Netflix’s theater strategy may change. Will it work?

Netflix has made itself clear: It’s a streaming-first business.

During the company’s third-quarter earnings call on Tuesday, co-CEO Ted Sarandos reiterated the streaming giant’s stance that its content, which it spent $20 billion on last year, is intended for subscribers and, therefore, should be delivered to subscribers on streaming platforms as soon as possible.

However, the company will have 30 theatrical releases in 2027, the same as what it brought to cinemas in 2026. And although not all of these features are expected to have a wide or long release in cinemas, Netflix is ​​testing the water with projects like Greta Gerwig’s “Narnia: The Magician’s Nephew” and the exclusive release of the 4th cinema in February.

The company appears poised to carve out a new path forward as its audience stagnates and its stock slumps by about 30% since January.

How that theatrical ambition fits into a streaming-first strategy remains a question mark.

“Theatrical releases are a net positive for reach and streaming demand,” Alicia Reese, an analyst at Wedbush, wrote in a note Wednesday. “Netflix’s more agreeable attitude towards the exclusive theatrical window will not only facilitate a better relationship with talent, but also increase new revenue streams and build interest in the streaming service. This follows the pattern we have seen with the major studio streaming platforms in the past few years: the theatrical release cannot destroy the streaming window, because Netflix is ​​afraid.”

Ahead of Tuesday’s earnings report, Netflix reshuffled its C-suite, bringing in former Disney executive Peter Rice to take over as the company’s head of content, ousting 10-year veteran Bela Bajaria.

Netflix also fired Dan Lin, the company’s head of movies, according to people familiar with the matter who spoke on condition of anonymity to discuss internal changes. This comes just days after the layoff of around 1,000 employees including Lin’s right-hand man Doug Belgrad as well as Sheroum Kim, an independent film director, according to various media reports. It’s unclear who Netflix will tap to take over Lin’s position.

The company aims to restore brand quality and use Rice’s expertise in talent relations to lure big names in an increasingly competitive market.

Still, Netflix executives appeared to downplay the leadership change during the company’s earnings call.

“Our business and the flywheel of our business are working,” Sarandos told investors during the company’s earnings call. “There is no need for a fundamental change in the strategy. We need better execution in the U.S. … It’s just not growing as quickly or as quickly as we would like.”

Sarandos said the streamer had “some really good doubles and triples this year,” but suggested the company needs more “home runs.”

In an emblematic moment during the call on Tuesday, Sarandos highlighted the deal with Disneystruck in October, to bring Ice Age movies and more to the streaming service, and gave a nod to the company’s CEO, Josh D’Amaro.

“We’ve seen some of that benefit from the Ice Age movies. All five of them hit the top 10. That’s great,” said Netflix’s co-CEO. “And by the way, yes, Netflix only connects Disney movies on our income phone. Welcome, Josh.”

In an effort to attract consumers and expand its customer funnel, Netflix has diversified its offerings over the years to include video games, live sports and fast-paced documentaries about busy cultural moments.

But more recently, some of the more water-cooler hits like “Stranger Things,” “Bridgerton” and “Squid Game” have not previously increased subscriptions and audience numbers.

“We understand there are some investor concerns about the growth in viewing hours,” Netflix said in a shareholder letter Tuesday. “Engagement – which includes quantity, quality and variety of views – remains healthy.”

But with Netflix making it clear that it needs a new path to growth — and with the backdrop of a failed deal to buy movie studio Warner Bros. — investors and audiences are once again looking at the theater business.

“I think there’s room for theater for Netflix,” Matthew Condon, an equity research analyst at Citizens, told CNBC. “Especially, because the competition for time and attention only continues to increase.”

“If they really want to create a stickier fan base in some [intellectual property]I think the theater can be a good avenue for them to do that,” said Condon. “It’s one area that Netflix has historically not been all that strong in, building like really, really strong IP. And I think building a fan base in terms of theatrical releases and things of that nature helps and also helps them get top-level talent.

Netflix is ​​no stranger to big Hollywood directors. It was co-starred with Rian Johnson, Martin Scorsese, Alfonso Cuarón, Bong Joon Ho, Spike Lee and Guillermo del Toro. However, none of this director’s Netflix films have received a wide theatrical release or extended length in theaters.

Sarandos admitted earlier this month that the company was losing talent because it didn’t guarantee a wide theatrical release.

Most importantly, the creators and main producers behind “Stranger Things” have all jumped ship in the past year. Matt and Ross Duffer signed a four-year exclusive deal Skydance – the new home of the same Warner Bros. movie studio that almost bought Netflix – when Shawn Levy joined Disney to direct “Star Wars: Starfighter.”

Sarandos said Tuesday the company’s strategy is about “special theatrical releases,” where each film gets its own special release. In some cases, Netflix plays the movie in theaters with minimal requirements to win the award. Others appear over the weekend as one-off events, as in the case of “KPop Demon Hunters” which was released in theaters for just two days.

Gerwig’s “Narnia” adaptation is among the few selected for a longer theatrical run and wider reach, along with an animated film called “Charlie vs. the Chocolate Factory.”

“Both films have huge global IPs and huge global fandoms, so we’re really excited about how they’re going to play out next year,” Sarandos said.

In another sign of its evolution toward cinema, Netflix said it will report box office results for movies with longer theatrical windows. That reading is standard for major studios, regardless of release or window, but the move gives streamers a new level of exposure.

Rice’s incoming content chief could be the missing piece for Netflix in its new theater model.

The executive has extensive experience in television and film. Since 2023, he has produced films like “Saturday Night” and “28 Years Later.” He is currently developing a film adaptation of the video game “Elden Ring.”

But right now, Netflix doesn’t have the infrastructure for a full theatrical commitment.

“Going to the theater is not as easy as I think people sometimes make it sound,” Steven Cahall, a stock analyst at Wells Fargo, told CNBC. “You have to negotiate with cinemas, and find a place for your film.”

Cahall noted that sending movies to theaters occasionally, especially with limited releases, “may not be very difficult, but there’s the muscle of theatrical distribution… You need a team of people, and you need a pipeline of content intended for theatrical release, and you need a marketing department around it.”

That’s where the Warner Bros. Discovery studio asset purchase will come in. Absent these acquisitions, it’s unclear how, or how quickly, Netflix could improve its own operations.

In addition, it previously balked at the marketing costs that come with bringing movies to theaters, which can total hundreds of millions of dollars per movie. Despite its massive content budget, Netflix has long prioritized endless quantity and choice for its customers over big-budget projects.

The shift to a multi-pronged strategy that caters to both streaming and cinema requires Netflix to better emulate the companies it disrupted in the first place.

“So it becomes more of an existential question for Netflix: Is it time to be a media conglomerate instead of a pure play streaming company?” Wells Fargo’s Cahall said. “‘Do we want to be a media conglomerate?'”