Netflix's Most-Watched Movie: Sony's $20 Million Mistake

Sony Pictures Animation's deal with Netflix for "KPop Demon Hunters" resulted in a flat $20 million profit despite the movie becoming Netflix's most-watched film with over 236 million views and breaking Billboard records. Sony's guaranteed returns capped their upside, similar to the principle that burns options traders who sell too early. This case study highlights the importance of considering the potential for massive returns when making deals.

In a twist of fate, Sony Pictures Animation's deal with Netflix for the animated film "KPop Demon Hunters" resulted in a flat $20 million profit, despite the movie becoming Netflix's most-watched film with over 236 million views and breaking Billboard records. This case study highlights the importance of considering the potential for massive returns when making deals, a principle that also applies to options traders who sell too early [1].

The pandemic deal that started it all
Back in 2021, when movie theaters were ghost towns and streaming was king, Sony Pictures Animation struck a deal with Netflix for their upcoming animated film about K-pop superstars who moonlight as demon hunters. The terms? Netflix would cover the $100 million production budget and throw in a $20 million profit for Sony. Clean, simple, pandemic-proof. At the time, Sony Pictures' chairman Tom Rothman called these Netflix direct-to-platform deals part of their pandemic strategy [1].

Fast forward to August 2025: "KPop Demon Hunters" has become Netflix's most-watched movie ever with over 236 million views. Four songs from its soundtrack are simultaneously in the Billboard Hot 100's top 10 — something that's literally never happened in the chart's 67-year history. "Golden" sits at #1, marking the first time a girl group has topped the chart since Destiny's Child — and a fictional one at that. And Sony's take from all this success? Still that same $20 million [1].

The billions Sony left on the table
The most brutal twist? Last September, Sony's CFO Hiroki Totoki told the Financial Times: "Whether it's for games, films, or anime, we don't have that much IP that we fostered from the beginning. We're lacking the early phase [of IP], and that's an issue for us." Translation: Sony desperately needs original franchises. They just gave away what might be their biggest one ever [1].

Netflix is reportedly treating this as their "Disney Princess franchise," indicating plans for everything from a stage musical to a live-action remake, sources tell TheWrap. While no sequels have been officially announced, industry insiders report Netflix is developing two follow-ups to complete a trilogy, plus series spinoffs. Sony's take from this billion-dollar ecosystem remains to be seen. At the very least, they'll net production fees if they animate the sequels — but as of now, no merchandise, no spinoffs, no live-action rights. They're a hired gun in their own creation [1].

The music revenue alone is staggering: With 2.3 billion streams and counting as of August, at Spotify's average payout of $0.003-0.004 per stream, that's roughly $7-9 million Sony won't see [1].

Lessons for investors
The "KPop Demon Hunters" saga offers several investment lessons: Certainty is expensive: Sony paid hundreds of millions in opportunity cost for a guaranteed $20 million. In investing and dealmaking, eliminating all risk often comes at a high price. Sony's deal with Netflix highlights the importance of considering the potential for massive returns when making deals. Sony's best play? Use the sequel negotiations to claw back some revenue participation. They could push for: A percentage of merchandise sales on future films they animate Escalating fees tied to performance metrics First-look deals on other Sony Pictures Animation projects Co-ownership of new characters introduced in sequels [1].

For investors, watch Sony's next earnings call closely. If management mentions "renegotiating streaming partnerships" or "capturing more value from our animation properties," it might signal they're learning from this $20 million mistake.

References
[1] https://moneywise.com/news/top-stories/netflixs-all-time-biggest-movie-could-have-been-a-slam-dunk-for-sony-entertainment-what-went-wrong