last week buying the comic company Millarworld which gives them access to a number of comic book characters as well as opening a new revenue stream. It seems that owning a comic-book franchise is critical for any serious studio. Could this be the start of a wider investment portfolio which supports the main subscription offering, but provides some diversity of income?

Captain Phillips and Saving Mr Banks

Tom Hanks managed to somehow both open and close this year’s London Film Festival with a pair of very different films that I managed to see within twenty four hours of each other.

Some film-makers demand to be seen, whatever they do. And Paul Greengrass is one such film-maker. Captain Phillips opened this year’s London Film Festival, and now that it’s on release, it’s easy to see why.

It tells the true story of Richard Phillips, the captain of the Maersk Alabama, a container ship that was travelling down the Somali coast in 2009, which was attacked and boarded by pirates. While this was big news in the US, I must admit that I wasn’t aware of this particular story. Perhaps it’s the all too frequent nature of pirate attacks in that part of the world, with shipping lines seemingly powerless to do anything about it.

Greengrass shows the story from two sides. So we get a modicum of Phillips’ home life in the US before he sets off to Oman to board his vessel. And at the same time, we get a bit of background of the Somali village where the locals are expected (and indeed want) to work for the pirate gangs. Once things get going, they happen quickly. Greengrass employs his usual docudrama style, with handheld camera work, and a general feeling that we’re there for real events. The producers obviously shot the film on real container ship, and we also get views from the skiffs with their high-powered engines chasing down their prey.

The performances from Barkhad Abdi and the other actors of Somali origin are terrific – all the more so for being non-professional actors. You really understand why they’re doing what they’re doing, even though it’s also clear that although big ransoms are being paid, these guys are not the ones getting the cash.

As the tension is ratcheted up, I didn’t know exactly what was going to happen. Events get bigger, and the performances are terrific. But I don’t want to say much more aside from suggesting that this is a superb film that you should see!

For a complete change in tone, there is Saving Mr Banks which, as I mentioned, also stars Tom Hanks as another real person – this time Walt Disney. But Saving Mr Banks is really a tour de force for Emma Thompson who plays P L Travers, author of the Mary Poppins books. The film tells the story of Disney trying to persuade Travers to sign on the dotted line and let him make the film. He’s been trying for twenty years to get her to sign over the rights, but Travers has some very particular views on what she will and won’t let happen to her characters.

Nonetheless, drawn to a beautifully captured sixties Los Angeles, she reluctantly works with Don DaGradi (Bradley Whitford), Richard and Robert Sherman (Jason Schwartzman and B J Novak) as they try to put a script and the songs together. All the while, Travers insists that everything is recorded on tape – because she’s convinced that she’ll be double-crossed by Disney or someone else.

Every character in the film is delightfully drawn, with Paul Giametti as her driver standing out.

The story is told via a series of flashbacks to Travers’ own youth living with her troubled father, and put-upon mother out in Australia – played by Colin Farrell and Ruth Wilson. This isn’t so much a framing device as an essential understanding of what made Travers tick.

I really enjoyed the film, and now certainly need to see Mary Poppins again – celebrating its 50th anniversary. A lovely film.

And for goodness sake, don’t leave the cinema early when the film ends – stay in your seat. As well as seeing photographs of the real characters, there’s a delightful Easter egg which I shan’t spoil now.