Should Most Streaming Original Movies Receive A Theatrical Release?

Post by: Rick Ellis 30 March, 2023

Amos Tversky and Daniel Kahneman coined the phrase "availability bias" in the 1970s and it's a useful idea to be familiar with when discussing the streaming video industry. According to the duo, availability bias occurs when people make judgments or decisions based on the information that is most readily available. For instance, news stories about lottery winners and their lavish lifestyles can lead many people to purchase lottery tickets even if they can't afford them. That's because they believe that because of the news coverage, their chances of winning are much higher than the actual statistics bear out.

Availability bias is a common problem when discussing the major trends that impact the streaming video business. It's a relatively new industry, and many of the people working in it as well as writing about it are much more comfortable with the traditional rules of the entertainment business. We often see what we want to see based on our experience or industry conventional wisdom. And that can lead people down some ill-advised paths. 

For instance, take the question of whether or not most original streaming movies should first receive a theatrical release. For now, I'll ignore the people who argue there should be a theatrical as well as physical media release because this will already be a difficult enough topic to parse.

The argument for a theatrical release has a couple of components. A primary argument is that to a certain extent, a theatrical release is almost found money for the streamer producing the film. Sure, marketing costs can run in the tens of millions of dollars for the average film and often in the $50-$70 million for a star-filled major release. And while the box office numbers sound impressive, it's worth remembering that the studio (or in this case, streamer) only receives part of it after cuts to the distributor and theatre chains. But still, proponents say, there doesn't seem to be much data to suggest a theatrical release hurts the streaming service run of the film. So why not do it? Maybe you'll make a little money and regardless, the theatrical run will provide a higher profile for the film when it hits streaming.

And that would be a great point if a theatrical run and a streaming-only premiere were an apples-to-apples comparison.

For instance, Disney releasing a successful movie into theaters only provides the most general a financial halo effect to the company's bottom line once you get past the box office numbers. Yes, the continued health of movie theaters offers the promise of a market for future films. But because Disney doesn't own any of the screens, that's more of a "supporting one of your primary markets" effect than a financial one. Disney releasing a movie into theaters is really not that different than General Mills releasing boxes of a new cereal into grocery stores. It's a relatively straightforward transaction and nearly all of the value for Disney comes from the initial ticket sales.

Releasing a movie directly onto a streaming platform and determining its value to the platform is infinitely more complex. Each service has different strategic needs and that impacts the way data points are weighed for valuation. The considerations of a Paramount+, which releases very few original films onto streaming are much less nuanced than the valuation process at Amazon Prime Video or Netflix.

It's also important to note that size and market penetration have a huge impact on these valuations. For instance, I recently spoke with someone at Apple TV+ on background and one of the takeaways was that while the service is happy with the overall value of its original straight-to-streaming movies and documentaries (with several of the music documentaries driving higher-than-average subscriber gains and retention), the service still doesn't have enough of a subscriber base to effectively monetize an expensive original film through internal channels. That's a primary reason you are seeing the service move towards an early theatrical release with some of their original films. It's not necessarily because Apple TV+ executives don't believe in the viability of streaming-first releases. But the service still lacks the reach to make it viable at this point.

As for Disney+, releasing more of their films into theaters first is the easiest case for critics of streaming to make in 2023. There is plenty of available data that shows the upside of that move, the theatrical market is still light when it comes to family releases and because of its reputation with viewers, there isn't much of a streaming subscriber downside to releasing the originals into theaters first. That's reinforced by some conversations I've had with company executives, who suggested that much of the decision-making in recent years over whether or not to release originals into theaters involved a perplexing lack of faith in some of the projects. As it was explained to me, the lukewarm internal response to some of the projects meant that executives were wary about the added expenses of a theatrical release on films that might not justify the efforts. But as is often the case in the entertainment world, some of the reluctance was driven by ego. Because of Disney's strong consumer branding, every film is seen as a proxy for the creative health of the company. And there was a concern that releasing films that underperformed in the theatrical market would be more damaging to the narrative of the company and the stock price than releasing the film directly to streaming, where the success or failure was more difficult to define from outside the company.

When it comes down to it, the two streaming services where this "theatrical or streaming release first" question is the most important are Amazon Prime Video and Netflix. Both services produce the largest number of original films and have the widest global reach. So the valuation considerations at both companies are very different than the discussions taking place at HBO Max or Peacock.

I am going to have deeper dives into each service's content valuation methods in upcoming weeks, including an interesting look at the finances and valuations surrounding Netflix's Glass Onion.

And while the content valuation metrics for each service vary quite a bit due to different strategic priorities, many data points are important across both services and most if not all of them would matter when considering the viability of a theatrical-first release approach.

* Subscriber Growth
This is a great deal more complex a valuation than just "how many people subscribed to see this film?" For instance, there is the question of the type of current subscribers that watch the film versus those that don't. Subscriber retention is an overriding metric, especially for Netflix, and while crunching data can't attribute actions from a specific subscriber to any content addition, it is possible to create subscriber groups whose behavior can be roughly predictive. One example I was given at Netflix was from an unspecified big-budget 2022 Netflix original film. Subscribers who watched the film in the first 48 hours in the U.S. were about 7 percent more likely to be a Netflix subscriber 12 months later compared to subscribers who watched the film outside of that 48-hour window or didn't watch it at all.

