Two Films Hit Theaters, but Netflix Remains Committed to Streaming

“Glass Onion: A Knives Out Mystery,” the much-anticipated follow-up to the 2019 sleeper hit directed by Rian Johnson, was supposed to be the moment Netflix crossed the Rubicon.

Rather than give the film a perfunctory theatrical release — a strategy designed to ensure most viewers ultimately watch a movie on the streaming service — Netflix, in a first, would give the film a traditional, exclusive run in a large number of cinemas.

It didn’t happen.

After much back and forth, and contrary to the wishes of some Netflix employees and Mr. Johnson, a theatrical release for “Glass Onion” that at one point some people inside the company hoped would reach up to 2,000 screens ended up at 638 in the United States. The movie, which was released on Wednesday and has received positive reviews, will run in theaters for just one week before becoming available on Netflix on Dec. 23.

What was supposed to be the moment to prove the value of theaters to the streaming giant will not come to pass. Yet the company is also involved in another intriguing theatrical experiment this weekend, one that could end up providing Netflix with even more valuable feedback.

On Friday, “Matilda the Musical,” financed and produced by Netflix, will open on more than 1,500 screens in 670 locations across the United Kingdom and Ireland. The movie, starring Emma Thompson as the villainous Miss Trunchbull, will be released and promoted by Sony Pictures, which, in a unique one-picture deal, licensed the rights to Netflix on the condition that Sony could hold onto the United Kingdom for a theatrical release. (“Matilda,” which is based on a stage musical that itself is based on a children’s book by Roald Dahl, is beloved in the United Kingdom. The musical has been running in London’s West End since 2011.)

“It will be a good example of what could be done,” said Tim Richards, founder and chief executive of Vue International, a London-based exhibitor with theaters in countries including the United Kingdom, Denmark, Germany and Italy. “If there was ever a film made for the big screen, it’s ‘Matilda.’”

Sony Pictures, which declined to comment for this article, bought the film rights to “Matilda the Musical” in 2015, with the show’s director, Matthew Warchus, set to oversee the adaptation. At the same time, Netflix was trying to bolster its roster of family films and had its eye on the Roald Dahl estate. (In 2021, Netflix ultimately purchased the entire Dahl estate, giving the company the ability to adapt books like “Charlie and the Chocolate Factory” and “The BFG” into films and television shows, while also controlling the publishing rights.)

At the end of 2019, the companies entered into an arrangement whereby Netflix would finance “Matilda the Musical” and produce it in conjunction with Sony and Working Title Films, a U.K. producer. Netflix would control rights to the finished product worldwide, excluding the United Kingdom and Ireland, where Sony would own the rights and release the film theatrically. “Matilda the Musical” will not appear on Netflix in the United Kingdom or Ireland until next summer, though it will be available to stream in the United States and other countries on Christmas.

So far the film has received positive reviews. The Independent deemed it “a frothy, whimsical delight,” while The Guardian called it “a tangy bit of entertainment, served up with gusto.” It has a 100 percent positive rating on Rotten Tomatoes and could do the kind of business that the original “Peter Rabbit” did at the British box office, where it sold $54 million in tickets.

Whether the box office performances of “Glass Onion” and “Matilda” have any long-term impact on Netflix’s approach to theatrical distribution is a big question. According to three people with knowledge of Netflix’s inner workings, numerous executives in the company’s film group would like Netflix to embrace a more traditional strategy regarding film releases, but the co-chief executives, Ted Sarandos and Reed Hastings, remain focused on streaming. “There is no question internally that we make our movies for our members, and we really want them to see them on Netflix,” Mr. Sarandos said on an earnings call last month, adding, “Most people watch movies at home.”

Netflix declined to comment for this article.

