View From The Projection Booth

More Netflix Hype: Citibank Edition

The Netflix headline of the day is “Analysts: Netflix Has Fully Recovered From Its Qwikster Debacle”

Citibank is bullish on Netflix. Good for them. But the logic, as laid out by PaidContent, is bizarre.

Although it is constantly been repeated as a fact, It is a to stretch one fact into a false perception to say that Netflix recovered from the Q3 loss of customers. The fact is, as offered by Netflix, that in their domestic streaming business, which is now their core business, they lost another 350,000 paying streaming customers in Q4, ending Dec 31. Q1 2012 doesn’t close until the end of this month. The company did add 581,000 FREE subscribers in Q4.

Netflix also lost 2,774,000 domestic paying DVD customers in Q4 with a marginal increase of 11,000 free DVD subscribers.

In combined domestic (Streaming + DVD), paid customers were up 15,000 in Q4.

The one area of real growth for Netflix in paid customers was internationally, up 458,000 paying subscribers. But expanding the business into new countries, which Netflix has openly acknowledged is not going to be a profitable business for years, isn’t really the same as recovering from the domestic losses of Q3 2011.

Citibank’s report apparently relies on the notion that Netflix’s paid domestic subscriber base will continue to grow. There is no reason to make that assumption. There is no specific reason to assume that there will be a massive exodus of subscribers either. But leaps of faith about a company in a significant transition seems sloppy, at best.

The second big issue is that Citibank is assuming that Netflix’s Cost of Revenue will be $2.1 billion in the next year… when Netflix’s Cost of Revenue was $1.1 billion in the last 2 quarters. So the theory is that Netflix is done spending on content?

And this brings me to the third and most serious problem with the oddly timed Citibank report. Netflix has, in the last month or two, opening admitted to a new paradigm… TV-programming first.

The assumption that the only issue facing Netflix is today’s customer satisfaction and that the only problem in the last year was “the Qwikster problem” is a sad joke. The company – which I still think is a terrific and interesting addition to anyone’s media mix – is not in the same business that it was in just 2 weeks ago. And the response from customers is not likely to settle in for another 3 or 4 months. The timing of the Citibank survey makes a mockery of its results. It’s not valid.

No question, one of the first steps for Netflix to get back to a growth mode is to stop the talk about it stepping backwards. But why is Citibank carrying their water against some very basic logic? Why is the media so anxious to help Netflix turnaround by continuing to run the myth instead of the not-that-ugly facts?

(shrug)

DP/30: Project X, actor Kirby Bliss Blanton

BYOB 31312

DP/30 @ Slamdance: Bindlestiffs, writer/director/actor Andrew Edison, co-writer/actor Luke Loftin

DP/30 @ Sundance: Kid-Thing, writer/directors The Zellner Bros

DP/30@ Sundance: V/H/S, 9 directors & an actor

These are the directors of V/H/S – David Bruckner, Glenn McQuaid, Radio Silence (Matt Bettinelli-Olpin, Justin Martinez, Tyler Gillett and Chad Villella), Joe Swanberg, Ti West, Adam Wingard… and actress Helen Rogers.

Doctor, My 2 Year Old Has Grown Adamantium Claws

Weekend Estimates by Klady of Marred

Well… John Carter got another punch in the mouth as The Lorax made clear that the family set didn’t see massive CG white monkeys as family fare. JC managed an estimate of slightly better than 3x opening Friday, but Universal’s animated socialist plot (according to Fox News) did better than 4x Friday. Knockout.

In the “Slump/Resurrection” story, yet another weekend that’s up from last year and significantly down from 2010… which continues to remind us that 2010 was extraordinary and last year was not very good. This year… solid. Last March, on “Weekend 10,” there were 3 openings – are we done with the moronic negative rationalization that this year is somehow bouyed by a lot more product yet? – and the biggest, Battle: LA, opened better than John Carter (this may be the ugliest slap of them all), but the Lorax holdover is much stronger than last year’s Rango holdover (almost double). So this year continues to be up, even with A Thousand Words being dumped and John Carter underperforming the hopes.

