How Netflix keeps luring directors away from traditional box office

Netflix isn’t interested in bringing movies to theaters.

The company’s leaders have said they see theatrical movie releases as an “outdated” model. Yet for more than a decade, the streamer has lured in some of Hollywood’s biggest directors to make content exclusively for its platform.

Martin Scorsese, Alfonso Cuarón, Bong Joon-ho, Spike Lee and Guillermo del Toro, darlings of the big screen, have all directed films for the streaming service without the promise of a wide theatrical release.

More recently, Netflix has wooed Greta Gerwig into the director’s seat after acquiring the rights to C.S. Lewis’ “The Chronicles of Narnia” book series, signed Rian Johnson to make two sequels to 2019’s “Knives Out” and made itself the home of Kathryn Bigelow’s first film release in nearly a decade.

Many of these creatives have touted the importance of the theatrical experience, but few of the Netflix projects are expected to garner a wide release or a long run in cinemas. Most of the time, Netflix’s films are launched in a limited number of theaters for a week, just long enough to be eligible for Academy Award contention.

In fact, Gerwig’s “Narnia” film is getting an exclusive two-week global debut in IMAX starting Thanksgiving Day 2026, something that has never been done before.

Netflix has been able to bring Hollywood talent away from the traditional theatrical model by offering lucrative contracts, creative freedom and an audience pool of more than 300 million subscribers, Hollywood insiders, who requested anonymity to discuss industry moves, told CNBC. It’s also become a haven for auteurs whose films might not otherwise get made, either because of pricey budgets or risky genres.

“What Netflix offers filmmakers is an irresistible combination of deep financial pockets and wide creative latitude,” said Paul Dergarabedian, senior media analyst at Comscore. “This is enough to draw some of the biggest names in filmmaking today both behind and in front of the camera, and it’s striking since most of these notable names have built their careers on the canvas of the big screen in the movie theater.”

For as long as Netflix has been disrupting the traditional Hollywood model, analysts and box-office proponents have argued for why the streamer should embrace a more conventional theatrical approach. Every year or so, a study appears from a box-office analytics company or on behalf of one of Hollywood’s theatrical trade groups concluding that audiences are more likely to stream a movie that’s been released in theaters.

“It seems like for most of the other traditional media companies the pendulum has flown back to the idea that, yes, theatrical does enhance the value of a movie,” said Robert Fishman, analyst at MoffettNathanson.

Hollywood insiders told CNBC that Netflix’s leaders have long admitted that money is being left on the table by not employing a typical theatrical model. But Netflix’s co-CEO, Ted Sarandos, has said he has no plans to change the company’s box-office strategy.

“It would be complicated for Netflix, a distraction from what they’re trying to do,” said industry analyst David Poland. “And it would be potentially money-losing.”

Sarandos has repeatedly said that Netflix’s purpose is to provide content for its streaming subscribers, noting that the audience that pays for its service should get it as soon as possible, not wait for an extended theatrical window to elapse.

Netflix has benefited from its partnership with Sony, which gives the streamer exclusive U.S. streaming rights to the studio’s theatrical releases after they wrap up in theaters. With the deal, Netflix gets fresh content without the box-office risk.

Of course, keeping subscribers happy is only part of the strategy. Netflix saves millions in marketing costs by skipping theaters, industry experts said. Typically, a film’s marketing budget is half of what it spent on production.

So a film like the Russo Brothers’ “The Electric State,” which reportedly cost $320 million to make, could have had up to a $160 million marketing budget if it went to theaters. That’s a nearly $500 million investment before a theatrical opening, and a studio would then split ticket sales with cinemas.

Notably, the film was originally slated to be produced under Universal Studios but was transferred to Netflix after executives at Universal balked at its steep budget, people familiar with the matter told CNBC.

Success of a Netflix film is based on viewership, a metric that is not comparable to box-office dollars. “The Electric State” was streamed by 25.2 million subscribers in its first three days on the platform, according to Netflix’s Tudum site at the time of its release. That is about one-third of what Netflix’s “Red Notice” generated during its three-day launch in 2021. “Red Notice” is Netflix’s best-performing film to date with more than 230.9 million views.

It’s hard for directors and other creatives to dismiss the kind of viewership Netflix brings, Hollywood insiders told CNBC. It’s one of the reasons that Netflix has been able to draw in big-name directors, writers and producers over the last decade.

Netflix has also been more flexible with its purse strings. “The Electric State” is just one example. Scorsese’s “The Irishman” also saw studios pass on the film because of its ballooning budget, but Netflix stepped in and acquired the rights. The film went on to garner 10 Oscar nominations, although it ultimately went home empty-handed during the 2020 ceremony.

“Netflix, because they have interest in getting awards and nominations and all that stuff, have funded and purchased and been involved with directors who are really high-quality filmmakers worldwide,” Poland said. “It’s a tribute to Netflix that those movies exist.”

The streamer has had at least one best picture contender at the Academy Awards since 2019.

The company has not been shy about spending money to secure top talent either. It’s signed dozens of lucrative first-look deals with creators, which give it the exclusive right to review and potentially purchase or distribute a new project before it is offered to other buyers. Past deals have run the gamut between television and film and included creators like Tyler Perry, Antoine Fuqua, Shonda Rhimes and Jennifer Lopez.

Netflix has even been more targeted in its contracts, as was seen when it penned a two-picture deal with Johnson for sequels to his 2019 film “Knives Out,” which reportedly was for more than $400 million.

“It would be tough for any creative to turn down the offer of the financial resources to realize their creative vision. And despite wanting their movies to be seen on the biggest screen possible, [they] have made the calculus that getting their works realized on film and presented on a major streaming platform is a bargain worth making,” Dergarabedian said.

Wall Street doesn’t seem to mind Netflix’s movie strategy. The company’s stock is valued at nearly $1,300 a share and has soared 45% since January and more than 90% in the past year.

Netflix is expected to spend around $18 billion on content this year, according to the company. It does not disclose what percentage of that funding goes to its movies versus its television productions. The company currently projects that its full-year 2025 revenue will be between $43.5 billion and $44.5 billion.

Insiders said that with those kinds of investments, consumers might need to watch out for more price hikes. MoffettNathanson’s Fishman noted that Netflix will continue to weigh its value proposition to determine if it needs to increase the cost of its services.

If Netflix keeps creating content from top-tier creators, then the analyst firm expects prices to increase.

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