This is why Netflix must go to war with movie theater owners

Netflix’s content boss Ted Sarandos is the nicest guy ever to raise so much holy hell in network TV circles. Just look at House of Cards, an original Netflix series that challenges the status quo of TV content production and distribution. Well, now Sarandos is causing a good deal of wailing and teeth-gnashing in Hollywood movie circles too.

After a summer of movie duds and flat box office numbers, Sarandos has revived the painful subject of movie-release windows. Netflix has already indicated an interest in financing Hollywood film productions, and in an October 26 speech at the Independent Film Forum (see video below), Sarandos floated the idea of streaming movies on Netflix simultaneous to their theatrical releases.

That’s right: No waiting. In Sarandos’s world, the next big Hollywood blockbuster would appear in your Netflix tablet app on the same day it premiers at the cineplex.

In the same speech, Sarandos attacked movie theater owners, charging that they block competition and innovation. Sarandos was referring to the owners’ dogged insistence that new movies should appear exclusively in brick-and-mortar theaters for a lengthy, set period after they first premiere. This “theatrical window” used to be about six months long, but has shrunk down to about three.

Sarandos’ remarks naturally drew a sharp rebuke from the main movie industry association. National Association of Theater Owners president John Fithian said in a statement, “The only business that would be helped by day-and-date release to Netflix is Netflix. If Hollywood did what Sarandos suggests, there wouldn’t be many movies left for Netflix’s customers or for anyone else.”

NATO
National Association of Theater Owners president John Fithian

On Monday, Sarandos softened his comments somewhat in a speech at another entertainment business summit in Los Angeles. But by then, the horse was out of the barn. Sarandos’s damage-control comments on Monday don’t make his October 26 words any less true.

And why backpedal, Ted? You’re out in public being exactly who we want you to be: A guy advocating the disruption of an old, entrenched industry in a way that might really benefit consumers.

The idea that theaters should be the sole venue for new movies was born in a bygone age. The arrangement dates all the way back to the first part of the 20th century when the movie studios owned the movie theaters, and it needs some serious reexamining.

Most movies—the big ones, at least—are released to different venues in a series of time windows that almost always run in the same sequence. After movies leave first-run theaters, they appear in second-run theaters, then appear in hotels and on airplanes, followed by DVD releases, and then premium cable. Last in line are the online outlets like Netflix and Amazon.

Sarandos believes that this schedule of release windows doesn’t match what current consumers want, and that clinging to it might eventually sink the theaters and the moviemakers—full stop. “I’m concerned that as theater owners try to strangle innovation and distribution, not only are they going to kill theaters—they might kill movies,” Sarandos said during his October 26 speech.

Sarandos argues that Hollywood studios, already plowing so much money into production and marketing, are leaving serious revenue on the table by not distributing movies in the ways modern people watch cinema. “Why not follow with the consumer’s desire to watch things when they want, instead of spending tens of millions of dollars to advertise to people who may not live near a theater, and then make them wait for four or five months before they can even see it?” Sarandos asks.

This rings true. Sure, there are times when I get so swept up in prerelease buzz, I make the effort to see movies in the theater, within a few days of their premieres. But there are even more times when I never make it to the theater, either because I don’t have time, or because I eventually forget about my interest. And later on, when the movie becomes available for rental or streaming, all the opening day buzz and excitement has long since worn off—and I just don’t care anymore. After all, there’s plenty of good (streaming) TV to watch.

The bottom line is that the current “windows” system has kept me from watching some movies I would have otherwise paid for. And that’s money out of the studios’ pockets.

IDC video entertainment analyst Greg Ireland

IDC entertainment industry analyst Greg Ireland says Sarandos’s comments come at a time of flux in the way video is being consumed. “We’re in the midst of a transformation in the way we access content, with new technologies like tablets, smartphones, gaming consoles, and smart TVs. We expect content to be available across all of these,” Ireland says.

On the other hand, there are offices full of marketing people at the movie studios who obviously believe that the biggest return on the studios’ investment still comes from theater box office receipts.

“There are legacy business models in place that still generate a lot of money,” Ireland says. “Any attempt to make money using new technology channels needs to be done while being cognizant of the established business models.”

As Hollywood protects the status quo, some numbers suggest that the current system isn’t working very well. Citing Box Office Mojo numbers, Hollywood released far more movies this summer than in any other, Sarandos said, yet realized only a 6 percent gain in income over last summer. A far larger investment yielding only a slightly larger return? That can’t be good business.

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