Journalists have to stop looking at the box office as a game. They have to stop narrowing the whole conversation down to misleading minutiae. People believe this crap when they read it in outlets that have been reliable in the past. None of the slump reporting has been reliable. Not when the New York Times started the meme in 2006. Not today. There has been a major change in how money moves around the industry and how much money there is with which to play. But it’s been dumbed down to “the slump” and “exhibition is dead” and “the movie business is in trouble because teen boys like their video games,” and all of that is, simply, false.

Even those in the industry who whine about not being sure what’s coming… journalists need to contextualize those conversations. Are the conversations with people who aren’t getting movies made or people who are having to tighten their budgets and don’t have 8-figure housekeeping deals with major studios anymore?

The problem is, the sickness in the industry IS the studios trying to stratify between budgets under $20m and budgets over $150m and not wanting to mess with the middle because there isn’t enough perceived upside and there is a bit of risk. They then go to people at media outlets and explain how the teenagers are forcing them to do this or that the economics of dramas make them impossible. Do they know they are lying or have they convinced themselves as well? Can’t say. But the clear truth is, the studios that mix it up – as they have for decades – have the best chance of doing well, because one intended single turned triple or double turned home run can make a year. And more often than not, those surprises come from the middle, not the bottom or the top budget ranges.

No one wanted to spend the $35m to make The Hangover. No one wanted to spend the $28m to make The Blind Side. Fox blinked on Avatar and shipped off 60% of the budget to a financier.

This is a risky business. Always was. Always will be… so long as the movies are the movies and not glorified television.

Harry Potter is the end of an era not because there won’t be other franchises as big… but because Warners was all-in on the franchise and didn’t co-fund it with 2 other companies, keep only 40% of the returns. I’m not saying every $150m bet is smart. Most are foolish. But the more these companies try to avoid risk, the lest invested they are on every level, the less motivated they are – as institutions… individuals always stay excitable – to do anything interesting. And with corporations much bigger than the movie business owning all the studios, most of them just want stability on a quarterly level and an occasional award or blockbuster to look pretty on the cover of the stockholder’s report.

Anyway…

At a much lower cost than Killer Elite, Open Road got an estimated $6.8m start out of Silent House, a micro-budget Sundance movie featuring a lot of Lizzie Olsen’s heaving bosom in claustrophobic hand-held close-up. Of course, they would have liked to get the Screen Gems 20… but this is a good number for the young company.

A Thousand Words was on two thousand-plus screens and showed there is a core audience that will show up for ANYTHING Eddie Murphy is in… even if everything suggests that it’s a bad idea. That core is smaller for Eddie than it used to be, but this film opened better than Meet Dave or Imagine That and one wonders – no matter the quality of the film, since the film doesn’t matter on opening weekend – how much money Par left on the table by signalling their disinterest. Maybe just a few million this weekend and not enough to make up for any more money spent. But still, one wonders. (Of course, the media won’t wonder… too busy burying Murphy as quickly as possible.)

The Artist cracked $40m domestic this weekend, though the film is slowing on 1505 screens and will be lucky to get to $45m total. But don’t get out the handkerchiefs. The film is over $100m worldwide on a $15m budget. To add perspective, the film may well end up being as profitable, if not more profitable, than Midnight in Paris, Woody Allen’s biggest hit in his amazing 45-year filmmaking career. (Those of you who are so inclined may go back to bashing the film again.)

And perhaps one of the mistakes John Carter made was comparing itself to Star Wars this month. The 3D re-release of The Phantom Menace will end up with under $45m domestic, though it will crack $100m worldwide. Worth it? Barely. Lucas insists on leading with this successful non-classic. If Star Wars itself makes for interesting 3D, that could be a hit… or could have, if this release didn’t kill it.

Friday Estimates by Len Klady (of Mars)

So what to make of Mars? It ain’t The Lorax.

Whether the weekend number on John Carter sinks to $27m or rises to $31 million, the macro view of the film’s finances are the same. No more than $120m domestic. So you’re looking at a need to for at least 3.5x the domestic internationally (before anticipated post-theatrical revenues) to get to breakeven, by the least harsh estimates of the price tag on this one.

