Netflix Movies: Producers Weigh Hidden Downsides

"What’s not to love?" asks one about the millions paid to Adam Sandler and Leonardo DiCaprio — but no backend means no mega payday: "You won't get the next 'Frozen.' "

This story first appeared in the March 27 issue of The Hollywood Reporter magazine.

Netflix's bold foray into original movies has been swift and, at least among filmmakers, a bit controversial. That's because striking a deal with the streaming giant means giving up on the fantasy lurking in the psyche of every producer, director and star: that your movie will become a box-office phenomenon and make you rich.

Deep-pocketed Netflix, just as it disrupted the TV industry, is willing to pay a steep premium to nab projects — as it did with recent deals with Adam Sandler for four comedies and Leonardo DiCaprio for environmental documentaries. But despite the pile of cash upfront, Netflix for the most part doesn't pay any backend. "Sure, you won't get the next Frozen, but you won't get Mortdecai, either," says Wall Street analyst Richard Greenfield, referencing Johnny Depp's recent bomb. "How many films actually make money? We could spend all day going down the list of those that don't."

Two independent projects recently acquired by Netflix provide a case study of the company's acquisitions strategy: Cary Fukunaga's completed African war film Beasts of No Nation, starring Idris Elba as a brutal commander, and Jadotville, a yet-to-be-shot Irish war movie starring Jamie Dornan and Frenchman Guillaume Canet. Netflix paid $12 million for Beasts, or 200 percent of the movie's budget, something no traditional distributor would offer. Fox Searchlight and Focus Features also bid for Beasts, but sources say they topped out at $8 million. The $17 million price tag for Jadotville (or more than 140 percent of the $12 million budget) was even more eye-popping.

Netflix is promising a theatrical release for Beasts this year, but the film is expected to be seen in only 200 or so independent theaters because most exhibitors remain unwilling to play a title that simultaneously is debuting elsewhere. "Netflix wants to break new ground with this film and create a new paradigm for watching specialty movies," says Daniela Taplin Lundberg, whose Red Crown Productions made Beasts with Participant Media. Still, Lundberg adds that she and her fellow producers debated "endlessly" about forgoing the established route before making a deal. Or, as another person close to the film puts it, "It was a buyout. Netflix has to make it worth your while to give up the lottery ticket — what if your movie is the next King's Speech?"

For the team behind Jadotville, a Netflix deal avoided a complicated financing structure. "The traditional 'independent' model would have meant an interparty structure of seven or eight individual parties wrapped up in a banking deal and the ever possible potential for differing creative objectives. This way, we have one source of financing and a very supportive creative partner," says Jadotville producer Alan Moloney. "What's not to love?"

But others say Netflix could face an uphill battle in persuading producers who are accustomed to a share of box-office grosses to sign up, not to mention filmmakers used to a splashy theatrical play. (Similar concerns have been raised in TV by producers hoping for syndication riches.) A key test will be how Netflix fares at the Cannes Film Festival; at SXSW, it picked up 6 Years, produced by Jay and Mark Duplass, with whom Netflix signed a four-picture deal in January. But it has yet to win a major festival film such as Sundance's Me and Earl and the Dying Girl or Brooklyn, both of which went to Fox Searchlight. Why? "There's no backend," says one veteran film executive. And Netflix, boasting 57 million subscribers in 50 countries, including 39.1 million in the U.S., is aggressive about holding global rights for up to 20 years, say sources.

A big question is whether Sandler is getting any backend to star in and produce his Netflix movies (the first, The Ridiculous Six, is filming). Chief content officer Ted Sarandos told THR in October that his company would spend the same $40 million to $80 million that a studio would for a Sandler film, an amount sure to include a big salary. But under his Sony first-look deal, Sandler also commanded a hefty backend that likely is not possible under a Netflix model that eschews box office.

From the outset, Sarandos said he won't release Sandler's films in theaters as he will attempt with Beasts and the sequel to Crouching Tiger, Hidden Dragon, due Aug. 28 on Netflix and in select Imax theaters. Major theater chains were infuriated at Netflix and The Weinstein Co. for the Crouching Tiger deal; they won't play the movie, so it might be seen only in locations owned by Imax. Greenfield chastises exhibitors for flawed thinking: "The crazy part is that the government hasn't gone after theater owners for collusion."

Along with the money issue, theater resistance is a factor producers must weigh as Netflix builds its film slate. How much do filmmakers care about that now? One agent says Netflix makes a compelling partner: "If what you want is for people to see your movie, Netflix has almost unparalleled power because of their direct relationship with the consumer."

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But Don’t Count Out Amazon in Race for Original Films

Just as Amazon followed Netflix into TV productions, it’s now bidding to bring original movies to its 40 million Amazon Prime Video users. In January, Amazon Studios hired indie veteran Ted Hope to head its theatrical effort and acquire or produce a dozen films a year. No titles have been revealed, but Hope and Amazon Studios vice president Roy Price shopped at Sundance, Berlin and SXSW. Unlike Netflix, Amazon will debut its movies first in theaters and then offer an exclusive early window four to eight weeks later, presumably giving filmmakers the best of both worlds. Says one agent: “That’s where Amazon can be competitive.”

Amazon Studios' Ted Hope.