NOTE 1: I had a great time speaking at a conference this past Monday. I will post it ASAP to this blog for you two to maybe tune into!
NOTE 2: This took me a while, sorry for yet again another delay! I was chipping away at this on planes, trains, and automobiles.
A compelling approach to start off articles like this is by juxtaposing two starkly contrasting newspaper headlines.
The first headline, featured in Bloomberg on March 23, 2023, included a critical excerpt stating:
The second headline, from Variety and posted on February 3, 2024, read:
It's evident that Apple and its billion-dollar wager on theatrical releases have encountered challenges. Apple's 'Argylle' grossed $17.4 million domestically on its opening weekend. Additionally, other major Apple films released in the past six months, such as 'Napoleon' ($23.2 million opening weekend) and 'Killers of the Flower Moon' ($20.6 million opening weekend), suffered substantial losses. This is particularly concerning considering the hefty budgets exceeding $200 million for all three films.
Apple Films has undoubtedly reached a serious ‘fork in the road’ in its distribution strategy. At a fundamental level, there are two options: either revert to Apple Studios' original identity as a streaming service or persist along the unpredictable path of theatrical releases.
Interestingly, there appears to be a clear direction that Apple Films should pursue. It should stay the course it is currently on. Streaming has proven to be financially unviable, particularly when assessing the nature of films within Apple's theatrical portfolio.
Apple Studios: Genesis
Let's begin by examining Apple Films. Apple TV+ generates revenue through SVOD and TVOD monetization models, while Apple Original Films is solely dedicated to original filmmaking.
During a recent earnings call, CEO Tim Cook disclosed that Apple had amassed over one billion subscriptions across all its offerings. He also reaffirmed the commitment made in 2019, stating that Apple TV+ was on track to invest the previously announced $6 billion in original filmmaking.
Despite being a small division within the Silicon Valley behemoth, which boasts a $2.89 trillion market cap and generated $119.6 billion in revenue last quarter, Apple Films operates with a different set of rules compared to major Hollywood studios. The studio has established robust partnerships with prominent studios to leverage their distribution and marketing capabilities. For instance, the theatrical distribution of 'Napoleon' was a collaboration between Sony Pictures and Apple Films, with both entities sharing the $80 million advertising/marketing budget. Similarly, 'Killers of the Flower Moon' was theatrically distributed through a partnership between Paramount and Apple Films.
While Apple Films demonstrates prudence in its strategic decisions and benefits from collaborations with larger dogs in the Hollywood kennel, it still grapples with challenges along this trajectory. The substantial losses incurred from these theatrical releases undoubtedly raise concerns for co-presidents Zack Van Amberg and Jamie Erlicht.
On the contrary, straight-to-streaming looks a whole lot more grim.
Issues Facing Straight-To-Streaming
A study conducted by CNBC in 2023 provided significant insights into domestic wide releases by year, correlating them with the annual box office performance. The study, funded by Wall Street's top firms, aimed to address concerns arising from the underwhelming returns in the streaming business in 2023. To gain a comprehensive understanding, researchers examined data from 2018 and 2019, predating the pandemic. In both years, there were 112 films that debuted in more than 2,000 theaters. The annual box office revenues for those years amounted to $11.9 billion and $11.4 billion, respectively.
Specifically:
2018 - 112 wide releases
2019 - 112 wide releases
2020 - 32 wide releases
2021- 67 wide releases
2022 - 71 wide releases
2023 - 95 wide releases
Fast-forwarding to 2023, there were 95 films with wide releases, marking a 15% decrease in titles compared to pre-pandemic times. However, the box office revenue barely surpassed $9 billion for the year.
Paul Dergarabedian, senior media analyst at Comscore, stated: “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.”
Preceding ‘Killers of The Flower Moon,’ Martin Sorcese released ‘The Irishman’ which was a straight-to-streaming Netflix release. Financially speaking, the film had wound up in death throes due to the poorly executed distribution model, and it deserves a case study of its own.
The financial breakdown of 2019’s ‘The Irishman.’
Note: All numbers are in millions.
Sources:
Its gross profit was a significant misfire. Traditionally, it was challenging for analysts to assess Netflix's revenue stream from its releases. Fortunately, Nielsen Ratings and IMDb provided crucial data that could help triangulate the international and U.S. viewership of this film.
Taking into account various revenue streams, including library value, momentum from Best Picture nominations, and U.S./international revenue, it still fell far short of breaking even. Scorsese's film resulted in a staggering $280.7 million loss in terms of Studio Net Profit.
Turning attention to Scorsese's subsequent film, "Killers of The Flower Moon," two notable aspects stand out: Firstly, Scorsese opted to depart from Netflix and partner with Apple, securing a wide theatrical release. Secondly, "Killers of the Flower Moon" also failed to break even in terms of revenue. However, the silver lining lies in the theatrical release, prompting Scorsese to collaborate with Apple Studios again for his upcoming film.
Apple Studios is attracting attention from A-list directors, many of whom strongly advocate for theatrical releases, preferring their art to be experienced in theaters. Martin Scorsese and Ridley Scott are just the beginning, with Denis Villeneuve and possibly Christopher Nolan following suit. These acclaimed directors have a track record of bringing significant revenue to theaters.
Ambler’s Cut perceives this as a strategic long-term move for Apple TV+ and its studios.
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