Netflix’s most-watched movie of all time could have been a slam dunk for Sony Entertainment — what went wrong?

For investors watching the streaming wars, this isn't just a Hollywood cautionary tale. It's a masterclass in what happens when you cap your upside right before lightning strikes. The same principle that burns options traders who sell too early scorched Sony on a billion-dollar scale. Here's what went wrong and what you can learn from Sony's mistakes.

The pandemic deal that started it all

Back in 2021, when movie theaters were ghost towns and streaming was king, Sony Pictures Animation made what seemed like a smart bet. They 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. Movies like "The Wish Dragon," "Vivo," and "The Mitchells vs. The Machines" were all sold to Netflix. The latter was a big success for Netflix, even netting it an Oscar nomination. In a 2023 Business Insider interview, he confirmed: "We made a few direct-to-platform films for them... And we're making a big animated K-Pop musical." Sony thought they were being smart with guaranteed returns. They weren’t wrong about the profit — just everything else.

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.

"Frozen" but Sony "Let It Go" too soon

Here's what makes this particularly painful for Sony: Netflix executives are internally calling "KPop Demon Hunters" their "Frozen equivalent." If you need a reminder, Frozen has generated billions for Disney through movies, merchandise, theme park attractions, and endless replays of "Let It Go."

The comparison isn't hyperbole. "KPop Demon Hunters" became the first Netflix original film to go "up, up, up" to a new viewing peak in its sixth week — 26.3 million views, topping week five (25.8 million) and week four (24.2 million). When Netflix tested theatrical sing-along screenings on August 23-24, they grossed $18-20 million in just two days across 1,700 theaters, with most screenings completely sold out — despite the movie being "Free" to stream at home.

Think about that: Netflix made Sony's entire profit margin in a single weekend. From sing-alongs. Of a movie that had been streaming for two months.

Perhaps 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.

The billions Sony left on the table

Netflix was so caught off guard by consumer demand that they started reprinting crew gifts as merchandise. That sold-out plush tiger selling for $47.95? Originally a freebie for the production team. By July 1, Netflix said "KPop Demon Hunters" items were among “the top five bestsellers of the year" — and Sony gets zero from any of it.

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.

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. "Golden" sitting at #1 on Billboard and now nominated for Song of the Summer at the 2025 MTV VMAs in an industry first — competing against real-life artists like Morgan Wallen and Sabrina Carpenter? Those sync licenses for commercials and TV shows? The inevitable TikTok licensing deals? Heck, even the instant ramen deals? All Netflix's now.

Consider the full scope of what Sony gave up:

• Merchandise rights that could rival Frozen's billions
• Theme park potential (imagine "KPop Demon Hunters" at Universal Studios)
• Award potential ("Golden" is submitted for Best Original Song at the Oscars, nominated for a VMA)
• Live concert opportunities
• The rare property that gets MORE popular over time

To put this in perspective, Netflix paid $465 million just for Seinfeld reruns. Sony created an original global phenomenon and walked away with $20 million.

Why it could only happen on Netflix

Here's the uncomfortable truth: this phenomenon might only have been possible on Netflix. "I get why Sony didn't release it in theaters. It would have been too hard a sell theatrically," a rival studio executive told TheWrap.

The film's week-one numbers were modest — just 9.2 million views. But then TikTok discovered it. Kids watched on repeat. By week two: 22.7 million views. This viral spread required Netflix's instant rewatchability and shareability. As Fandango's Shawn Robbins told TheWrap: "Netflix found a way to meet that audience where they were, and it paid off big."

According to industry insiders, Sony executives believed "KPop Demon Hunters" would have a typical streaming lifecycle: big opening weekend, then fade into Netflix's vast catalog. Reality check: The film is still #1 on Netflix seven weeks after release — unicorn behavior for the streaming platform. "Takedown," one of the movie's earworms, has become inescapable. Parents know all the songs. Kids are obsessed. TikTok can't stop dancing to it.

Can Sony salvage anything with the sequels?

Netflix and Sony are reportedly in talks for a sequel, but here's the kicker: under their 2021 agreement, Netflix owns all the rights. While nothing has been officially announced, sources indicate Netflix wants to build a full trilogy. Since Netflix owns all underlying IP rights, they could theoretically continue the franchise with or without Sony Pictures Animation.

Sony isn't completely powerless — yet. They still hold one crucial card: Sony Pictures Animation's talent and expertise. Netflix may own the IP, but they need Sony's animators, directors, and distinctive frame-rate manipulation style that's become the studio's signature.

The original directors, Maggie Kang and Chris Appelhans, are currently in talks to return but haven't officially signed on for sequels. This is Sony's window. If they can lock the directors into exclusive deals before Netflix closes negotiations, they gain significant leverage. Netflix could theoretically continue without Sony Pictures Animation, but switching studios risks losing the magic — just ask Disney how well it went when they tried to make Toy Story 3 without Pixar (before eventually reconciling).

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

The precedent exists: After "The Lego Movie" became a surprise hit for Warner Bros, Lego renegotiated for better terms on sequels. Sony could argue that "KPop Demon Hunters''' unprecedented success warrants reopening discussions.

The nuclear option? Sony could threaten to walk away entirely, betting that Netflix won't risk changing studios mid-franchise. It's a dangerous game since Netflix has deep pockets and a history of poaching animation talent from Disney, Pixar, and DreamWorks. Remember when they hired away "Klaus" director Sergio Pablos from Disney, or lured "Over the Moon's" Glen Keane from his Disney legacy? But with Sony's animation slate including the next Spider-Verse film, they have some leverage in keeping their team together.

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.

Lessons on "How It's Done" for your portfolio

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 means eliminating all upside.

If you can hold, hold: Sony could afford to wait—they weren't going bankrupt. Like selling stocks at pandemic lows, offloading valuable assets for "safety" during temporary disruptions is usually a mistake.

IP is everything: This is why private equity firms obsess over content libraries and why Disney trades at a premium—they own franchises, not just make movies. Look for companies with repeatable, expandable IP.