Can ‘The Irishman’ make Netflix money?
It would need to be streaming service’s biggest hit to date
If a movie was released in theaters, you can find its box office reported. “The Wizard of Oz” made $969,000 internationally when it came out in 1939. Type a title into Box Office Mojo and see what comes up.
This is useful information for a few reasons. Here’s a compelling one: A couple years ago a study looked at global box office between 2014-2017 and found that female-led films outperformed male-led films at all budget levels. There’s a transparency to the data — studios, for example, can’t greenlight a slate of movies featuring almost all-male leads and pretend it’s smart business.
Box office performance doesn’t just influence what movies get made, it can also help shape how we think about any given movie.
“It’s rare that you’ll have a conversation about a movie without somehow, some way, the box office or the performance of a movie being brought up,” said Paul Dergarabedian, senior media analyst for Comscore, which compiles box office data.
Would the idea of cult hit even exist if we didn’t know that it flopped when it first opened only to be re-discovered at some later point when people found it on TV or at midnight screenings?
But what about movies that are released by streaming services, which as a whole rarely provide any data? How do we talk about those movies when we know next to nothing to about how well they did?
“This is an issue that wouldn’t have even existed five years ago,” said Dergarabedian. “It’s analogous to sports — what if suddenly there were no stats in sports? The whole thing would fall apart. But if you want to be a disrupter, I guess you change the rules on how we perceive what success means. And I think that’s what streaming services are doing here.”
But what if we could point to a number, like box office, and get some idea of whether a streaming release is “successful” or not?
Let’s look at one Oscar contender: Can Martin Scorsese’s crime film “The Irishman” make money for Netflix?
Blogging anonymously under the name Entertainment Strategy Guy, one Hollywood analyst has given this question considerable thought. And he’s created some mathematical models to come up with an answer.
He says “The Irishman” would have to be Netflix’s biggest hit to date — “crossing 110 million subscribers watching globally” (Netflix has nearly 160 million subscribers in total) — to make money for the streaming service. And by his calculations, the movie actually lost $280 million and he’ll explain how he got to that number below.
He talks about his methods in depth in four separate blog posts where he walks readers through his thought process, which draws on his experience working at a major streaming service in business development and strategy. He prefers to stay anonymous should he ever decide to return to work in the industry again. (The Tribune agreed to use his nom de plume and has confirmed his identity.)
He’s writing about an aspect of streaming that most journalists aren’t tackling. “I think that’s because it’s just early,” said Comscore’s Dergarabedian. “We’re in the infancy of this and everyone’s trying to figure it out. But I think more and more journalists are going to be looking at this question. And in looking at this gentleman’s analysis, it’s as good as any.”
Entertainment Strategy Guy acknowledges he doesn’t have access to Netflix internal data, so he’s making assumptions that may not always be right. Sometimes he’s rounding numbers. But taking all that into account, it’s a worthy thought experiment.
What do we know about who saw “The Irishman”?
Starring Robert De Niro and Al Pacino, the movie is the (possibly embellished) story of a real-life mob hit man who worked with
Teamster leader Jimmy Hoffa and was supposedly responsible for his death. The film became available to subscribers in late November.
Shortly after, Netflix announced it was forecasting that 40 million accounts will have watched at least 70% of the movie in its first month online. Here’s Entertainment Strategy Guy’s response to that: “If you want the good interpretation, getting 40 million people to watch anything is a win.”
Because Netflix doesn’t release data about all of its offerings, we can’t know what that 40 million number means compared to other films on the site.
What if we take that 40 million and multiply it by the average ticket price ($9): Does that give us a starting point to make some comparisons with a theoretical box office of $360 million?
Entertainment Strategy Guy says no: 40 million accounts is not equivalent to 40 million people buying tickets. Why? Because you can’t assume the same people who streamed the movie online would automatically pay to see it in theaters if that were the only option. Price and convenience are real factors when people make these kinds of choices.
For some context: 43 million people in the U.S. went to see “Spider-Man: Far From Home” in theaters, which was the fifth highest grossing movie of 2019. What are the chances “The Irishman” could match that? Probably nonexistent.
Instead, Entertainment Strategy Guy looked at other films in the same genre.
“I wanted to get an idea of, had this been released only in theaters, what was the potential upside for theatrical run if this was a hit?” The highest grossing equivalent was “American Hustle,” which made $150 million domestically. Scorsese’s highest grossing mob film was “The Departed,” which made $132 million domestically.
In other words, Netflix might have left money on the table. Entertainment Strategy Guy isn’t alone in thinking that.
Doug Stone is president of Box Office Analyst, and he consults with theater owners, studios and financial analysts about box office numbers. He thinks if the “The Irishman” had been given a wide release in theaters like Scorsese’s previous films, it potentially could have brought in anywhere from $80 million to $115 million: “It would have been very substantial box office. The fact is, Scorsese has a track record of doing well.
