Netflix and the Theater Industry Are Waging a War Over Movie Exhibition That the Tech Industry Has Already Won
While it’s not yet certain what the future of movie exhibition is going to look like, what’s more than certain is that it’s not going to continue looking the way it has for decades for very much longer. There’s currently a battle being waged over how movie fans are going to be able to watch the newest products being produced by studios, and it’s a battle that’s being fought on multiple fronts – whether by theater screen, by phone, or by set top box, the war to acquire the loyalty of our eyes and our ears is on.
The two parties who have been making the most noise lately are the theater owners who have ran the various venues where we’ve spent our whole lives to this point watching the latest that Hollywood has to offer, and Netflix, whose digitally delivered, all-you-can-eat subscription model of movie consumption has already destroyed the concept of the video store and is looking to set its sights on the movie theaters next. Recently, Netflix CCO Ted Sarandos has been making a lot of noise about exhibition windows, which are the agreements that let theater chains exclusively exhibit all of the new studio releases for a certain amount of months before they can hit the various home video platforms. These exclusive deals are in large part what keeps the theater system financially viable, they’re a big way that studios are able to maximize profits on each of their releases, and Sarandos believes that they’re the biggest obstacle that’s keeping the movie industry from moving forward into the future.
The controversy started about a week ago, when Sarandos gave a speech that accused theater owners of actively killing the movie industry with their attempts at stifling simultaneous theatrical and VOD releases, and that announced Netflix’s intention to destroy their exclusive exhibition windows so that movies can premiere on their service the same day that they hit theaters. Sarandos was quoted as saying, “The reason why we may enter this space and try to release some big movies ourselves this way, is because 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.”
During a Q&A at a more recent event Sarandos backed off of this stance a bit, explaining, “I wasn’t calling for day and date with Netflix. I was calling to move all the windows up to get closer to what the consumer wants.” Whether Sarandos is preparing to lobby to have these windows eliminated all together or merely just shrunk down to a couple of weeks is quibbling though. Either way, any success in these matters on his part would clearly be a threat to the outdated economic model that theaters are currently operating under. Because, honestly, who would pay current theater prices to see a big release movie when they know they’ll be able to stream it for the price of the Netflix subscription they’re already paying for, so long as they just wait a couple of weeks? Netflix cutting into the theaters’ exclusive windows could be a deathblow to their already shrinking industry. But is allowing movies to premiere early on Netflix really going to be something the studios are willing to negotiate on? To make an educated guess on that matter, one needs to take a look at all of the parties involved and figure out what they each have to gain and lose.
The studios are caught in a tug of war between two warring factions, but they’re not going to feel tempted to act out of loyalty to anyone. Their main goal is to make the maximum amount of profit possible on each movie that they produce, and how people end up watching these movies is something that’s going to be of little concern to them. For the longest time, forcing audiences to buy a theater ticket in order to see movies in a timely fashion and then allowing them to own a copy several months later has been a great way for them to get people to pay for movies twice, but in a world where streaming media is slowly killing the business of home video sales, what would the numbers have to look like for them to eventually start moving more of their profit strategy toward content deals with a king of streaming like Netflix? If we eventually reach the point where everyone is watching all of their movies through one service, the studios would be forced to do what they can to keep that service happy.
Unfortunately for Netflix, the chance that they’re going to become this ubiquitous service under their current model is looking to be slim to none. The last thing the studios want is for their films to be looked at as the sort of disposable entertainment that consumers can binge watch for a flat rate of $8 or so a month. Right now Netflix lives and dies on their content deals with studios, and while there isn’t currently very much transparency in place for how these deals get made, from the outside it looks a lot like the block booking that studios used to impose on independently owned theaters in the 30s and 40s. “Want the rights to this one movie that everyone is going to want to see? Then also buy the rights to these fifteen others in our catalogue that nobody is going to want to watch.” It eventually took the government stepping in and breaking up the studio monopoly to stop block booking back in 1948, and with today’s multiple avenues of possible distribution, it’s not looking like that’s a process anyone in power is going to repeat for Netflix any time soon.
