Lionsgate CEO Jon Feltheimer believes Netflix still has a “tremendous business,” but they “didn’t pivot quite quickly enough” as their subscriber momentum stalled.
Observations about Netflix’s effort to right the ship after losing $200 billion in market value provided just one of several appetizing morsels of industry analysis and career reflection offered during an hour-long conversation at SeriesFest in Denver. The conversation between the Lionsgate boss and Liberty Global CEO Mike Fries provided an early highlight in the fest’s returned to in-person mode in its eighth edition, which runs through Tuesday.
Feltheimer and Fries have known each other well for decades and Fries sits on Lionsgate’s board of directors, and that familiarity bred a number of candid moments. (Fries has skillfully gotten the likes of Jeffrey Katzenberg and Ted Sarandos to open up in past years at SeriesFest.) Feltheimer even offered a couple of business decisions he regretted, including greenlighting the disastrous Chaos Walking and passing on Damien Chazelle’s Babylon after scoring big on La La Land.
Prodded by Fries to assess Netflix’s challenges, Feltheimer remarked that the company made a decision nearly a decade ago that has come back to apply significant financial pressure. After successful early originals (including the Lionsgate-produced Orange Is the New Black) and the field largely to itself, “they decided they were just going to do a slash and burn and get to more subs than anyone and no one would ever catch them,” the executive said. “They would just spend and spend, and if anyone else tried to spend as much, they would go out of business. That was pretty much their strategy. But they got to a point where they started slowing down, and we had the pandemic. And I think that maybe they didn’t pivot quite quickly enough. But they’re going to pivot. They still have a tremendous business.”
When Netflix reported its quarterly earnings last month, its management team said it is taking a close look at its cost structure. Spending $20 billion a year on programming, as the company is believed to be doing in 2022, is not going to be sustainable.
Fries offered that he didn’t think “the bubble has burst, but the air is leaking out a little bit” after years of stair-step growth in content investment. “I think they’re going to have to pivot in their overhead,” Feltheimer said. “They’ve consistently gone after people, maybe a couple of ours, and paid them twice, sometimes three times as much as we were paying them. That’s not going to work forever, right?”
The company will also have to change its “infrastructure, probably the way they manage the business as well,” Feltheimer said, with budgets and premiums that became “ridiculous” likely getting curbed. Sizing up their originals footprint will be key, and as well as a difference stance on windowing.
Knives Out is an example of how the company may be forced to rethink its path. Feltheimer said prior to the company’s recent slump, he approached it about a franchise deal for Knives Out rights. (Netflix swooped in for two sequels to the 2019 Lionsgate original, paying at least twice what Lionsgate’s limit, the CEO said.)
Feltheimer said he proposed “loaning” the original film to Netflix in exchange for certain rights to the sequels. The planned trilogy could them be packaged for streaming and other lucrative ancillary markets. “‘We’re going to make a lot of money; we’ll distribute it, we’ll take a distribution fee, send it back to you,’” Feltheimer recalled telling the company. “It’s an interesting, organic idea for them. They thought about it and they said, ‘No.’” With a smile, he concluded, “That was then and this is now. So, I’m going to go back to them. Same idea, Ted.”
While he wasn’t specific about the particular markets where such a deal would have an impact, theatrical is a glaring one. The first film collected $311 million at the worldwide box office. In Netflix’s current model, the sequels won’t get more than a few weeks of play time and not in any top theater circuits.
While Netflix is the topic du jour, the conversation also touched on a number of successes for Feltheimer, who recalled learning about the business world from his father growing up in Brooklyn. He said he modeled his demeanor after his dad’s. “I try to treat everybody with the respect they deserve,” he said.
After making an early splash at New World in the 1980s, making hit series like The Wonder Years, Feltheimer then segued to Sony before taking the helm at Lionsgate. Much of the session touched on the unique aspects of the company’s culture that Feltheimer has sought to cultivate. Loyalty is a core value, with many of his colleagues having worked with him for 35 years.
While the run has had its storybook elements, Feltheimer confessed to wishing he hadn’t made Chaos Walking, with Tom Holland and Daisy Ridley. He sardonically said he had been “bullied” by the sellers of the project, which crash-landed last year. “I wish I had followed my guy and gone the other way.”
Babylon hasn’t been released yet, but Feltheimer said he already has pangs about having to pass for financial reasons. “We have a great relationship and we killed it with La La Land,” he said. Fries then teased him about selling off a portion of the Oscar winner. “You hedged!” he said as the audience chuckled. “They’re very financially creative, these folks. I like that.”