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Now here’s the latest example of the perils of the streaming model…

Man, Sony Pictures has suffered through a pretty brutal summer at the box office. It’s the only major Hollywood studio that didn’t release a $500 million–grossing movie from May through August—and it wasn’t even close. The highest-earning Sony release for the entire year so far, 28 Years Later, has generated just $150 million worldwide. Ouch. Next summer’s Spider-Man: Brand New Day can’t come fast enough.

But Sony Pictures did make one of the biggest movie sensations of the summer—a project from its animation division that cost more than $100 million to produce and will likely become a billion-dollar franchise, spawning sequels, spinoffs, music sales, Halloween costumes, and all the trimmings of a big fat Hollywood studio hit. It’s just that most of that value has and will accrue to Netflix because the movie is KPop Demon Hunters, and Sony offloaded it rather than develop it solo and release it in theaters. There are good reasons why Tom Rothman, the Sony film chief and self-styled king of the theatrical release, went the streaming route here. But still, he’s gotta be kicking himself over this one. (Sony declined to comment.)

Have you seen the numbers? Released in June, the anime-style musical adventure about a K-pop trio who moonlight fighting underworld monsters generated another 25.9 million views this week, according to Netflix, and is now No. 2 on its all-time Top 10 list for English-language films. If this trajectory holds, as Netflix believes it will, Demon Hunters will soon pass Red Notice and its 230.9 million views to become the most-watched original film ever on the platform. At the same time, the soundtrack, featuring the fictitious band HUNTR/X and real life K-pop group Twice, currently boasts seven songs in the top 20 on Spotify’s global Top 50 list. “Golden,” an insanely catchy anthem, just hit No. 1 on the Billboard Hot 100 chart.

If you have a kid at home, like I do, he or she is likely talking about nothing else. After more than a decade in the movie business, this is arguably Netflix’s first animated megahit after many, many attempts. It’s still not quite as zeitgeisty as the biggest theatrical blockbusters, in my opinion, but it’s about as close as a movie can come without theaters. And, as we know, the animated hits can keep giving and giving. Disney favorites like Moana and Encanto still pop up in the weekly Nielsen charts thanks to rewatches. I asked John Mass, president of Content Partners, which buys and sells film libraries, to estimate how much KPop Demon Hunters will ultimately be worth to Netflix. “It’s impossible to put a value on this franchise,” he told me, “but given the viewership numbers and plans for sequels and spinoffs, and the popularity of the music, it may end up being comparable to the Disney animated hits.”

Great for Netflix. Not as great for Sony, which is making only about $20 million on KPop Demon Hunters, according to sources familiar with its deal. Not nothing, of course, but that’s less than many established movie stars make for Netflix films, and Sony actually conceived, developed, and produced the film. In addition, while Sony has the contractual right to produce any sequels or spinoffs—and, indeed, I confirmed that the studio has just started negotiating with directors Maggie Kang and Chris Appelhans to return for a follow-up—it will make no additional money from the runaway success of the first film, except it has the right to release it in China, where Netflix doesn’t operate, if the government allows it in. There’s no backend, and Netflix has no obligation to renegotiate on the follow-up films. (Though I’m betting Netflix throws Sony a few bones here.)

The fee-for-service model in streaming is familiar to many frustrated producers, and the story of KPop Demon Hunters is a variation on the Suits issue from last year, where Netflix acquired a property cheap and turned it into a phenomenon. But Sony isn’t just a production company, it’s a full-fledged studio with an experienced theatrical distribution apparatus. So why didn’t Sony release this movie itself? It came down to the timing of the deal. KPop Demon Hunters was in development at Sony Pictures Animation in 2021, when the company signed a massive “Pay One” output deal with Netflix for its theatrical films. Concurrently, Sony forged a separate “direct-to-platform” arrangement with Netflix, agreeing to offer a first look at certain live-action and animated film projects, and Netflix guaranteed to greenlight a minimum number that the two companies would develop together and Netflix would release and control. Per the custom at the time, Sony would be paid a prenegotiated premium on top of the budgets for the films. Sources familiar with the deal tell me it was 25 percent of the budgets, capped at $20 million per film. Netflix would keep all the rights and pay no profit participation.

A MESSAGE FROM OUR SPONSOR

Primetime Emmy® Award Nominee 

Outstanding Television Movie 

“BRILLIANT. A thoughtful, well-crafted movie.” 

- Newsweek 

“Just as deliciously satisfying as the first movie.” 

- The New York Times 

“What a joy it is to see Renée Zellweger’s Bridget back on our screens” 

- The Telegraph 

_____ 

[READ] Renée Zellweger Embraces a New Era of Bridget Jones—and Hollywood Itself  

[READ] Renée Zellweger Has Her “Fingers Crossed” for More Bridget Jones Stories 

_____ 

For more on BRIDGET JONES: MAD ABOUT THE BOY, visit PeacockFYC.com 

Back in 2021, this was a good deal for both sides. Remember, most movie theaters were still closed due to the pandemic, decimating the theatrical business. Sony doesn’t have its own mass-market streamer, and as a so-called “arms dealer,” it aggressively offloaded movies it had made to the highest bidder—stuff like Tom Hanks’s Greyhound and the animated The Mitchells vs. the Machines. By making a guaranteed number of new movies for Netflix, Rothman was able to keep money flowing into the studio and avoid layoffs.