No, it’s more likely that the studios would create their own subscription services full of their own exclusive content before they would allow Netflix to obtain any real power in the negotiations over streaming rights. It’s something that Warner Bros. has began dabbling with already, with their Warner Archive Instant service. Our own Landon Palmer wrote eloquently and at length about all of this antitrust/vertical integration stuff here. So, despite Sarandos’ blustering that Netflix is going to disrupt the distribution model, it doesn’t really seem like they have any of the leverage necessary to get the job done. Likely, as studios get more protective over the exhibition rights to their content in the future, Netflix’s path to survival is going to be to become a studio itself. This is a strategy we’ve already seen them employ by creating their own Emmy-winning television series, and it’s a strategy that’s likely going to soon lead to them creating their own feature films. In fact, they’ve just taken the first steps toward this by acquiring a new documentary about the Egyptian revolution called The Square, thus ending its limited, self-financed theatrical run and making it a movie you’ll have to watch on Netflix from now on. If the acquisition strategy works out, why wouldn’t they naturally extend that to original productions?
And as for those theaters that just got cut out of potentially screening The Square? They’re in about as tenuous a position as Netflix. Right now there are basically two reasons people still go see movies in theaters: the communal experience and the exhibition windows that keep movies exclusively in theaters for a number of months. Already we’re seeing same day VOD releases becoming more and more the norm for indie movies, and as that economic model proves to be reliable it’s only a matter of time before studios attempt to extend it to major releases. They’ve already dipped their toes in that water once before with that crazy plan to charge an arm and a leg for people to own Tower Heist three weeks after it hit theaters.
Theater owners seem to be trying to attack their survival problem by both extending their exclusive windows even longer and by making seeing a movie in a theater even more of an event, as the recent announcement that more expensive “supertickets” will be sold for Anchorman 2 shows. These tickets will allow the purchaser to see the movie two days earlier than its wide release and will also include a handful of goodies that come along with the screening. As their death grip on exclusive windows starts to look increasingly more ridiculous in an age of digital media, creating a special viewing experience will eventually become the only thing that theaters have to hang their hats on, which is actually pretty cool, because it will likely lead to an even bigger revival of smaller boutique theaters that plan movie-themed events than we’ve already seen in recent years, and it will also likely lead to the death of the shoddy, frustrating multiplex viewing experience that no fewer than a million articles have already been written in complaint of.
So, given that neither Netflix nor the neighborhood multiplex look likely to be the future of how we watch our new releases, who’s going to be the party that eventually wins this war and becomes the lord and master of film exhibition? Smart money is on the tech companies, who make our phones, our tablets, our laptops, our televisions, and our set top boxes. For years theater owners controlled exhibition because they owned the screens we watched the movies on, but in the modern world screens are everywhere, and the control is going to lie with the people who put those screens in our hands – so long as they have vibrant, widely-adopted content ecosystems tied into them.
That means Apple, whose iTunes store delivers movies directly to Macs, iPhones, and iPads, and whose Apple TV can then mirror those movies onto the gigantic HD screens we have in our living rooms. It means Google, whose Google Play store can do the same to any device that can access the web, and whose Chromecast dongle can also mirror the content onto those very same gigantic, ubiquitous HD screens. It probably even means Amazon, whose instant video options and Kindle Fire devices have seemed to have proven successful as well.
The longer we live in a world where the technology to instantly shoot any movie into anyone’s face exists, the more ridiculous it’s going to look to have content middlemen like theater chains in existence. Exhibition windows and exclusive rights deals are arbitrary conceits that keep content out of the hands of the consumers who want it, and they currently only serve as the flimsy excuses that keep a direct connection between movie watchers and movie producers from happening, Sarandos is right about that. But what remains to be seen is if the subscription model of Netflix is going to give that company the leverage to become the thing that pushes theater chains out of the way.
The VOD model of distribution allows the studios to keep presenting their films as feature content that has worth and an individual price tag, and the content ecosystems that the tech companies have in place are robust enough to earn them a cut of what the studios stand to make by selling movies directly to consumers as soon as a final cut is available. Without the iTunes store and the Google Play store each studio would have to create their own apps and their own stores in hopes that consumers would have the knowledge and the motivation to seek them out. With them, studio content comes preloaded in a marketplace that everyone is already using and everyone is constantly browsing through. As studios increasingly realize that modern consumers who are surrounded by screens demand direct, easy access to content, it’s going to be the hardware manufacturers who put those screens in consumer hands who control the exhibition aspect of the movie industry.
And heck, studios should thank their lucky stars that movies cost much more to produce than most other forms of art, or the ability of independent filmmakers to upload their works to these marketplaces directly would make them the next system set to fall. In the end, it will probably be our addiction to explosions and CG superpowers that keeps the studios from going the way of the recording industry in a world where tech companies are increasingly becoming all-powerful.