Netflix Splurges on Big-Budget Movies – The Wall Street Journal

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The streaming giant is investing more than $520 million to make three big-budget films, according to people familiar with movie budgets. None of those movies is likely to get the kind of wide theatrical release typically used to make such substantial investments pay off.

Earlier this month, Netflix agreed to spend nearly $200 million to make the Dwayne Johnson action movie “Red Notice,” which will be filmed next year at exotic locations and also stars Ryan Reynolds and Gal Gadot, the people said. In addition, a person familiar with the matter said, Netflix plans to release later this year “6 Underground,” a Michael Bay-directed action film that is costing about $150 million, and Martin Scorsese’s “The Irishman.”

The latter film might be the company’s riskiest bet. “The Irishman,” a historical drama likely to appeal only to adults interested in serious subject matter, costs as much as some all-ages action-adventure movies because of cutting-edge visual effects that allow stars including Robert De Niro, Al Pacino and Joe Pesci to appear at different ages. People close to the picture said Netflix’s total commitment is at least $173 million, with some going above $200 million, making “The Irishman” the most expensive adult drama in recent history.

Netflix has previously said about one-third of its total viewing is movies, rather than television series. It is betting the new productions will help retain its more than 150 million existing subscribers and attract new ones, whose monthly fees—rather than ticket sales—generate the company’s revenue.

Analysts expect Netflix to spend $15 billion on programming this year. The company has been borrowing billions of dollars as it accelerates efforts to stock its library with fresh content.

Netflix and other video-streaming players have been facing pressure around the world to produce more local content. Australia on Monday was the latest country saying it was considering such requirements, joining policy makers from Europe to Asia and Africa.

The pressure to boost overseas content comes as Netflix is dealing with more competition in the U.S. Earlier this month, the company’s shares tumbled more than 10% the day after it disclosed that it lost subscribers in the U.S. for the first time in nearly a decade, adding pressure to create attractive programming.

Netflix has been picking up many film projects Hollywood studios didn’t see as commercially viable at the box office, at least at the same budgets. Recent examples include Sandra Bullock’s post-apocalyptic movie “Bird Box’” and the jungle-heist flick “Triple Frontier,” starring Ben Affleck. Neither was a standout with critics, but “Bird Box” drew 80 million viewers during its first month and “Triple Frontier” has been watched 63 million times since its March release, the company said, making them Netflix’s first and fifth most popular original films, respectively.

Netflix bought the rights to “The Irishman” after major studios passed because of concerns that it was too expensive for a drama, a genre that has struggled at the box office in recent years. The producers were in the midst of raising independent funds to make the film when Netflix entered. “Without Netflix, ‘Irishman’ would not have been made,” said one of the people close to the movie. “I just don’t see [other] studios wanting to dive into these projects any more. I think they are staying away from the riskier, more mature films, especially dramas.”

Big action films such as “Red Notice” more frequently succeed at the box office.

Comcast
Corp.

’s Universal Pictures was originally set to make the movie for $150 million, but after production costs rose higher than originally planned, the studio allowed the project’s producers to shop it elsewhere, a person with knowledge of the process said.

Other major studios such as

AT&T
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’s Warner Bros. and

Viacom
Inc.

’s Paramount Pictures passed, concerned the film would be too costly, according to people familiar with the talks.

Netflix, however, wanted to make a splash with a big budget action-adventure film, one of the few genres in which it hasn’t yet found success. “Red Notice,” expected to come out in 2021, has the potential to spawn sequels and spinoffs if it is successful, the person with knowledge of the sale process said.

Movies typically cost Netflix more to make than Hollywood studios, because it pays A-list actors and filmmakers more up front to compensate for the fact that it doesn’t offer a share of revenue from box-office and DVD sales, which aren’t relevant to Netflix’s business model. Those extra costs, called buyouts, totaled $14 million on “The Irishman” and $40 million on “Red Notice,” according to the people close to the pictures.

Netflix’s approach to compensation means A-list actors and directors are guaranteed more up front than at a studio, but earn less than they would have if the movie were a box-office smash. Those in Hollywood have debated whether Netflix movies make as much of a cultural impact as those released in theaters or are often lost in the shuffle on the service’s home screen.

Netflix hasn’t yet determined theatrical release plans for “Red Notice,” according to one of the people close to that picture, but it could be a challenge to attract attention to it against studio-action films with similar-size budgets playing in multiplexes and backed by huge marketing campaigns.

The streaming company plans to release “The Irishman” in theaters by the end of this year, making it available for Oscar consideration. Last year it played the Academy Award-winning drama “Roma” in theaters for three weeks before making it available to subscribers online, its largest such window.

Big cinema chains such as

AMC Entertainment Holdings
Inc.

AMC 0.98%

won’t play films unless they are exclusively on the big screen for about 90 days, which means Netflix can only release its films in a few hundred independent theaters at most. Netflix releases most of its movies, such as its Adam Sandler comedies, only on its service, bypassing theaters altogether.

Netflix also has been an aggressive spender in developing television shows, paying millions of dollars per episode for shows such as “House of Cards” and “The Get Down,” more than what the average TV show used to cost.

Write to Ben Fritz at [email protected]