Could Netflix’s $450M ‘Knives Out’ Deal Finally Put the Streamer in Theaters?

"Netflix is now behaving like a mature, modern studio," one analyst tells us.

Daniel Craig in Knives Out.
Netflix swoops in for Rian Johnson’s Knives Out sequels starring Daniel Craig. Claire Folger

Much like the twists and turns of a great whodunnit, Wednesday’s Hollywood bombshell was wholly unexpected. Details are still emerging, but Netflix (NFLX) has reportedly acquired the rights to make two sequels to Rian Johnson’s hit 2019 murder mystery Knives Out, starring Daniel Craig, in a $450 million deal. It is one of the largest acquisitions in Hollywood history and a development ripe with subplots to explore. Shall we do our best Benoit Blanc impression and investigate?

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The original Knives Out was made for $40 million and earned $311 million at the global box office while also scoring an Academy Award nomination for its screenplay. Production company MRC partnered with Lionsgate on its theatrical distribution, but apparently the two sides only reached a single picture deal. While it was assumed that Lionsgate would distribute the remainder of the franchise, Johnson and partner Ram Bergman (who own and license the Knives Out IP on a picture by picture basis) held a quiet bidding war that Netflix has now won. Production on Knives Out 2 will begin in June.

“There’s certainly a ‘one that got away’ vibe to the news,” Shawn Robbins, chief analyst at Box Office Pro, told Observer. Johnson and Bergman have been given complete creative control by Netflix with no budgetary minimums. While it’s a win for the creative duo, it’s “an unfortunate loss for theaters or anyone hoping to see the re-emergence of an old school, live action cinematic franchise without superheroes or CGI,” Robbins observed.

But the film industry of today is far different than the landscape that existed in 2019 when Knives Out first hit theaters. That same year, Netflix was trying and failing to come to terms with movie theaters on a wide release for Martin Scorsese’s The Irishman. The ultimate sticking point? Neither side was willing to compromise on the traditional 60-90 day exclusive theatrical window. Today, partially thanks to COVID, that long window no longer exists in its previous form. Universal, Paramount, Warner Bros. and Disney have all experimented with shortened windows, hybrid releases, and straight-to-streaming film debuts.

“I would definitely not rule out the possibility Netflix could seek a theatrical release plan with exhibitors once the pandemic dust settles in the years ahead and both sides come to more compromising terms,” Robbins said. “That would hypothetically overrule some of the disappointment among film and cinema fans because I think it’s a series of sequels with A-list cast and crew that many people would be willing to venture out to theaters for even with a quick streaming availability.”

Box office results are a strong predictor of future value. Most SVOD services use ticket sales and Nielsen ratings, in addition to their own ratings, as strategic data points when deal-making such as this. Netflix clearly feels as if the expenditure will lead to long-tail engagement, though one might also argue that the streamer spent $450 million to prevent movie theaters from earning $500 million. But that’s an oversimplification.

Did Netflix overpay? Probably. Does this move indicate that Netflix, whose library is shrinking and whose coffers are not flush with marquee IP, may be desperate to build franchises before studios that have decades of development experience reach greater streaming scale? Most likely. Does it set the stage for Netflix to pay additional gobs of money to get Knives Out, currently streaming on Amazon (AMZN) Prime Video, on its own service before the sequels are released? Definitely.

But it’s a move that keeps the Knives Out sequels away from the competition (Amazon and Apple (AAPL) were also bidding) without dramatically altering the financial future of a company valued at nearly $235 billion. It also puts the streamer in business with Johnson, one of the most creative voices in Hollywood, who doesn’t have an overall deal at any one studio while providing Netflix with a high-profile new film series with a built-in fan base.

“Overall, I still think it’s hard to argue against the need for theatrically exclusive releases when it comes to Hollywood’s most expensive and biggest earners, but this is now an example of those mid-range properties with built-in value and contained costs that may try to aim for experimental releases in the post-COVID-19 world,” Robbins said.

The film industry is all about repetitive cash flow i.e. sequels; streaming comes down to limiting churn to guarantee recurring revenue. Regardless of medium, the idea of giving audiences more of what they already like is valuable. It’s a reason to stay subscribed. Netflix is selling you expectation.

“All major studios use sequels to mitigate risk,” David Offenberg, Associate Professor of Entertainment Finance in LMU’s College of Business Administration, told Observer. “This is another piece of evidence that Netflix is now behaving like a mature, modern studio.”

Could Netflix’s $450M ‘Knives Out’ Deal Finally Put the Streamer in Theaters?