While that might not sound like a big deal, seven percent in a mature subscriber market has a financial value to Netflix. The company can crunch data ranging from subscriber numbers, churn rates, subscriber acquisition cost, and average revenue per user (ARPU) along with many as a dozen other data points and by using historical data can come up with a number that by every account I've heard is reasonably accurate to real-world behavior. Not infallible, not extremely precise. And the data isn't especially helpful in determining how many people will watch a specific original title. But it is possible to assemble an estimation of the valuation of a title to the company if it delivers a specific benchmark of subscriber engagement. In other words, "original movies similar to this have delivered X number of viewers on average and they have exhibited this behavior in the short and mid-term. So based on that estimate, this would be the range of internal value that is brought by the original film."

Obviously, that value can change substantially if the film over or underperforms the content category mean. But those changes are also factored into future valuations and in theory, that makes the internal content valuation more reliable moving forward. It's also other noting that while there is a lot of data available to crunch, it ultimately requires human hands to make sense of it all. The role of data analysts at places such as Netflix and Amazon Prime Video is very much under-appreciated inside the entertainment industry.

* Global Impact
If that isn't complex enough of a scenario, then also figure in that this type of data is also being assembled across various territories and then weighed using a series of strategic and financial metrics. The "should most streaming original films receive a theatrical release" question is mostly posed when discussing high-budget films that closely resemble traditional Hollywood releases. But the question is important across the entire release schedule of a big streamer. However, the way specific data points are valued can change quite a bit depending on the projected target audiences, subscriber behavior, costs of the project, and the ARPU of the subscribers most likely to respond positively to the film. 

And these considerations can be extremely nuanced. As an example, Netflix might pick up a film produced in the Philippines that was successful in that country but didn't receive much regional distribution. While that is a very niche project on the face of things, data suggests that similar films the streamer acquired in the past did very well in a few specific markets where there is a large enough Philippine population (parts of the U.S & EMEA) or where the film would be seen as a film with a strong resonance with local subscribers (Thailand, Malaysia). So there is a price point at which acquiring the film, labeling it a Netflix original, and doing a streaming-only release would have a positive financial impact. Even though it has technically had a full theatrical release in several markets. 

Another variable is a Netflix original film produced in, for example, France. That country requires Netflix to devote a specified amount of money to local productions. So producing a film that in theory would do well in theaters in parts of Europe, but instead premiering it on streaming has a much different set of financial parameters than a made-for-Netflix action film starring Ryan Reynolds. But in both cases, data might suggest a streaming-first approach leads to the best revenue outcome. Because while a streaming release might not have a large and obvious direct revenue impact, every dollar saved on customer acquisition, subscriber retention, or other behaviors is a dollar the streamer didn't have to spend directly.

* Does A Theatrical Release On The Streaming Viewership?
This is the part of the equation that is the most challenging to parse from the outside. In large part, because much of the data that was shared with me from analysts at several of the biggest streamers was off-the-record or on background with the understanding that I couldn't share specific identifying title names or engagement data. So here goes...

Much of the industry discussion about the impact of a theatrical release on the later streaming value of a title involves the parsing of viewer and box office data. "See, this movie did X at the box office and was still an extremely popular title when it hit streaming. So there must not be an impact. In fact, a high-profile theatrical release provides name recognition for the movie once it hits streaming!"

And according to the data I've seen, that is often the case. Although I would mention that often movies that have received a theatrical release are the ones most likely to do well in theatres. This also means they are likely to do well during their streaming second run. And as far as the name recognition and buzz from a theatrical release, a lot of that comes from the expenditure of marketing money that wouldn't be spent on a streaming-only premiere. All that being said, it's true that in the abstract, a theatrical run before a streaming premiere can bring some net positives. At least on the surface.

But as I've spoken to people in the streaming side of the business over the past few months, one common theme I've heard is that there is a widespread belief among streaming executives and streaming analysts that the longer a movie runs in the theaters, the more impact that has on the value of the movie to the streamer.

I've seen some data that seems to show that while the viewership of an original film released first to theaters doesn't dip because of a theatrical release, it does tend to change the behavior of subscribers and the type of people who watch it in the first week of its release on the streamer.

I apologize for the vagueness of this explanation, but I am already dancing on the edge of what I can share publicly. Basically, the data at least implies that the highest value viewers - longtime subscribers, hyper-engaged users as well as new subscribers who join because of the film's availability - are more engaged with the title if it is a streaming premiere rather than a title that had a theatrical run. The tipping point seems to be that 14-day period, which is one of the reasons you see Netflix and some others pushing so hard for that accelerated theatrical window. It's not ego or some sort of streaming business mass hysteria. There is a strong belief in some circles that a longer theatrical window lessens the value of the title to the streamer even though the overall viewing numbers won't change much. Because in the world of streaming, the type of subscribers and their engagement is more important than the overall viewing numbers.

To be clear, this is not a belief shared by everyone I've spoken with, but it is a consensus view among many executives and analysts. That helps explain some of the approaches from streamers when it comes to theatrical releases. Although as is the case with all of these questions, there is no black-or-white answer. The answer is situational, depending on the title, the finances, the need for branding, and a dozen other factors.

So should most streaming original movies receive a theatrical release? The consensus answer of the many people in the industry I've spoken with over the past few months seems to be "Not most, but some originals."

Which to be honest, isn't the type of answer that makes for a clickable think piece in 2023.

Coming up next week, I'll have a deep dive into the value of Pokemon to Netflix and some additional data and insight on the releases and impact of some Amazon Prime Video and Netflix originals - including The Tomorrow War & Glass Onion. I am also working on pieces that try and build out the impact of global productions on subscriber growth outside North America.

I know that a number of you work in the streaming industry. In part because I have already heard from a number of you. But if you have some insight you would like to share - on or off the record - you can email me at This email address is being protected from spambots. You need JavaScript enabled to view or contact me on Signal at 612-207-2108. I'll keep everything off the record unless you specify otherwise.

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Last modified on Thursday, 30 March 2023 17:25