And as I have said for a looooong, time, opening weekend is NOT about the movie itself. It’s about the marketing. Trying to shove this one over to Dick Cook’s column is a hack move… but if that’s what they want to do, they should also put Alice and Pirates 4 in his column and he’s still way up over the current regime. And the move of pushing the Avengers trailer onto the front of JC and promoting it… very 2004 of them. I was one of those who went to theaters to see trailers in the past… in the era of 1080p trailers, available 24/7, that gambit is over.

Truth is, an opening at double the number probably still wouldn’t be enough for this film to be profitable. But the size of the loss would have been that much less.

Open Road, which just had it’s first real hit with The Grey, though that film’s box office hit a wall quickly (something to watch for this AMC-owned distributor) is launching the “one-shot” Lizzie Olsen thriller Silent House. With a light TV spend and a very modest purchase price, a $7m opening will probably make the company very happy, albeit popping beer cans and not champagne bottles.

And the Eddie Murphy vehicle, A Thousand Words, was thrown out into the cold after being scheduled 4 or 5 times for release by Paramount. The studio spent a few bucks releasing it. It’s not like there was no push. Let’s just say, they are pushing the 3-year-old unreleased thriller that is going to SXSW for Insurge harder than Eddie’s latest.

Decent hold for The Lorax as that film crosses the $100m threshold today. Safe House will become Denzel’s #2 domestic grosser, passing Remember The Titans sometime this next week. Tyler Perry’s dragless, selling TP as a star, Good Deeds, will be his lowest grossing film ever.

Reasonable drops for Project X and Act of Valor, both films heading to the low 50s. These are programmers – albeit hoping for a breakout – and they are hitting the 50s. Can’t really paint this kind of thing as anything less than success and the signs of a healthy industry… whether media wants to sell that story or not.

DP/30: Good For Nothing, director Mike Wallis, actor Inge Rademeyer

This HBO Weekend

This is one of the great HBO weekends of all time.

On Saturday, the premiere of the terrific “Game Change.”

On Sunday, “Luck” finally blossoms into a full, clear storyline that audiences will love… if they haven’t given up on the show.

Seriously… whatever Luck’s been for you until now, the “what the hell is this thing” is over and the focus becomes sharp and heart-stopping at times… this is the weekend.

That is all.

Mike Fleming Rants… And Is Really Lost

One of the things I enjoy most about Deadline is that their sourcing is almost always unintentionally transparent. It is the nightmare of entertainment journalism in Los Angeles that it is driven almost completely by agents and unnamed executives. They talk. They seduce those journalists who want desperately to be seduced. And the agents/execs get those journalists – even some very, very bright ones – to sell the spin.

And this is who Mike Fleming talked to the last time he was in town… and what he got was some very bent, historically-challenged thinking.

Read it… and understand how the people who dug the hole they feel they are in just want to keep digging. The tyranny of the new is particularly powerful over the paranoid “old.” And seemingly, even more so over those who keep pushing for change when each NEW IDEA falls by the wayside in short order.

The DVD Bubble destroyed the perspective of a generation of Hollywood thinkers. The goal has devolved from figuring out the best way to create and exploit content to an obsessive lust to find “the next DVD.” But there is no “next DVD.” Why? Because even though more content will be available more easily to more people in higher quality in the next decades, the clock cannot be turned back on the pricing issues that the studios, greedy and overeager, created.

Netflix created the subscription model out of a need that the studios, conspiring with Blockbuster, created. DVD launched as a sell-thru product and the price point was so low that 15-20 views of a DVD in a subscription model made the disc profitable, even at retail. And Netflix wasn’t paying retail or even wholesale prices for long.

If you rented 3 videos a month, Netflix gave you an nearly complete library for less money each month. If you were buying DVDs, suddenly you could rent with great ease at a cost of about half of one DVD a month.

But it wasn’t Netflix – and certainly not Netflix streaming – that killed the video star. People forget that DVD for feature films started dying on the vine for years as Netflix grew and for years before Netflix seriously established streaming as an option for most of their customers… all before Redbox was a nationwide business. (Let’s no get into the Netflix stock price these days.) Besides rental and subscription rental, there was massive and wide-spread discounting on the retail product as well.