Discussions about a significant theatrical release for Netflix’s biggest movies began in earnest in April, after the company’s stock dropped 35 percent following a dismal first-quarter earnings report, according to the three people, who spoke on condition of anonymity to describe internal matters. “Glass Onion,” one of two “Knives Out” sequels the company purchased for $450 million in 2021, seemed to be the perfect candidate. The original grossed an impressive $165 million domestically — a notable feat for a movie not based on any well-known intellectual property.

Spencer Klein, the company’s distribution director, went to the theater owners’ trade convention in Las Vegas to inform eager exhibitors that in light of Netflix’s subscriber slowdown, the company was considering wider theatrical releases. The issue was again brought up at a retreat for senior management in May and discussions continued in June, the people said, when there were preliminary talks about pushing back the streaming debut of the action-adventure film “The Gray Man” to allow for additional time in theaters. (This idea, specifically, never gained much traction.)

Each conversation ended the same way, the three people said, with Mr. Sarandos adamant that a theatrical model was a confusing distraction and that the company’s best films should debut on Netflix. It wasn’t until September that Mr. Sarandos re-engaged in the debate, allowing his film team to use “Glass Onion” to test the market to examine two things: whether big-budget Netflix films could make money in theaters, even with the added marketing and print costs required; and whether those additional marketing costs would ultimately improve the film’s performance on the streaming platform.

Scott Stuber, Netflix’s film chief, was hoping to put “Glass Onion” into a wide release, anywhere from 1,000 to 2,000 screens, according to the people familiar with the discussions. Mr. Sarandos wanted 500. They agreed to more than 600 with a 30-day window between the film’s theatrical debut and its appearance on streaming. Mr. Sarandos demanded that it play for just one week and that the exhibitors promise not to release the box office numbers to the news media. For the first time, the two largest theater chains in the United States, AMC Theatres and Regal Cinemas, agreed to a deal with Netflix, along with other smaller chains. AMC’s chief executive, Adam Aron, said in a statement at the time that the deal showed that “both theatrical exhibitors and streamers can continue to coexist successfully.”

That enthusiasm was short-lived, stifled when Mr. Sarandos emphasized his commitment to streaming during last month’s earnings call.

Some of the large exhibitors were considering backing out of the deal after his remarks, according to one of the people familiar with the company’s inner workings. They remained only because they hoped a success story would change the top executives’ thinking. It helped that Netflix had committed a healthy budget to marketing “Glass Onion,” running commercials during “Sunday Night Football” and “Saturday Night Live,” and showing the trailer in theaters before movies like “Black Panther: Wakanda Forever” and “Ticket to Paradise.”

“We want as many people as possible to see it in theaters,” Mr. Johnson, the director of “Glass Onion,” told The Hollywood Reporter this week about the film. “And then we want it to do incredibly well when it hits Netflix — so lots of people see it and so it demonstrates to everybody, most of all Netflix, that these two things can coexist.”

Mr. Sarandos’s thinking runs counter to what other major studio heads now believe.

“I’ve seen the data,” David Zaslav, the chief executive of Warner Media Discovery, said during a recent investor conference. “A movie that opens in the theater performs five times as well as a movie that you put direct to streaming.”

Yet, releasing films theatrically is far from a sure thing these days. The U.S. box office is down some 32 percent compared with 2019, and the pandemic significantly altered moviegoing habits. Older moviegoers have yet to return to the cinema in big numbers, and studios are making fewer films, 36 percent fewer, in fact. One exhibitor said that if the three big streaming companies — Netflix, Amazon and Apple — released roughly 20 movies in theaters each year in total, that would help make up for the deficit and potentially return the business to a healthy place.

Until then, theater chains are hopeful that releases like “Glass Onion” and “Matilda” will convince the companies to try more like them.

“I’m hoping that ‘Glass Onion,’ even though it’s a very limited release, will deliver sufficient numbers that will certainly tweak some interest into doing something more in the future because they’ve got some amazing movies coming up,” Mr. Richards of Vue International said. “They’re moving slowly but I’m hopeful that there will be a change in thinking.”