Hollywood's Movie Dilemma: Gamble at Box Office or Sell to Netflix?

Midbudget titles that would've been theatrical fare in years past (like 'Cloverfield Paradox') are going direct to streaming as studios minimize risk and Paramount offloads international rights to the new thriller 'Annihilation.'

Facing an uncertain box-office climate, executives at major studios are more frequently asking: "Should we try our luck in theaters or sell this thing to Netflix?" In the case of recent midbudget sci-fi films like The Cloverfield Paradox (Paramount) and Extinction (Universal), the answer was "sell."

The streamer paid more than $50 million for Paradox, even if the gamble didn't make major waves initially. Paradox drew 2.8 million viewers in its first three days after a stealthy plan to drop it following the Super Bowl on Feb. 4.

By comparison, the Will Smith starrer Bright, which cost Netflix $90 million to produce and likewise included a pricey Super Bowl ad, brought in 11 million customers in the same frame after its Dec. 22 release, according to Nielsen's SVOD ratings report. (A Netflix source contends that Paradox is one of its top films in terms of number of times it was added to a viewer's list and that Nielsen's figure excludes laptop and mobile devices.)

How would Paradox have performed at the box office if Paramount had stuck with a theatrical release? That's impossible to answer definitively. If viewers who checked out the film during its first three days online had shown up at the box office at the average 2017 price of $8.97, it would have had a debut of more than $25 million. But that's a big "if," since sampling the film from one's couch requires less of a commitment.

Paradox would also have had to fend off competition from other movies. On its original release date, Feb. 14, 2017, it would likely have been overwhelmed by that weekend’s No. 1 opener Get Out, which bowed to $33.7 million domestically. And on the second release date on which it had been tentatively penciled in, Oct. 17, 2018, it would have competed with that weekend’s No. 1 opener, Jigsaw, which did $16.6 million.

The movie was next shuttled to Feb. 2, when it could have been squeezed between Jumanji: Welcome to the Jungle and Maze Runner: The Death Cure, which collected nearly $11 million each. And on April 20, the date the studio had finally set on before yanking it from the schedule, it would have faced a formidable threat in the newest Dwayne Johnson vehicle Rampage. Clearly, the studio wasn’t eager to take the risk on any of those dates.

The Paradox deal marks the latest in a string of Netflix acquisitions of a major studio's castoff. Netflix also bought worldwide rights to Universal's Michael Pena-led sci-fi pic Extinction, which that studio had pulled from its schedule in December. Add to that Netflix picking up international rights to the Natalie Portman starrer Annihilation (during postproduction), which Paramount will release domestically Feb. 23, and New Line's Shaft (while in preproduction), poised to hit theaters June 14, 2019. Netflix also snapped up worldwide rights from Universal to the Sandra Bullock post-apocalyptic pic Bird Box, which is in production.

To outsiders, these moves by Netflix and its film division chief, Scott Stuber — who has yet to release a zeitgeisty movie a la the streamer's series hits — may seem head-scratching, but they're all in service of targeting niche audiences for subscriptions. "They know exactly what they're doing and who they're buying for," says a high-ranking rival exec. "They are not interested in theatrical or they would have bought a theater chain by now."

With the ultimate goal of selling subscriptions in mind, Netflix spent hundreds of thousands of dollars for an ad for its Oscar-nominated documentary Icarus during the Feb. 11 broadcast of 60 Minutes, which featured a segment on Russia’s sports doping program. An insider says the ad was successful in driving new memberships.

For a studio, the calculation to sell a title to Netflix is simple: Save face on a potential underperformer and make its accounting look good. Less than three years ago, a similar decision might be made to dump a movie in January or April or late August, hope to gin up a little awareness, then make up some of the losses in DVD and ancillary sales. “Netflix has become the new ancillary market,” says one studio exec.

However, seeing first-run movies regularly head to Netflix may not be in the studios' best interest. Another film exec notes, "This will hurt the studios in the long run."

Gregg Kilday contributed reporting.

A version of this story first appeared in the Feb. 21 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.