Studios rethink streaming strategy amid Wall Street profitability push

Paramount is making a habit of greenlighting low- to mid-budget films for its streaming service, only to about-face and send them to theaters first.

As the media company and its rivals try to claw their way to higher profits, the strategy could gain traction.

“Smile,” a horror film with a $17 million budget, was supposed to go straight to Paramount+ in 2022, but strong results from test screenings brought the flick to theaters. It generated more than $200 million at the global box office. A sequel is now in the works.

Then this year, “Mean Girls,” a musical film adaptation of the Broadway show and beloved 2004 film of the same name, arrived in theaters from Paramount, after positive responses from test audiences led the company to abandon its straight-to-streaming release. Since it came out on Jan. 12, the $36 million film has tallied $83 million globally, according to data from Comscore.

Paramount’s strategy is largely based on an individual film’s potential performance. But box-office and Wall Street analysts expect other studios will lean into the tactic, as they struggle to profit off of films that don’t get a theatrical release.

In the last five years, traditional media companies have pushed low-budget genre films out of theaters and onto their fledgling streaming platforms to pad their libraries and drive subscriber growth. And for a while, Wall Street rewarded these companies for adding more users each quarter.

Investor sentiment has changed. Now, as linear TV ad revenue shrinks, they want more immediate earnings growth, not the promise of profit in a few years. While Netflix is profitable and largely not involved in theatrical releases, traditional media players like Disney, Universal, Paramount and Warner Bros. Discovery may need to rethink their streaming strategies.

“Studios they can’t just bring stuff to streaming and use those movies as loss leaders to gain subscribers because investors want to see profitability,” said Eric Handler, managing director at Roth MKM. “The best way to maximize the profit of a movie is to bring it to theaters first.”

While Hollywood’s big-budget blockbusters typically get the most attention, a steady stream of low- to mid-budget films from a variety of genres are essential to the health of the box office.

Low-budget films are typically those that cost under $20 million — films from the horror genre often fall in this category, as well as some independent features. Mid-budget films, meanwhile, are usually considered those under $100 million, although usually the budgets are closer to the $30 million to $70 million range. These are commonly comedies, romantic comedies and dramas.

And having more films in cinemas will boost theatrical revenues, box-office analysts say.

The combination of pandemic shutdowns and a push toward streaming significantly decreased the number of wide releases at the domestic box office. This also weighed on ticket sales.

In both 2018 and 2019, there were 112 films that debuted in more than 2,000 theaters. The annual box office those years reached $11.9 billion and $11.4 billion, respectively.

In 2023, 95 films had wide releases, 15% fewer titles than pre-pandemic times, and the box office barely surpassed $9 billion. The haul was about 20% smaller than in 2019, and 24% less than in 2018.

“Since there is clearly a direct correlation between the number of wide releases and the positive impact on the box office bottom line, the decision by studios to take a given film and elevate it to a theatrical rather than a straight to streaming release is a gamble often worth taking,” said Paul Dergarabedian, senior media analyst at Comscore.

These films don’t often capture the same box-office glory of $200 million tentpoles, but their collective, incremental ticket sales can often represent a few billion dollars at the domestic box office.

Studios like Universal, which often releases a number of low-budget horror films each year, can see a significant return on investment. The company spent just under $250 million to produce “M3GAN,” “Knock at the Cabin,” “Cocaine Bear,” “Renfield,” “The Last Voyage of the Demeter,” “The Exorcist: Believer” and “Five Nights at Freddy’s,” not including marketing fees. All of those films were released in 2023 and generated more than $800 million at the global box office.

But just bringing these kinds of films back to cinemas isn’t enough. Studios need to have a consistent release pattern.

Since many streaming services were released just before or during the pandemic, as consumers were restricted to their couches, viewing habits changed drastically. Platforms exacerbated the shift by releasing streaming-only titles which trained audiences that certain films — rom-coms, dramas and comedies — arrive first on streaming, not theaters.

Because of this convenience, many audiences see theaters as the place to see event movies or big blockbuster tentpoles from major franchises. Therefore, they go less frequently to the cinema even when smaller-budget films are available.

One factor is buoying the box office. More and more moviegoers are opting for higher-priced tickets for premium screens like IMAX, Dolby, ScreenX and 4DX when they choose to leave their couches.

However, with limited blockbuster titles in the first quarter of the year, audiences are gravitating toward smaller-budget titles.

Sony’s romantic comedy “Anyone But You,” staring Glen Powell and Sydney Sweeney, opened in late December and has continued to generate ticket sales at the box office. The film, which had a reported budget of around $25 million, has tallied $126.4 million in receipts globally.

Similarly, “The Beekeeper,” from Amazon MGM Studios, has tallied more than $100 million at the global box office since Jan. 12 on a reported budget of $40 million.

Paramount’s “Mean Girls,” Amazon MGM’s “The Boys on the Boat,” and Universal and Blumhouse’s “Night Swim” have also contributed to January’s box-office haul. They each have a budget under $40 million.

“As theaters endure what will hopefully be the nadir of a sluggish winter market, the success of films like ‘Mean Girls,’ ‘Anyone But You’ and ‘The Beekeeper’ have been bright spots in the beleaguered narrative of mid-budget films,” said Shawn Robbins, chief analyst at BoxOffice.com. “They’re propping up the box office in a way that sets the tone for 2024, a year of headwinds and transition as lingering impacts from industry strikes and evolving audience tastes converge.”

The first big blockbuster feature of the year is Warner Bros. Discovery and Legendary Entertainment’s “Dune: Part Two,” which arrives March 1.

Amid a slate of upcoming films that includes a number of sequels, prequels and remakes from big franchises like Fast and Furious, Mad Max, Planet of the Apes, Ghostbusters and Despicable Me, a collection of films with relatively small budgets could find success with audiences.

There’s Universal’s action flick “Monkey Man” and horror vampire movie “Abigail,” A24’s “Civil War” and, of course, Paramount’s “Smile” sequel.

“Audience interest in these decidedly un-blockbuster-like profit centers should offer a lesson to the industry that as audience tastes evolve, so too should studios and creatives and recognize the benefits of releasing more such films in this movie marketplace environment,” said Dergarabedian.

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

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