With ‘Knives Out’ Deal, Netflix Signals It’s in the Franchise Business

LOS ANGELES — Hollywood let out a collective gasp this month when it was announced that Netflix had spent about $465 million to buy two sequels to the quirky surprise 2019 hit “Knives Out.”

Suddenly, the $40 million whodunit, which Rian Johnson (“Looper”) wrote and directed as a “palate cleanser” after he completed a “Star Wars” movie, was a juggernaut that commanded top dollar in a frenetic bidding war.

And it further cemented Netflix as a major film industry disrupter.

Did Netflix overpay for two films that in a pre-streaming world would have been seen as reliable bets to release in theaters when a studio didn’t have blockbusters to offer? Or, since creating successful new franchises is no easy proposition, did the company make a shrewd business move that will pay dividends for years to come?

“They are sequels to an original hit that could be an additional franchise,” said Eric Feig, a former co-president of Lionsgate, who helped shepherd the “Twilight” and “Hunger Games” franchises to the big screen and now runs his own production company. “Even beyond the two movies, can they create a TV series off of this? Can they further their relationship with Rian?”

The deal could also augur a windfall for innovative filmmakers. If highly valued writer-directors like Mr. Johnson, who directed “Star Wars: The Last Jedi” after toiling for years on small-budget indie films, can hold on to their intellectual property when striking distribution deals, they, too, can control their destinies. Both Netflix and Mr. Johnson declined to comment for this article.

“I do think you could see a few more deals like ‘Knives Out’ in the next couple of years,” Mr. Feig said. “Talent has zero compunction about working with the streamers. There used to be a chip on their shoulder about doing a movie that was designed for streaming consumption. That stigma is completely gone. The caliber of talent has gone up, and so has the execution.”

The streaming gold rush of 2017 and 2018, when Netflix scooped up the prolific television creators Shonda Rhimes, Ryan Murphy and Kenya Barris with nine-figure deals, has migrated to the film world. It began out of necessity when Covid-19 shut down theaters around the globe and studios’ profits fell to zero. Those without their own streaming services began selling their previously theater-bound films to their once-sworn enemies.

The Tom Hanks movie “Greyhound,” from Sony, had a robust debut on Apple TV+, interest in Amazon’s Prime service rose with its release of “Borat Subsequent Moviefilm,” and this year “Coming 2 America” became the first Amazon title to finish first in Nielsen’s weekly rankings for subscriber-video-on-demand content. Netflix acquired the Paramount production “The Trial of the Chicago 7,” which earned six Academy Award nominations last month.

Then WarnerMedia changed everything in December, when after sending “Wonder Woman 1984” to its streaming service, HBOMax, it announced that every one of its 2021 releases would open in theaters and on the service simultaneously. The pandemic proved that audiences want and expect to watch high-profile movies on their streaming services just as much as they want to binge high-quality television series there.

“The pandemic has really put the streamers head to head with theatrical distribution,” said James Moore, chief executive of Vine Alternative Investments, an asset manager focused on the entertainment industry. “Now you’re seeing the economics really accelerate towards the streamers, and they have both the wherewithal and the strategic need to retain those gains.”

“Knives Out,” with a cast led by Daniel Craig and Chris Evans, earned $311 million at theaters, close to half of it in international markets — the biggest growth opportunity for streaming services. It was one of the few box office winners in the past few years not based on a comic book or on existing intellectual property that was tied up in a lengthy studio deal.

(John Krasinski’s “A Quiet Place,” from 2018, is another example. But that R-rated horror film was owned by Paramount, and it was such a box office boon that its sequel was one of the few films the studio held on to during the pandemic. It is scheduled to come out in theaters on Memorial Day weekend.)

For the original “Knives Out,” Mr. Johnson’s representatives at Creative Artists Agency negotiated a one-film licensing agreement with the film’s distributors, MRC and Lionsgate. That deal gave Mr. Johnson and his producing partner, Ram Bergman, control of the franchise and the right to shop future iterations to other parties. (Mr. Craig, who played the arch Southern detective Benoit Blanc in the film, is also an equity participant in the deal.)

The movie is part of a tried-and-true genre — the star-studded whodunit — that has been reinvented in recent years. “Murder Mystery,” starring Adam Sandler and Jennifer Aniston, was a hit for Netflix in 2019. Kenneth Branagh’s reimagining of Agatha Christie’s “Murder on the Orient Express” in 2017 worked well for Disney’s Fox division, pulling in $352 million, including $250 million from the international market. (A follow-up, “Death on the Nile,” has been pushed to 2022, partly because one of its stars, Armie Hammer, has been tarnished by a recent sex scandal.)

The “Knives Out” deal also highlights how much easier it is for a streaming service to exploit an already known title than to build one itself. While Netflix scored big with the 2018 Sandra Bullock film “Bird Box” — it said 89 million households had tuned in to watch the film within four weeks of its release — it is just now gearing up for a sequel, a Spanish-language version that won’t feature the original star.

Next month, the company will unveil Zack Snyder’s zombie movie “Army of the Dead.” On the bet that the movie will be a hit, a prequel has already been shot, directed by and starring Matthias Schweighöfer, who is in Mr. Snyder’s film.

And there are hopes that the Netflix spy film “The Gray Man,” starring Mr. Evans and Ryan Gosling and directed by Joe and Anthony Russo (“Avengers: Endgame”), will spawn sequels, but the $200 million production is shooting now and no release date has been set.

Still, without a theatrical release, it can be difficult for a film to create the buzz without the crowds and the box office dominance that a traditional movie debut provides. After all, Netflix’s biggest justification for its “Knives Out” deal is the film’s box office receipts.

“The best part of a theatrical release is it really gives you a quantifiable metric for how successful your movie is,” Mr. Moore said. “It’s very observable. Had Rian done the first ‘Knives Out’ with a streamer, he wouldn’t have gotten those economics for the second two because he wouldn’t have proven the value of that to the wider audience.”