Meanwhile, at the studios, the DVD Bubble sent the spending on movies through the roof. $20m “stars” were all over the place. $80m set movies, comedy and drama, became average. $150m for action was a modest budget. And marketing budgets blew up in order to front-load theatrical so that they could get to DVD revenues a quarter later

Agents… the main source for guys and gals like Mike Fleming… LOVED this. They got insanely rich. But it was a bubble… because DVD sell-thru was a bubble. Now that the bubble burst, there is a new normal… but agents hate it. They want to know how they are going to get back to the bubble.

And execs saw their studios get hurt. The slowest to respond to the shifting revenue picture got hurt the worst. The grosses, for instance, for dramas, did not get smaller, as some idiots in media claimed. However, the cost of production was double what it had been, say, 4 years earlier. So a drama that would have made money with a $45m domestic gross was losing money for the funders.

Of course, agents and execs were also in a similar boat… their idea of “hurt” was flying commercial… they all want the jet back, gassed up and ready to take them to Aspen for dinner. And I get that. But shareholders, not so much. And if they knew how much was lost in profits in those fat, green DVD years, there would be blood running thick in the back lots.

The irony is, with all this whining, this summer is one of the most expensive summers ever. I count (roughly) seven films over $150m compared to four last summer. No one at the major agencies or studios can really be crying poor… just crying not as rich.

You know what’s confusing about the market right now? How much each post-theatrical revenue stream can generate, how quickly, and what will they look like in 5 years. High class problem.

And of course, the greatest irony of all… theatrical for features is clearly the most stable, highest-per-capita spend among all of the revenue streams. But this window, already under attack by the shortened window over the last 15 years, continues to the pointed at with disdain by “those guys.”

It’s not progressive thinking… it’s old man thinking… because they folks can’t get past the old model, where theatrical was 90% of the revenue. We’re decades past that. But still, it’s like something mommy did that adult children just can’t get over.

I’ll try to make it simple…
1. Post-theatrical is already a blur for consumers and it will only get more so. People will expect access at all times on any device for a low, low price… either in a subscription model or a per-use price point of $2 or less.
2. Theatrical will soon be the ONLY revenue opportunity that stands apart from that post-theatrical blur. No other revenue stream will ever again generate as much as $10 a person… or even $5.50 per person.
3. Consumers adjust to whatever window you offer. But history tells us, the shorter the theatrical-to-post-theatrical window for wide-release movies, the more cannibalism of the theatrical.
4. Just as the DVD bubble could not be pumped back up after it was deflated by pricing aggression, theatrical will not survive a significantly shorter window to post-theatrical as we now know it… and once it is broken, it will not be able to be fixed. And that revenue stream will NOT be replaced by what is now post-theatrical. It is simply money that will be lost, never to be recovered.

Theatrical will never be The Drink again. You’re looking at a 2 month window for most studio films vs decades of post-theatrical revenue opportunities. It’s not an even fight. But take a deep breath and look at the obvious… for theatrical to still be as much as 40% of the revenue of a studio film is bloody amazing. It’s not the past. It’s not ’39 or ’69 or even ’89. But it’s a LOT of money. And it is insane to take it for granted or to dismiss it, because there is no proof out there that I have ever heard that suggests that theatrical revenues gets in the way of post-theatrical revenues… only the other way around. Why? Because theatrical is the unique proposition. It’s post-theatrical that really has to compete with EVERYTHING the world has to offer.

Think about it. With very few exceptions, no one goes to the movie theater and then decides whether to pay for and see a movie or to do something else. In your home, whether on a computer, an iPad, or your TV, you have the choice of a wide world of internet options, movies you’ve already paid for in your cable/satellite packages, pay-per-view, subscription pay services, and a wide array of television options, including live sports and other appointment experiences. Oh yes… and DVDs, Blu or other, as well. Not to mention such old fashioned pursuits as, uh, books, newspapers, and other dead media. (ha!)

I was going to make Fleming’s piece the center of this analysis, but I think I have covered most of it already without slapping at him specifically.

A couple specific points.