And even if the Netflix deal generated a hit or two that might have been successful as a Sony theatrical release, the deal also included a mandate to buy movies that would not be “theatrical” and might not have found any audience, giving Sony guaranteed upside at perhaps the low point of the theatrical business. For instance, that Netflix deal generated a Lady Chatterley’s Lover remake that Sony probably wouldn’t have made for theaters. People We Meet on Vacation, a rom-com adaptation of a popular novel, is coming next year. So by jumping into bed with Netflix, Rothman was taking the safer path.

And who knew KPop Demon Hunters would become… KPop Demon Hunters? The project was initially brought into Netflix by Melissa Cobb, a V.P. of original animation who has since left the company. Its director, Kang, worked on the project for years, even before she was joined by animation veteran Appelhans. Sony served as the producer on the film, with its Sony Pictures Imageworks unit, run by Michelle Grady, actually generating the animation, and Netflix overseeing as the studio.

During the process, Hannah Minghella, who joined Netflix last year to oversee animation and family films (ironically, she once worked at Sony for 15 years), brought in Twice, a popular K-pop band, to perform a couple songs. (Twice is signed to Republic Records, a Universal Music label, meaning Sony’s music arm also missed out on revenue from the music streams.) Minghella also oversaw tweaks to the beginning of the movie, which is crucial for Netflix, given the fickle streaming audience. The film tested very well with women, particularly younger females, but even Netflix executives have been shocked by the numbers on the service.

The billion-dollar question: Would KPop Demon Hunters have actually been a hit in theaters? Most film people I’ve spoken to over the past two weeks believe the answer is likely no, especially with that nine-figure budget. Original animation has struggled in theaters post-Covid, and with the exception of the SpiderVerse films, the edgier, anime-style look and feel of Demon Hunters typically does not resonate with a broad theatrical audience, especially in this country.

No disrespect to Millie Bobby Brown, but if you look at the Netflix all-time Top 10, many of the films do not feel “theatrical” in the modern sense. Meaning what people will watch on Netflix for “free” isn’t what they will pay to see in theaters. Plus, the film started slow on Netflix and steadily built its audience via viral chatter, consumption of the music, and the platform’s algorithm—all of which, time after time, have proven able to create huge hits. The younger Netflix audience adopted Demon Hunters as its own and is now rewatching it and rewatching it all the way to No. 1. I asked Kevin Goetz, the movie researcher and test-screening guru who counts both Netflix and Sony as clients, whether he thought Demon Hunters would have performed in theaters. “In hindsight, it seems like an obvious hit,” he told me, “but I would argue that Netflix is responsible for this movie entering the cultural zeitgeist.”

Not sure I totally agree. The movie started slowly on Netflix, but a traditional Sony theatrical campaign could have sold the film on its catchy music and promoted it well to the target audience in advance. Remember, Sony gradually built a theatrical hit out of Sydney Sweeney and Glen Powell in short shorts in Anyone But You, so perhaps it could have turned Demon Hunters into a summer sleeper, especially since there was zero animated competition. Disney’s Elio and Paramount’s Smurfs flopped, Universal’s The Bad Guys 2 had smaller aspirations, and both How to Train Your Dragon and Lilo & Stitch were “live-action” family films. That’s part of the reason Netflix picked June 20 as the release date.

If Sony had put Demon Hunters in theaters, the more likely scenario is that it would have performed okay—not great, maybe stronger in Asian territories—and then eventually exploded on Netflix in the Pay One window. But if that had happened, the inevitable sequel likely would have gone to theaters and—armed with a massive fan base—grossed hundreds of millions of dollars for Sony. Now, thanks to that 2021 deal, the follow-up movies will go directly to Netflix, barring the unlikely event of co-C.E.O. Ted Sarandos suddenly coming around on theaters.

For Netflix film chief Dan Lin, this is a studio chairman’s dream: A relatively cheap superhit with a clear runway for exploitation across many businesses. Think about it: Netflix now owns a fictitious rock band with millions of fans. They don’t complain, they don’t owe military service, and many of the voice talents are not famous and don’t have much leverage for renegotiations. Again, great for Netflix. Not as great for Sony.

Sony likes to say that it “won” the streaming wars by sitting them out and refusing to shovel money into the furnace of a mass-market service. But here’s an instance where the incentive to sell to the highest bidder ended up causing Sony to potentially leave massive amounts of money on the table, at least for this one title. Other vertically integrated entertainment companies would probably have held on to a theatrical window for a project that its execs believed could be successful, or hedged by sending it directly to its owned-and-operated streamer. In either scenario, a direct-to-streaming sequel then could be elevated to theaters if desired. Remember, Disney developed Moana 2 as a Disney+ series, then refashioned it as a theatrical film and it grossed $1 billion.

In a twist, Netflix is now putting a “sing-along” version of KPop Demon Hunters in 1,100 theaters next weekend for a two-day special event. As of tonight, I’m told there are more than 300 sold-out showings, with theaters asking for additional dates. No, Netflix is not sharing any of the box office revenue with Sony.

See you Monday,
Matt

Julia Alexander and Maya Tribbitt contributed research for today’s issue.

Got a question, comment, complaint, or your favorite fictitious band? Email me at Matt@puck.news or call/text me at 310-804-3198.

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