Netflix’s theatrical strategy may be changing. Will it work?

Netflix has made it clear that it is a streaming-first business.

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

Still, the company plans to release 30 movies in 2027, the same number of movies it released in 2026. And while not all of these films will have wide releases or long runs in theaters, Netflix is ​​testing the limits with projects like Greta Gerwig’s The Chronicles of Narnia. The film will be widely released in theaters in February, with a 49-day exclusive release period.

The company appears ready to forge a new path while dealing with sluggish ratings and a stock price decline of about 30% since January.

Questions remain about how its theatrical ambitions fit into its streaming-first strategy.

“A theatrical release is a net positive for reach and streaming demand,” Wedbush analyst Alicia Reese wrote in a note Wednesday. “Netflix’s more amenable attitude toward exclusive theatrical slots not only fosters better relationships with talent, but also adds a new revenue stream and increases interest in the streaming service. This follows a pattern we’ve seen with major studio streaming platforms over the past few years, meaning theatrical releases won’t cannibalize streaming slots, as Netflix fears.”

Ahead of Tuesday’s earnings report, Netflix reshuffled its leadership, bringing in former Disney executive Peter Rice as the company’s chief content officer and ousting 10-year veteran Bela Bajaria.

Netflix also fired Dan Lin, head of the company’s film division, according to a person familiar with the matter, who asked not to be identified discussing internal reforms. The announcement came days after the company laid off about 1,000 employees, including Lin’s right-hand man Doug Belgrade and independent film director Shelom Kim, according to various media reports. It is unclear who Netflix will name to take over Lin’s position.

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

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

“Our business and our flywheel are working,” Sarandos told investors on an earnings call. “We don’t need a fundamental change in strategy. We need better execution in the U.S….We’re just not growing as fast as we could or as fast as we would like.”

Sarandos said the player “hit really solid doubles and triples this year,” but suggested the company needs more “home runs.”

In an iconic moment from Tuesday’s call, Sarandos said: disneywas activated in October to bring movies such as Ice Age to the streaming service, and the company’s CEO Josh D’Amaro agreed.

“We’re already seeing some of those benefits from the Ice Age movies, with all five in the top 10, which is really exciting,” said the Netflix co-CEO. “By the way, yes, Netflix featured Disney movies on its earnings call. You’re welcome, Josh.”

To capture consumer attention and grow its subscriber funnel, Netflix has spent years diversifying its offerings to include video games, live sports, and quick-turn documentaries about hot cultural moments.

But lately, it’s been missing the watercooler hits like “Stranger Things,” “Bridgerton” and “The Squid Game,” which used to drive subscriber and viewer numbers.

“We are aware of investor concerns regarding our viewing time growth,” Netflix said in a shareholder letter Tuesday. “Engagement remains healthy, including the quantity, quality and diversity of viewing.”

But with Netflix making clear it needs new avenues for growth, and the failure of negotiations to buy Warner Bros.’s movie studio, investors and onlookers are once again focusing on the theater business.

“I think there’s room for a theatrical release on Netflix,” Citizens equity research analyst Matthew Condon told CNBC. “In particular, competition for time and attention continues to intensify.”

“If they really want to build a deeper fan base around some of their (intellectual property), I think theater could be a good vehicle to do that,” Condon said. “This is one of the areas that Netflix hasn’t historically been very good at, and we’re building like any really strong IP. And I think building a fan base around theatrical releases and things like that can help with that, and also help attract top talent.”

It’s not unusual for Netflix to attract big-name Hollywood directors. He has co-starred with Rian Johnson, Martin Scorsese, Alfonso Cuaron, Bong Joon-ho, Spike Lee, and Guillermo del Toro. However, none of these directors’ Netflix films received wide theatrical release or long runs in theaters.

Sarandos acknowledged earlier this month that the company was losing talent because a wide theatrical release was not guaranteed.

Most notably, the creators and lead producers of the hit “Stranger Things” all changed jobs en masse last year. Matt and Ross Duffer signed an exclusive four-year contract sky dance — the new home of the same Warner Bros. movie studio that Netflix nearly acquired — Meanwhile, Shawn Levy has joined Disney’s ranks to direct Star Wars: Starfighter.

Sarandos said Tuesday that the company’s strategy is “special theatrical release,” in which each film is released on a unique, tailored basis. In some cases, Netflix may release a film in theaters as a minimum requirement for award eligibility. Some films appear as one-time weekend events, like the blockbuster KPop Demon Hunters, which was in theaters for just two days.

Gerwig’s adaptation of The Chronicles of Narnia, along with an animated film called Charlie vs. the Chocolate Factory, is one of the few selected for a longer theatrical run and broader reach.

“Both movies have massive global IPs and massive global fandoms, so we’re really excited to see how things play out next year,” Sarandos said.

In another sign of its evolution to movie theaters, Netflix announced that it will now report box office results for movies with longer theatrical releases. While such readouts are standard for major studios, regardless of release or windowing, this move means a new level of disclosure for streamers.

Rice, the next head of content, could be the missing piece for Netflix in its new theatrical model.

This executive has extensive experience in television and film. Since 2023, he has been producing films such as “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 effort.

“It’s not as easy to break into theater as people think,” Wells Fargo equity analyst Stephen Cahall told CNBC. “We have to negotiate with movie theaters to find a spot to show the movie.”

Cahall noted that sending movies to theaters on an irregular basis, especially in limited release, “may not be that difficult, but theatrical distribution has muscle…You need a team, you need a pipeline of content for theatrical release, and you need a marketing department around that.”

One possibility would be to buy Warner Bros.’ Discovery studio assets. Without that acquisition, it’s unclear how and how quickly Netflix would be able to expand its business.

Additionally, the company has traditionally balked at the marketing costs of getting a movie into theaters, which can run into the hundreds of millions of dollars per movie. Despite its large content budget, Netflix has long prioritized volume and seemingly endless choice for its subscribers over individual big-budget projects.

The shift to a diversified strategy that offers both streaming and movies will require Netflix to more closely imitate the company it disrupted in the first place.

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