1. “…Old style Hollywood journalism I practiced most of my career at Variety, where I would polish stories all day and turn them in at day’s end so I could tell you tomorrow what I knew today. Isn’t it better to let Hollywood know Chris Nolan’s agent Dan Aloni was leaving CAA while he was being escorted out of the building?”

Uh, no.

Journalism, and specifically, the authoritative voice, has taken a HUGE hit in the name of reporting gossip as it’s happening. You know what matters? What does Dan Aloni leaving CAA mean? Why did he leave?

And none of that was answered as he was being escorted out of the building.

Yes, there is plenty not to like about once-a-day reporting. But there is something equally problematic about “tweet first, think second” as well.

2. Your friends may not have told you, Mike, but DVD is already dead and studios are already phasing out the format… including Blu-ray. The niche gets smaller every quarter… in part, like everything else, because the studios have already made up their mind. They are using Blu-ray as a delivery system for Ultraviolet and other streaming-first concepts that will roll out in the next 8 months. Try walking into a retailer that used to have a giant DVD section. Better yet, try finding 20% of the retailers who used to make a business of selling DVDs.

3. The Oscar stuff is, simply, idiotic. The most stupid question – and popular, too! – this Oscar season was “why can’t The Oscars be more like The Grammys?”

I refer you, simply, to the “On the Lot,” the quickly failed movie competition show. Movies are not a quick turnaround event. There isn’t a live performance business that is driven by taped performances, like music is. (Again, you might have asked your pals how musicians make most of their money… here’s a clue… it’s not making records.)

You can’t walk Meryl Streep out onto the stage and have her do 2 minutes from The Iron Lady. At least, not without laughing.

And let me understand this… your way of fixing the Oscars is to do a half dozen EXCLUSIVE scenes from upcoming summer movies… like fucking ComicCon?

Music is a live performance medium… and people watch the Grammys to see what those live performance stars will do live. Even theater, with the much lower rated Tonys, is a live performance medium and one reason to turn on the show is to see the live segments from a dozen or so shows now on Broadway… that by the way, you will have NO way of seeing in any other way.

Ask a film critic why the influence of critics is at an all-time low. General Answer: Because individuals have many more tools by which to make up their own mind about their buying choices, including, but not primarily authoritative film critics. Marketing. And what does Fleming and his cadre suggest? Turn The Oscars into another marketing opportunity. And trick 5 million more teens into watching awards being given out until they get to see a 2 minute clip from the next Twilight movie, because even though it would be awful television, the ratings would be improved.

Once again… a bunch of people are SCREAMING that the Oscars are on fire, so we have to burn down the brand in order to save the brand.

“Why not INVENT AN AWARD that gives the cast and filmmakers the chance to take a final bow in front of a grateful global TV audience?”

Because you have to EARN a place at The Oscars. You can’t buy it. What part of that can’t you understand?

Burn the brand and there will be no brand. Only more marketing… for a while… until being a part of it is more embarrassing than not.

Fleming is a smart guy. I wish he would use that brain and that access to come up with some new, considered ideas and not just continue to pound the bully pulpit for bad, old ideas that are too reactive to ever get ahead of the slow-moving, but clearly moving curve.

DP/30: Footnote, director Joseph Cedar

More Fun From Insurge… The Loved Ones

No, that’s not Olivia Munn. This movie was made before she did her first movie in which she had a character name.

After selling the hell out of a few of new movies, Paramount’s Insurge division is going into the library and putting out a 3-year-old Aussie torture movie that never got domestic distribution.

To be fair, it got almost unanimously good reviews out of Toronto, though Variety was the only non-geek non-Aussie critic to review the the film officially. Here is the review part of the 2 graph Dennis Harvey review…

A nice addition to the annals of twisted Ozzie horror, Sean Byrne’s debut feature, “The Loved Ones,” transcends mere torture porn — though there’s plenty for the squeamish to squirm over here — in its deftly controlled mix of empathy, grotesquerie and sardonic humor. Tale of a kidnapped high schooler in high extremis is probably too small and specialized for offshore theatrical interest but should win a fanbase through midnight fest slots and DVD release.

You can read the other graph here.

Apparently, Dennis was correct and the film won a fan (or a few) at the hottest horror distribution outlet in America. Good day, indeed.