LOS ANGELES, July 18 (Reuters) - Netflix (NFLX.O) broke Hollywood's rules to create a $82 billion global streaming colossus that the rest of the entertainment industry rushed to copy. But as growth slows, it is looking backwards for a way forward, borrowing a page from Walt Disney's (DIS.N) playbook.
The company that changed the way we watch television and movies aims to emulate the success of Mickey Mouse and "Star Wars," by trying to build brands that traverse film, television, games and consumer products, executives told Reuters in recent interviews.
Netflix teams are plotting ways to milk more from Netflix's bigger shows and movies with universes and characters they can return to again and again. The franchise strategy, details of which are reported here for the first time, is meant to complement Netflix's efforts to build a vast library of original programming with something for every taste.
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"We want to have our version of ‘Star Wars’ or our version of ‘Harry Potter,’ and we're working very hard to build that,” said Matthew Thunell, the Netflix vice president credited with finding “Stranger Things.” “But those are not built overnight.”
Netflix’s franchise initiative comes at a critical moment, following two rounds of layoffs amid subscriber losses. It is racing to build a lower-cost, advertising-supported version of the service, which it once vowed never to do. On Tuesday, the company is expected to report losing 2 million more subscribers when it announces quarterly earnings. Its shares have sunk 70% this year.
Some of Netflix's current partners, who requested anonymity to protect their ongoing business relationships, said they have been frustrated by what they see as a lack of collaboration between the film and television groups. This has stymied efforts to capitalize on success through sequels, spin-offs or film adaptations of a hit series, they said.
"It feels as if you have to fight your way into building a franchise there," said one studio executive.
Thunell offered a different view. He and a corporate spokesperson described an environment of close collaboration among creative executives, who may independently greenlight projects but work toward the same goals.
"At a traditional studio, there are these big walls between the feature team and animation team and series team," he said. "Because Netflix is a very young organization, those walls just never had time to be built."
'STRANGER THINGS' TREATMENT
Netflix executives point to "Stranger Things" as a model. The science-fiction series, now in its fourth season, has inspired merchandise from a Surfer Boy frozen pizza at Walmart to Magic 8 Ball toys from Hasbro, plus live experiences. A "Stranger Things" spin-off series and stage play are in the works. read more
On its heels, Netflix executives said they plan to or are in the process of giving at least a dozen series and films the “Stranger Things” treatment.
The Spanish series “La Casa de Papel” has been remade in Korean and has a spin-off in the works. A prequel to the Regency-era period drama “Bridgerton” has been ordered, as was a reality competition in which nobody dies inspired by South Korean drama “Squid Game.” “The Witcher” fantasy series spawned an animated film and is getting a prequel.
The company also identified three coming shows as potential franchises because the stories are well known, bringing built-in audiences.
"The Three-Body Problem," an adaptation of the first book in a Chinese science-fiction trilogy, is in production with "Game of Thrones co-creators David Benioff and D.B. Weiss as executive producers. "One Piece," based on a Japanese Manga series, is shooting, and a live-action adaptation of animated series "Avatar: The Last Airbender" just completed filming.
To be sure, not every story works as a franchise.
Executives aim to produce franchises from Millarworld, the comic book publisher Netflix acquired in 2017. The first Millarworld series, "Jupiter's Legacy," was canceled after the first season. There are currently six new projects in development, and another in production, said a spokesperson, who added that Netflix has plans to explore the villains of "Jupiter's Legacy" in a new series.
“It has to start with the story itself. Does it sustain that kind of expansion?" Thunell said. "There are some series like 'Stranger Things' that are wildly successful, that do have the depth of mythology, and additional stories that allow you to move into animation or features or anime."
EMERGING FILM FRANCHISES
The film studio, started from scratch five years ago, sees a handful of budding franchises: "Enola Holmes," about Sherlock's teenage sister, "Knives Out," an Agatha Christie-style mystery, “Old Guard," about a team of immortal mercenaries, action-thriller "Extraction" and zombie tale “Army of the Dead.”
Spy thriller "The Gray Man" debuts Friday. Directors Anthony and Joe Russo, whom film chief Scott Stuber hailed as "franchise builders" at the movie's Los Angeles premiere, said they created a rich world with expansion in mind.
"We've definitely specifically designed and thought of this narrative in a way to carry it forward in other forms," co-director Anthony Russo said in an interview.
Netflix bolstered its franchise-building efforts through an October 2020 restructuring under new global TV chief Bela Bajaria, a former Universal Television executive who developed such Netflix comedies as "Unbreakable Kimmy Schmidt" and "Master of None."
As subscriber growth slowed in fall 2020, Bajaria sought to extract more from pricey deals with such producers as "Bridgerton's" Shonda Rhimes. She also formed a team to develop prestige series and spectacles (often big, effects-driven fantasy series) that could grow into franchises.
Netflix added consumer products staff and hired in-house book scouts to find works to adapt, rather than waiting for outside agents or publishers to bring material to its executives. Thunell called this step a "game changer." It also created a video games unit.
The company has begun involving marketing and consumer products staff early in the franchise-building process. These teams, for example, recently traveled to London to meet with Benioff and Weiss on the "Three-Body Problem" set.
"Army of the Dead" producers Zack and Deborah Snyder provided input on a virtual reality experience while they were filming, according to Josh Simon, head of Netflix's consumer products and live experiences division. His team is now working with the Snyders on ideas tied to their next movie, "Rebel Moon."
"We're really deeply immersed in production meetings," Simon said. "We can work years ahead because we have that level of trust and collaboration with the creators."
Steven Ekstract, CEO of Global Licensing Advisors, said "Stranger Things" alone has the potential to generate $1 billion in annual retail sales starting in 2025 from products, events and possibly a theme park ride or digital avatars.
Netflix would reap royalties of about $50 million to $75 million from those sales, plus free advertising from merchandise. To reach that level, Netflix needs to keep people engaged with the "Stranger Things" world, he said.
The streaming service has considerably less experience in erecting franchises than its century-old Hollywood rivals, noted Julia Alexander, director of strategy at entertainment research firm Parrot Analytics.
"Do we have the same confidence in the Netflix machine as we do the Disney machine? No, but in part that comes from Disney spending years determining what that machine looks like," Alexander said. "For all of Netflix's dominance in the streaming space, they're still relatively new to building out these types of worlds."
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