Backing Dwayne Johnson’s $250 Million Christmas Movie ‘Red One’ Made Sense During the Streaming Wars. Now, Not So Much

Is “Red One,” Dwayne Johnson’s Yuletide action extravaganza with a gargantuan $250 million budget, a sign of where the movie business is headed or a relic from its free-spending, streaming wars past?

After the movie opened last weekend in the U.S. to a less-than-festive $32 million (revised downward from an estimated $34 million on Sunday), folks close to Amazon, the e-retailer turned aspiring media giant, insisted the movie was successful. It didn’t matter that it would take a Christmas miracle for “Red One” to ever get out of the red during its theatrical run. And who cares that “Joker: Folie à Deux” was declared a folie à dud when the Warner Bros. sequel opened to $38 million a few weeks prior, despite costing $50 million less than “Red One.” The idea was that all of the attention surrounding the movie’s big-screen release would ensure that a vast audience tunes in when “Red One” debuts at some point on the company’s streaming service Prime Video, in turn bolstering subscribers or keeping them from shedding the service for another.

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Oh, and then there are all the ancillary revenues that the Rock will bring — from third-party licensing deals to movie rentals to merchandising (who wants a “Red One” beer stein?). It’s all part of a new kind of movie math, one that de-emphasizes box office returns, which are reported and therefore publicly verifiable, in favor of future downstream revenues, which are rarely revealed and only made public in a scarce and aggressively spun manner.

“I think ‘Red One’ is the exception, not the rule going forward,” says Eric Handler, a media and entertainment analyst at Roth Capital Partners. “The economic model was set up pre-COVID. But everyone realizes you can’t use a $250 million movie as a loss leader to drive subscribers because you can’t justify the return.”

It’s possible that “Red One” will be all that Amazon hoped and dreamed it would be in 2021 when the company prevailed in a “highly competitive bidding war” for the rights to the package. But the timing of that deal was instructive. It was inked at a time when CAA, WME and talent agencies of their ilk were getting wildly inflated prices for scripts of widely varying quality with A-list stars and directors. (Basically, start with “Argylle” and make your way down to “White Noise” and “Wolfs.”) “Red One” also was finalized nine months before Amazon closed its $8.5 billion acquisition of MGM. With that deal, the company got access to a vast library of classic films, from “Silence of the Lambs” to “The Thomas Crown Affair,” and thus a fresh arsenal of IP to reboot, reimagine and, every so often, run into the ground. It gave them a reason to not get sucked into too many of these “highly competitive bidding wars.”

“Netflix made these kinds of movies when they first entered the theatrical business, but they don’t anymore. Apple has made them too, and they are cutting back,” says David A. Gross, who runs the movie consulting firm Franchise Entertainment Research.

As Gross suggests, most streamers have wised up. Part of the reason that films like “Red One” cost so much is that actors like Johnson weren’t just earning their standard $20 million fees for starring in the film, but they were adding millions to that in buyouts. Talent was willing to forgo a back-end payday tied to box office grosses and get the money upfront. In exchange, the studio could put the movie on digital platforms in an accelerated fashion. But as the media business has started to constrict, budgets have tightened too. Streamers have been struggling to change their payment models, with the likes of Netflix talking to the various agencies about building in bonuses tied to viewership, as opposed to handing their talent a huge check in one lump sum.

“What they’re proposing doesn’t make sense right now,” said one agent on the condition of anonymity. “The [streamers] save a lot of money. But we don’t get rewarded enough in success.”

It’s impossible to know if financial gambles like “Red One” ever pay off (though the greenlighting of “Red One Two” would be a clue). But Amazon MGM head of theatrical distribution Kevin Wilson hinted at the studio’s justification for spending big without requiring a lot of ticket sales in return. For big-budget tentpoles from traditional studios, the general rule is the movie needs to generate 2.5 times its production budget to break even at the box office. (That’s because cinemas keep roughly 50% of revenues). Amazon MGM, however, counts it as a win if it earns back the marketing and distribution costs, which can run in the $100 million range for these types of films.

“Whether or not people like it, the value of these movies is different for our business model,” Wilson told Variety over the weekend. “If we can put these movies out theatrically and cover our P&A [print and advertising] costs, why wouldn’t we? We’re getting a massive marketing campaign that’s being paid for before the film gets to streaming.”

Analysts like Gross question that type of accounting. “That assumes ‘Red One’ will recoup the marketing and distribution costs, which may not even happen,” he says. “As a theatrical film, it will lose over $100 million. On the face of it, it doesn’t appear to be a good investment.”

Cinema owners and traditional studios believe Amazon and Apple’s investment in theatrical is good for the health of the movie business. “Red One,” for example, was being developed for Amazon Prime before the studio opted for a theatrical release after strong test screenings. To wit, “Red One” earned an A- grade on CinemaScore from moviegoers, a much better marking than the 33% Rotten Tomatoes average from critics. Movie theaters need commercial movies, particularly with studios releasing fewer of them, and they’re not on the hook if a film fails to recoup its budget. They’re more than happy to serve as a pricey form of promotion for an eventual streaming release.

Some of the behavior that characterized the peak streaming era will continue to shape how Hollywood operates as it moves into a period of retrenchment. Tech titans like Apple and Amazon have muscled into the movie business, yet haven’t always liked the exposure that brought. They seem particularly averse to the way the industry shares its box office results and viewership numbers. Though digital releases of “Napoleon” and “Air” have reported information about grosses just like a traditional studio does, the way they reveal data on how many people have watched a film or show on their service is almost comically vague. Don’t look for many actual numbers among the superlatives heralding this or that movie as the most-watched film in the short history of this or that streaming service.

And that’s become a refuge in the case of a movie like “Wolfs,” which was re-conceived for Apple TV+ instead of cinemas when it became clear that George Clooney and Brad Pitt wouldn’t be able to deliver big ticket sales. That’s encouraged movie studios to embrace a new form of opacity. Worried a film like “Juror #2” might not light the box office on fire? No problem. If you’re a studio like Warner Bros., you just release it in many fewer theaters and use that as a justification for not reporting grosses. After all, studios aren’t legally obligated to share box office information. They do it because it’s been the norm, not the rule.

It’s also true that the moment a collection of Silicon Valley behemoths entered the entertainment industry, the business model changed in very real and important ways. Studios like Warner Bros. or Paramount are part of large conglomerates, but the financial hit from a flop like “Furiosa: A Mad Max Saga” or “Babylon” is felt in a way it would not be at Amazon or Apple, where making movies and shows is additive, not a core part of how they make money. Given that Amazon’s market cap stands at $2.1 trillion and Apple’s sits at $3.4 trillion — while those studios are parts of companies with market caps of $24.7 billion and $7.5 billion — they can afford to think of “Red One” or “Wolfs” as rounding errors.

“If any other Hollywood studio had to take a $250 million write-down, it would hurt,” says Handler. “Amazon is fortunate that it won’t be noticed.”

It’s just doubtful it’ll be interested in making those kinds of write-downs a habit going forward.