“And honestly I can’t imagine anybody would have dropped their Netflix subscription if it appeared in theaters first for a longer exclusive run.” But bypassing a standard theatrical release has become part of Netflix’s identity.
Stone doesn’t think Disney will follow this model, by the way. Sure, the studio might make films just for its streaming site. But it will remain firmly in the business of putting movies in theaters. “Disney is a different animal. They do not make films like ‘The Irishman,’ per se. Primarily they make event films, and there’s a lot of money in theatrical box office for those films.”
Has “The Irishman” made significant money in its limited theatrical run?
Unlikely. The film had a very limited theatrical run in an unreported number of theaters (it’s still playing at the Landmark Century Centre Cinema and IPIC South Barrington). According to Box Office Mojo, it made just under $1 million total in foreign markets. But there’s no data for U.S. theaters.
Here’s why. Instead of distributing through the dominant theater chains — which refuse to work with Netflix because the streaming service won’t abide by the usual 90-day exclusive window — Netflix rented out independent theaters (or smaller chains like Landmark). That means they pocketed 100% of the ticket price rather than splitting it 50-50 with the theaters (which is generally the industry standard).
According to Stone, normally all box office numbers are reported to Comscore. But he says Netflix chooses not to have that information publicly available and “specifically requires theater owners not report to Comscore.”
So can “The Irishman” make money for Netflix just through streaming?
No, based on the numbers crunched by Entertainment Strategy Guy.
This is where it gets complicated. Netflix makes money not just by gaining new subscribers but by retaining the ones it already has.
First Entertainment Strategy Guy had to determine the lifetime dollar value of the average subscriber (aka how much money Netflix thinks it can get from the average subscriber). This was his formula:
He multiplied the average monthly subscription price ($12) by the average number of months a user subscribes (30). Then he subtracted how much it costs to get someone in the door ($100, which we know because Netflix released their marketing costs in their 2019 annual statement).
That puts customer lifetime value at $260. Then he created a mathematical model to try to gauge the percentage of customers who kept their subscription because of “The Irishman.”
“Where that model comes from is based off historical data (information that’s already out there) and some of my own experience.” He’s making educated guesses because we don’t know how many people watched the movie and thought, “Hey, I’ll keep subscribing.” Even Netflix doesn’t know. “But they use giant econometric mathematical models to come up with these estimates themselves.”
Entertainment Strategy Guy then took that $260 and multiplied it times the number of subscribers he’s attributing to “The Irishman” based on his own model (125,000 customers). His result: The movie “made” $32.5 million for Netflix from U.S. accounts, plus an additional $5.4 million from international accounts.
Or put another way, he thinks the movie lost as much as $280 million.
We don’t know how accurate this number is, but there is plenty of logic behind it. Pradeep Chintagunta is a marketing professor at the University of Chicago Booth School of Business and he said, “I think this was very carefully laid out and thought through.” He also said that, to Entertainment Strategy Guy’s credit, “he points out the two big holes, which are also the two big criticisms that I had.”
The first: The 125,000 subscribers attributed to “The Irishman” — we just can’t know if that number is right.
The second: The movie’s value might lie elsewhere.
“If you want to be known as a major legitimate studio,” Chintagunta said, “the fact that you snagged Scorsese and De Niro and Pacino and all these guys, that will help you to get other top directors and other top stars to come in and make movies for you. That effect is very, very hard to quantify but I think it’s critical.”
Even though about 25% of Netflix accounts watched the movie, the budget was enormous. Reports have been all over the place: According to CNBC it was $100 million; Variety has it at $160 million; The Hollywood Reporter says $200 million.
Entertainment Strategy Guy thinks it was even higher, closer to $250, million due to a few factors, including the long shoot, pricey talent and expensive deaging technology that is in so much of the film. “And the initial versions of that didn’t work as well, so they had to do rush VFX to finish it in time for the New York Film Festival,” he said, “which is where I’ve heard it added a lot of the cost.”
Plus: “They did another $50 or so million in marketing. And I’m estimating they’re going to have a $40 million marketing campaign for the Oscars as well.”
Even factoring in a potential Oscar bump (and even if the lower budget estimates are more accurate) “it would be very hard to make up for that in viewership,” he said.
We know Netflix spends more than it brings in. Last year it spent around $15 billion on content, but after all the company’s costs were factored in, it was $3 billion short.
So why not explore a revenue model that can include subscribers and wide theatrical releases?
“Two reasons,” Entertainment Strategy Guy said. “I think there’s some institutional inertia, which means if what you’re doing is what you’ve always done, you don’t want to admit it’s wrong because it could impact the stock price.
“But that brings me to the other reason. If you measure Netflix’s success in cash flow, they’re losing money every year. But if you measure it in stock price growth — and it was the best performing stock of the decade — Netflix could say, ‘Why would we need to put our movies in theaters? Clearly our stock price is going up. We’re being rewarded by Wall Street for maintaining this strategy.’ ”