Amazon Going Traditional To Help Holiday Prime Initiative

Summary:

• Amazon is taking a calculated risk by releasing the high-budget holiday film “Red One” in theaters before streaming on Prime Video.
• Taking the theatrical approach has previously allowed Prime to generate additional revenue and strong word-of-mouth, enhancing the film’s performance when it eventually hits its platform.
• Despite a projected box office underperformance, Amazon’s strategy could still work, as it’s rooted in long-term subscriber growth and leveraging the holiday season for maximum impact.
• Success metrics for Amazon differ from traditional studios, emphasizing streaming performance and subscriber acquisition over immediate box office returns.

In today’s crowded online market, all major players in the space are trying whatever it is they think will help them succeed. In some cases, that’s staying to the tried-and-true, but in others it’s taking a calculated risk.

Amazon (NASDAQ:AMZN) is taking a calculated risk.

This week, the company’s studio arm is releasing Red One, a new holiday action film starring Dwayne Johnson. The movie is designed as the start of a new potential franchise and revolves around a quest to rescue Santa (aka Red One) when he is taken before Christmas.

Releasing Red One in theaters before streaming wasn’t always the plan, but after seeing the approach work for a number of other releases, Amazon decided to swing big. However, with a massive budget and low (by comparison) tracking data, some shareholders and analysts may be questioning the move.

Although when it comes to Amazon, those pre-streaming rules don’t apply and those looking to count out Johnson and Red One may not fully understand the playing field.

First as always, some background.

One of the big reasons Netflix and others have chosen to bypass a traditional release and lean into streaming is because there is a certain level of protection that comes into play. For example, a high concept movie can get roasted by critics and escape unscathed because there is no box office report the following Monday to fear.

The box office has always been a checks-and-balance system. Yes, it has flaws, but you knew in general how a movie stood after its release. And in many cases, if you spent big on a project and it under-delivered, Hollywood was quick to write up an obituary.

By bypassing theaters and not releasing numbers (or being selective with the numbers you do release), the studio can control that narrative more carefully. All of a sudden, a bomb isn’t a bomb to the public, but there’s also a trade-off attached there. Optically, it’s harder to sell a hit as a hit without some type of metric to back it, but to many that is a trade-off they’ll take.

Amazon is an exception to the rule.

Over the past few years, Amazon has quietly pivoted a few streaming films to theaters and the results have spoken for themselves. Moving the Michael Jordan/Nike backstory bio-pic Air and the Zendaya backed psychological tennis thriller Challengers resulted in solid box office revenue and stellar word-of-mouth.

That word-of-mouth would later help its Prime service, as it would lure in subscribers who wanted to check them out. That’s the endgame for Amazon, after all – they want subscribers.

The difference is that Air and Challengers were not costly films by today’s standards. Air had a price tag around $90 million and Challengers was less at $55 million. Air earned almost exactly its budget, and Challengers nearly doubled its production costs in worldwide earnings.

And then both went to Prime, where they likely over-performed off that strong theatrical run.

If you’re looking at Amazon, you are probably looking at this as theatrical paid for the movies and now anything earned off streaming is profit. It’s a higher-value escalation of the older theatrical to home theater model, just sub streaming for VHS/DVD/Blu-Ray. Yet, many are now questioning if the deal is still good when a movie’s earnings do NOT match its budget.

Enter Red One.

Produced for a staggering $250 million and projected to earn between $20 million and $40 million (depending on the model), it is highly unlikely Red One will get out of the red during its run.

And that’s okay.

Yes, you’ll see a thousand pundits come out to try and bury the film before it is even released, citing the cost and low early scores from critics and even more quick to ding Amazon and Johnson in the days following… but those arguments are based on an outdated model.

Trying to paint a movie designed for streaming as a theatrical bust is like comparing apples and oranges. More specifically, it likes playing checkers while your opponent is playing chess.

For Amazon (and Apple), the goal-posts are different when you are measuring success. Yes, a $250 million budgeted blockbuster to-be cratering in week one would be terrible for a major studio, but Amazon is not just a studio. It is an e-tailer that has a studio arm.

So yes, Red One could just earn $20 million in week one (to go with the $27 million it earned last week internationally), but that is nearly $50 million in additional earnings that would not have existed had it gone streaming only.

It’s found money.

Of course, Amazon would like that to be as high as possible, but money is money.

That’s how you have to look at movies nowadays. What can theaters help you earn back before going to a platform? The Tomorrow War is a great example as it carried a $200 million price tag and only brought in around $20 million… but when it hit Prime Video it became (at the time) the most watched Prime Video original feature ever.

To be transparent, Tomorrow War does carry a bit of an asterisk as this was an acquired move from Paramount, but it is rumored Amazon essentially paid $200 million to get the film. In other words, Amazon still spent a ton and wanted to see a return.

And based on what (selective) metrics we’ve seen, they did.

With Red One there’s also the holiday halo effect to consider. This is a holiday movie and if Amazon lets it run in theaters for a month and then moves it to Prime Video right around mid-December it can have the best of both worlds. We’ve also seen this work in the past as Disney did it a few years back with Encanto where it hit theaters in November and shifted to streaming the day before Christmas.

It also wasn’t until it hit Disney+ did it really break out with audiences and become what many had expected during its theatrical run. It also came to Disney+ with $96 million in domestic earnings and another $135 million in international revenue, for a total over $231 million. Essentially meaning it had already re-couped its reported $120 million budget, so the rest was profit.

The difference here is that Encanto was always earmarked for theaters, the streaming success was a happy accident as the Mouse felt pressure to do something with the movie under-delivering. And yes, you can use the COVID excuse for its low earnings, but there was more to it than that… still you can’t deny the movie entered a new level when it went to streaming.

With Red One, Prime is looking for the same type of magic and it is doable.

Yes, Johnson has seemingly fallen out of favor with moviegoers as of late, but he still has that big level charisma and the appeal of a large fanbase. You can still hitch your wagon to Johnson and not be disappointed in the return.

The book on Red One is still open and truthfully, with the way streaming data is kept close to the vest, we may never really know the final numbers – but one thing is clear, you can’t judge the movie based on its box office run.

To do so would be incredibly short-sided.

What will be telling though is to see how Amazon handles the release of its in the works Masters of the Universe remake in 2026. If that shifts to theatrical it may be a sign Red One worked, but if they keep it as streaming only, then there’s a conversation to be had.

Still, this is all case-by-case, but Amazon is at least willing to play around with it is approach and that’s something that should help them succeed in the long run.

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