Studios are rethinking streaming strategy amid rising profitability on Wall Street

Basic It used to greenlight low- to mid-budget films for its streaming service, only to flip them around and send them to theaters first.

As the media company and its competitors try to fight their way to higher profits, this strategy could gain momentum.

“Smile,” a horror film with a $17 million budget, was supposed to go straight to Paramount+ in 2022, but strong demo results got the film into theaters. It has grossed over $200 million at the global box office. A sequel is now in the works.

Then this year, “Mean Girls,” a musical adaptation of the beloved 2004 Broadway show and film of the same name, arrived in theaters from Paramount, after positive responses from test audiences led the company to abandon its live-action streaming release. . Since its release on Jan. 12, the $36 million film has grossed $83 million globally, according to data from Comscore.

Paramount’s strategy depends largely on the potential performance of the individual film. But Wall Street box office analysts expect other studios to lean toward this tactic, as they struggle to capitalize on films that don’t get a theatrical release.

In the past five years, traditional media companies have pushed low-budget films out of theaters and onto their nascent streaming platforms to pad their libraries and drive subscriber growth. For a while, Wall Street rewarded these companies for adding more users each quarter.

Investor sentiment has changed. Now, with linear TV advertising revenues shrinking, they want more immediate earnings growth, not the promise of profit within a few years. while Netflix Profitable and not largely involved in theatrical releases, as traditional media players like to do Disney, worldwideParamount and Warner Bros. Discovery They may need to rethink their broadcast strategies.

“Studios can’t bring things to streaming and use those movies as loss leaders to gain subscribers because investors want to see profitability,” said Eric Handler, managing director at Roth MKM. “The best way to maximize a film’s profit is to release it in theaters first.”

While big-budget Hollywood films typically get the most attention, a steady stream of low- to mid-budget films from a variety of genres is essential to the health of the box office.

Low-budget films are typically those that cost less than $20 million, and horror films often fall into this category, as well as some independent films. Meanwhile, mid-budget films are typically considered under $100 million, although budgets are usually closer to the $30 million to $70 million range. These are usually comedies, romantic comedies and dramas.

Box office analysts say that showing more films in cinemas will boost cinema revenues.

The combination of pandemic lockdowns and the push toward streaming has led to a significant decline in the number of wide releases at the domestic box office. This has also affected ticket sales.

In 2018 and 2019, there were 112 films that premiered in more than 2,000 theaters. The annual box office in those years was $11.9 billion and $11.4 billion, respectively.

In 2023, 95 films were released in wide release, 15% fewer titles than in pre-pandemic times, and the box office barely topped $9 billion. The quantity was about 20% lower than in 2019, and 24% lower than in 2018.

“Because there is a clear direct correlation between the number of wide releases and the positive impact on the bottom line at the box office, the decision by studios to take a particular film and elevate it to a theatrical release rather than a direct-to-streaming release is a gamble.” “It’s often worth taking,” said Paul Dergarabedian, senior media analyst at comScore.

These films don’t often achieve the same box office glory as $200 million, but the collective additional ticket sales can often represent a few billion dollars at the domestic box office.

Studios like Universal, which often releases a number of low-budget horror films each year, can see a significant return on investment. The company spent just under $250 million to produce “M3GAN,” “Knock at the Cabin,” “Cocaine Bear,” “Renfield,” “The Last Voyage of the Demeter,” “The Exorcist: Believer,” and “Five Nights at Freddy’s”. “, not including marketing fees. All of these films were released in 2023 and have grossed more than $800 million at the global box office.

But simply returning these types of films to cinemas is not enough. Studios need a consistent release pattern.

With many streaming services released just before or during the pandemic, with consumers confined to their couches, viewing habits have changed radically. Platforms have exacerbated this shift by releasing streaming-only titles, which has trained audiences that certain films — rom-coms, dramas and comedies — arrive first on streaming, not theaters.

Because of this convenience, many audiences see theaters as the place to watch event films or major tentpoles from major franchises. Therefore, they go to the cinema less often even when smaller budget films are available.

One factor is the box office rebound. More and more moviegoers are opting for higher-priced tickets to premium screens like IMAX, Dolby, ScreenX and 4DX when they choose to leave their couches.

However, with a limited number of blockbusters in the first quarter of the year, audiences are gravitating towards smaller budget titles.

Sony The romantic comedy “Anyone But You,” starring Glen Powell and Sidney Sweeney, opened in late December and continues to do well at the box office. The film, which had a budget of about $25 million, grossed $126.4 million worldwide.

As well as the “beekeeper” from Amazon MGM Studios has grossed more than $100 million at the global box office since January 12 on an announced budget of $40 million.

Paramount’s “Mean Girls,” Amazon MGM’s “The Boys on the Boat,” and Universal and Blumhouse’s “Night Swim” also contributed to January’s box office revenue. All of them have a budget of less than $40 million.

“As theaters endure what we hope will be the nadir of a sluggish winter market, the success of films like ‘Mean Girls,’ ‘Anyone But You’ and ‘The Beekeeper’ have served as bright spots in the beleaguered narrative of mid-budget films,” said Sean Robbins, senior analyst. Per BoxOffice.com: “They are propping up the box office in a way that sets the tone for 2024, a year of headwinds and transition as the lingering effects of industry strikes and evolving audience tastes converge.”

The first big feature of the year is Warner Bros. Discovery Legendary Entertainment’s “Dune: Part Two” will be released on March 1.

Amid a slate of upcoming films that includes a number of sequels, prequels and remakes from big franchises like Fast and Furious, Mad Max, Planet of the Apes, Ghostbusters and Despicable Me, a group of films with relatively small budgets could find success with audiences.

There’s Universal’s action movie “Monkey Man,” the vampire horror movie “Abigail,” A24’s “Civil War,” and of course Paramount’s “Smile” sequel.

“Audience interest in these unpopular profit centers should provide a lesson to the industry that as audience tastes evolve, studios and creators must also recognize the benefits of releasing more of these films in this film market environment,” Dergarabedian said. .

Disclosure: Comcast is the parent company of NBCUniversal and CNBC.

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