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A button for the launch of the Netflix application is seen in the distance in this photo gallery in Warsaw, Poland on April 25, 2019.

Jaap Arriens | NurPhoto | Getty Images

There’s a big money question that’s plaguing Netflix.

In recent years, the streamer spent a lot of movies like “The Gray Man” and “Red Notice,” which made the company $ 200 million each. Films are the first steps in bidding to show special level ads. But they are expensive, and it is not clear what impact they will have for Netflix’s bottom line.

Now, the stage tour of “Stranger Things,” a supernatural thriller with haunting sounds, has become a clear cultural touchstone. The series, which just aired its fourth season, inspired Halloween costumes and video game universes filled with monsters.

Although the show has the same budget as these high-octane shows — about $30 million an episode, or more than $200 million a season — its success has led to some in the industry question whether the high-budget features are worth Netflix’s investment.

Netflix executives are beginning to shift their own marketing strategies to reduce spending on direct-to-video content. Warner Bros. Discovery CEO David Zaslav said Thursday that his company was unable to find “economic value” in producing big-budget movies for its streaming services.

“We’ve seen, fortunately, by having access to all the information now, how to show movies correctly,” said Zaslav during the company’s second-quarter earnings call. “And our conclusion is that the cost of live movies … there is no comparison to what happens when you promote a movie in motion, in theaters.”

Netflix doesn’t usually release movies in theaters, unless they’re seeking Academy Award eligibility, so it shares movies with the knowledge that only the only option for recouping expenses is through increased contributions.

This is why the researchers pointed to the horror genre as a suitable channel for Netflix.

The horror genre, in particular, is often produced below production costs, making these types of movies ideal for the box office because they tend to sell more. more than the price of tickets.

Blumhouse and Universal’s “Get Out” cost just $4.5 million to produce and went on to gross more than $250 million at the global box office.

And while “The Gray Man” is set to become a reality, Peter Csathy, the founder and chairman of the consulting company Creative Media, suggested that Netflix is ​​looking at special opportunities in horror as possible then saved the company hundreds of millions in movies.

“Aye,” “Insidious,” “Halloween” and other horror films have won over fans of the genre, due to low budgets replacing franchise efforts such as Fast and Furious. Furious, Star Wars, Marvel or Lord of the Rings.

“The production costs are a sliver, a part, a small part of what for these big bets are made,” he said. “And why don’t you go for something cheap sure to hit your target audience? Why not put your money there, instead of making these big plays?”

In addition, Csathy added, the audience for the horror genre also happens to be young – those who advertise and who want to use it.

Netflix has seen success from past horror releases including its “Fear Street” trilogy and has a number of Netflix Original releases in the genre including “Nobody Gets Out Alive” and the “There’s One in Your House.”

Michael Pachter, an analyst at Wedbush, suggested that Netflix could make more money by sticking to a line of horror and rom-coms, both of which appear to be low-end. the budget. With most affordable budgets, mistakes are not a big deal.

“The nice thing about a low budget is that you can make mistakes,” he said. “The budget is a lot of money, you will never get it. If you’re scared, you’re scared. So which is the risk, one $150 million movie or three $50 million movies?”

Missing metrics

Part of the investigation into Netflix’s content spending stems from a lack of metrics on the financial performance of first-run ads and movies. See the article : First look at Netflix in August 2022.

Box office records for theatrical releases and TV ad revenue are tried-and-true measures. With ads-only ads, viewership data varies from service to service and paints an incomplete picture for researchers trying to determine how a movie or television show will actually perform.

A bill of more than $200 million for a film like “The Gray Man” is difficult to explain when there is no visible income at the end of the production, such as stores seen in the sales of paper sheet. Subscribers pay monthly or annual fees to access all content. Netflix says its content keeps users on the platform and pays subscriber fees.

For Netflix, the push for big budget movies is a way to burnish its image and quiet critics to scare off the unpopular. The company has maintained its balance sheet, is cash-rich and has three years to pay off a large portion of its debt, giving it some room to spend.

It is not clear how much Netflix spent on the film for its “Fear Street” trilogy, and there is limited information about its performance on the stage. But Nielsen estimates estimated that “Fear Street 1994” had 284 million minutes watched in its first week on the service and “Fear Street 1978” had 229 million minutes. It is not clear how the third film, “Fear Street 1666” was performed.

In addition, the fourth season of “Stranger Things” is only the second Netflix series to cross 1 billion viewing hours within the first 28 days of availability. Of course, comparing Netflix’s movies to its television lineup is like comparing apples to oranges, but that’s the best the reviewers can come up with. It is documented if the company is silent about expenses and profits.

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

Based on Netflix data, “The Gray Man” accumulated more than 88 million hours of viewing worldwide in the opening weekend on the service, 60 million less hours than the “Red Notice” pulled during the same period last November. “Red Notice” remained at the top of Netflix’s top 10 list for 12 days, while “The Gray Man” was usurped after eight days.

As of Friday, the movie holds fourth place on the list behind “Purple Hearts,” “Tower Heist” and “Age of Adaline.”

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

“Netflix, it’s clear that they have data and methods that they believe are correct, to determine what is this success at Netflix and what is not,” said Dan Rayburn, a media and media analyst. . “If [‘The Gray Man’] were bombs in their definition of a bomb, whatever that is, we don’t know, they wouldn’t have announced a deal extension.”

As for how Netflix makes its internal decisions, Rayburn said that although the information is not widely available at the moment, it can change when the streamer enters the advertising market.

“Whether they want to give us information or not, we will receive more information throughout the years, because it is the advertising side,” he said. “That will help us understand the content better.”

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

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