Netflix (NFLX +0.34%) has invested in its own slate of content for some time now, producing critically acclaimed films such as Roma and The Power of the Dog. Conversely, the streamer has also backed movies like Extraction and The Adam Project -- Netflix Originals ostensibly more concerned with stars and stunts than awards.
And while the streamer has cited The Irishman and other prestige content as key to attracting and maintaining subscribers, spectacles like 6 Underground and Spenser Confidential are just as important, even if they are less appreciated by critics.
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Netflix competes in a different arena than other studios
Studios such as Warner Bros. Discovery and Walt Disney typically debut their highest-profile movies in theaters before making them available for streaming audiences. There were some concessions during the height of the COVID-19 pandemic, but the box office model has returned in 2022. Films such as The Batman and Doctor Strange in the Multiverse of Madness enjoyed theatrical rollouts, generating worldwide returns of roughly $770 million and $955 million, respectively.
NASDAQ: NFLX
Key Data Points
Netflix, too, has made a return to U.S. theaters this year, most notably with spy thriller The Gray Man. The movie was released in roughly 450 theaters on July 15, just a week before it landed on Netflix's streaming service. So far, The Gray Man has brought in approximately $250 million in global box office receipts. For a film that cost almost $200 million before anything was spent on marketing, such results would usually be considered a failure. But this is Netflix -- its primary audience is streaming subscribers. And from that perspective, The Gray Man is a resounding success.
Reviews matter less for streaming movies
The Gray Man racked up 88.5 million hours watched within its first three days on Netflix. By comparison, fellow action-centric Netflix Original Red Notice clocked up almost 149 million hours viewed over its initial three days on Netflix and currently holds the record for the company's most-watched film of all time. But perhaps most curiously, both movies have been broadly derided by critics: Rotten Tomatoes gives The Gray Man an aggregate critic score of 48%, while Red Notice has a lowly 37%.
Looking again at theatrical releases, major studios typically rely on positive reviews to turn out audiences. After all, people make a conscious choice to go to a theater to see the latest release, so it's helpful to know ahead of time whether it's actually worth it. Therefore, it's not uncommon to see marketing messages on opening weekends talking about a film being "Certified Fresh" -- distributors are signaling to filmgoers that Rotten Tomatoes has found a majority of noted movie critics like the film.
Netflix viewers don't have to leave home to watch the latest Netflix Original. And if they don't like it, they can easily turn it off. This low barrier to entry means even for movies that have poor reviews, the sunk cost to subscribers is not the same as those who go out to catch a movie.
And it's possible that many will still like a critically panned movie -- as has been the case with both The Gray Man, which has a 91% audience score on Rotten Tomatoes, and Red Notice, which sits at 92%.
Netflix is letting subscribers decide what's worth watching
Considering the money that other studios earn from theatrical releases each year, perhaps Netflix might be missing out on lots of potential revenue by not chasing that market more aggressively. However, by largely treating movie theaters as an occasional dalliance, the company is limiting its exposure to the risk of a critically panned film dragging down its bottom line.
One famous example of this is Walt Disney's John Carter, a 2012 sci-fi film that cost the company over $360 million in production and marketing costs. Upon release, it was poorly reviewed and pulled in a relatively meager audience. Things ended so badly for the film that Walt Disney wrote off $200 million associated with the endeavor.
For Netflix, the benefit of being focused on streaming is that subscribers can decide for themselves if something is worth their time, even if the critics don't love it. And so far, the results are promising: Both Red Notice and The Gray Man are getting the franchise treatment -- which only help the company compete against its streaming rivals.
