Netflix’s disappointing Oscar night has some questioning its film strategy

Netflix‘s films had no trouble winning nominations during this year’s awards season — it just had a hard time turning nominations into trophies.

At both the Golden Globes ceremony in January and the Academy Awards on Sunday night, Netflix led the pack with the most nominations. Out of 17 nods at the Globes, Netflix took home two prizes. At the Oscars, its 24 nominations also resulted in just two wins.

This begs the question: For a streaming service like Netflix, which has no interest in monetizing its films in the traditional Hollywood fashion, is it just as good to be nominated, or does the company need wins to be considered a true success in the industry?

In the end, it all comes down to whether nominations or awards help convince subscribers to stick with the service or sign up. While this point may be up for debate, some analysts, seeing the low number of wins, are questioning Netflix’s film strategy.

Netflix has said that it is less interested in making money at the box office and more interested in providing content to its subscribers as soon as possible. The streaming service has rebuffed the traditional Hollywood release window, in which a film runs in theaters for about three months before being available on video-on-demand or on a streaming service’s site or app.

Netflix declined to comment on the record.

The goal for Netflix is to make great content with top creators and top talent. In that regard, it is succeeding.

Talent from Netflix’s nominated films this year included Martin Scorsese, Noah Baumbach, Robert De Niro, Joe Pesci, Al Pacino, Adam Driver, Jonathan Pryce, Anthony Hopkins and Scarlett Johansson, among others.

Still, there’s a sense that because Netflix won’t play by traditional Hollywood rules, the industry’s elite have become wary of rewarding it with top prizes at ceremonies like the Academy Awards.

“The overall win-to-nomination ratio is telling me that they are not willing to give to Netflix,” Csathy said. “There are many forces against Netflix when it comes to movies and the Oscars.”

And some of that may be Netflix’s own doing. Michael Pachter, an analyst at Wedbush, was also quick to point out that while Jeff Bezos, the CEO of Amazon, was at the Academy Awards ceremony on Sunday, Netflix CEO Reed Hastings did not attend the telecast. In his stead, Ted Sarandos, the company’s CFO, was present.

“Which company is more committed to the movies?” Pachter asked. “Amazon [Prime] didn’t have anything nominated, but he is there.”

Still, 24 nominations is nothing to sniff at, especially against major studios like Disney, Sony, Universal and Warner Bros.

But to be nominated, it needs quality content. To get that, Netflix has to pay up.

Take “The Irishman.” Netflix shelled out around $150 million, not including what was spent on marketing. “Marriage Story” had a budget of around $18 million, and “The Two Popes” cost around $40 million, which allowed the production to be shot in Italy and Argentina.

But it’s tough to say those investments, and resulting nominations, actually move the bar on subscriber growth.

“Yes, it’s good to be nominated,” Neil Macker, analyst at Morningstar, said. “Is it important to win? For Netflix, at least, for their own ego, it is. Does it matter in terms of getting subscribers? I don’t actually think so.”

The data just isn’t available to connect content to subscriber growth.

But if you look a subscriber trends, Netflix’s domestic subscriber growth has been anemic in recent quarters, the result of growing competition from rival players like Disney entering the streaming space. Soon the arena will become more crowded as NBCUniversal launches Peacock and WarnerMedia launches HBO Max.

In the most recent quarter, Netflix said it added 550,000 subscribers in the U.S. and Canada, smaller than the 589,000 that had been expected.

“Our low membership growth in UCAN [United States and Canada] is probably due to our recent price changes and to US competitive launches,” Netflix said in a letter to shareholders in January.

Last year, Netflix hiked the price of its cheapest basic plan to $9 from $8; its most popular HD standard plan became $13, up from $11; and its 4K premium plan now cost $16, up from $14.

Outside the North America, Netflix’s subscriber growth continues to blossom. The streaming service added 8.33 million new members in the fourth quarter, higher than the 7.17 million that had been forecast by analysts.

Netflix has been available in every country except for China since 2016, but better broadband internet access in developing countries has helped boost membership. It also offers cheaper mobile-only plans in markets like India, Malaysia and the Philippines.

While this was going on, “The Irishman,” “Klaus” and “The Two Popes” — three of Netflix’s Academy Award-nominated films — were released on the streaming platform. The streaming service also added more than two dozen other shows and movies during the time.

This begs the question: Does Netflix need a new model?

For Macker, Netflix would be better off trying to create a big budget action movie franchise like Disney and Marvel’s “Avengers” that can only be seen on its platform in order to drive subscription growth.

Others suggest Netflix should revisit its stance on longer theatrical windows.

“Netflix doesn’t have the intention of monetizing theatrically,” Pachter said. “By forgoing that, immediately their decision to spend money on a film is not economic.”

Typical studios will spend between $30 million and $300 million making a movie with the projection that the film will earn back between 2 to 5 times its production cost at the box office, he said.

For example, Disney spent $356 million on the production of “Avengers: Endgame” — not including marketing costs — and the film went on to make nearly eight times that amount, around $2.8 billion globally.

Another, more recent, example is Universal’s “1917.” The World War I film had a production budget of around $100 million and has tallied nearly $300 million at the global box office, three times its initial budget. And it is still in theaters.

Even rival Amazon Prime Video has taken its chance on theaters. The company’s film “Manchester by the Sea,” which won the Oscar for best original screen play and best actor, was in cinemas from Nov. 2016 to Feb. 2017 before arriving on Amazon Prime Video. During its run in theaters, it garnered nearly $80 million, almost nine times its $9 million production budget.

Even “Late Night,” the Mindy Kaling comedy the company bought for $13 million during Sundance in 2019, which had a less successful box office haul than expected, still brought in a return of nearly double what it was paid for, around $22.6 million. Head of Amazon Studios Jennifer Salke told the Hollywood Reporter back in October that “Late Night” has performed well on the platform.

Also, having a film go to theaters first allows studios to make money at several different points over the course of the film’s lifetime.

The live-action “Dumbo,” which didn’t do quite as well as Disney had hoped in theaters, got a second life in the home entertainment market, Macker said. Folks who didn’t venture out to see the film may be more willing to rent it on-demand or purchase it digitally if they don’t have to leave their couch. Plus, viewers who enjoyed the movie are more likely to buy it on DVD or Blu-Ray to have in their collection.

For Netflix, the only way to monetize a film like “The Irishman” is that initial limited release in theaters, which the company doesn’t even report to investors, and by subscription revenue.

To be sure, there’s no guarantee that “The Irishman” would have made back its budget in theaters. Other studios had balked at taking on the project because they didn’t think it was financially feasible. But Netflix would have at least made some money back on the project if it had given it a more traditional theatrical release.

Netflix offered Scorsese the funds, but the trade-off was that his film wouldn’t show in theaters for much longer than the required time to be Oscar-eligible. For some, the creative freedom is worth more than a box office paycheck. For others, having their work distributed nationwide to movie theaters is the goal.

So, Scorsese not taking home an award for “The Irishman” might not deter others from coming to work with the service.

“I think ‘The Irishman’ and things like that do have value and do drive interest,” Macker said. “But if you look at the Oscars, I don’t think that’s what is driving subscribers.”

Disclosure: Comcast is the parent company of CNBC and NBCUniversal.