When Theaters Refuse Netflix Films, They’re Only Hurting Themselves

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You’ve got a legendary director – Martin Scorcese. You’ve got three all-time greats in front of the camera – Robert DeNiro, Al Pacino, and Joe Pesci. You’ve got critical acclaim. All of it would come together to make a great cinematic experience, but there’s just one problem for The Irishman – the major theater chains refuse to screen it.

The theaters say their refusal comes down to a matter of principle. Movies typically open in cinemas exclusively first, only moving to other platforms like streaming services, video-on-demand, cable, or broadcast television after at least 72 – 90 days.

Netflix has taken the rules of the theatrical release window and put an axe through it. Netflix’s concept is that with the instant accessibility of video content everywhere – from on Netflix itself to YouTube to TikTok to the dozen other apps and streaming services out there – it doesn’t make sense for films to still have to deal with antiquated release windows. The theaters disagree, but Netflix is right. These are the major myths anti-Netflix theater chains use, and why they’re wrong:

Myth #1: Movies still make money past the first few weeks to begin with

In the twentieth century, films used to have quite extended runs. However, movies have increasingly been frontloaded at the box office in the last two decades. Netflix’s reported proposed compromise with the major cinema chains on the release strategy for The Irishman was a 45 day exclusive theatrical window. This would have been a big upgrade from the days when Netflix used to release movies in theaters and online the same day, and even an upgrade from their much shorter exclusive windows in the past of only a few weeks.

Looking at the top fifteen films at the domestic box office this year that have been in theaters for at least 45 days so far (so every film in the top fifteen other than Joker), on average 96.07% of their grosses was made in the first 45 days:

RankFilmDomestic gross,
first 45 days
Domestic gross,
full run so far
2The Lion King$521,152,746
3Toy Story 4$410,249,874
4Captain Marvel$400,031,743

Far From Home
7It: Chapter Two$209,608,260
9Fast & Furious:
Hobbs & Shaw
10John Wick 3$161,389,433
11How To Train Your
Dragon 3
12The Secret Life of Pets 2$151,556,230
Detective Pikachu

14Once Upon a Time
in Hollywood

That means the average film would only decrease by 3.93% domestically if it had launched via Netflix’s proposed strategy, assuming a movie is immediately dropped from all theaters as soon as it leaves the exclusivity period (which isn’t even the case all the time). Even more, half to a third of the theatrical audience for most films watch it in not just the first 45 days, but in the first few days of the opening weekend.

Myth #2: The movie would have been a big box office success to begin with

National Association of Theater Owners president John Fithian argued in The New York Times recently that Irishman could have hit a decent box office gross like Scorcese’s film The Departed:

Netflix is leaving significant money on the table… Think about The Departed, in 2006. That Scorsese movie made $300 million globally. It garnered Scorsese the best director Oscar. It won best picture. It played for a long time in theaters and made a ton of money. Why wouldn’t Netflix want to monetize that before it went to Netflix? It can still be exclusive on Netflix. It can still draw subscribers. It would still be the only place you can see it at home.

The issue here is that Departed came out over a decade ago, wasn’t three and a half hours long, and starred major box office draws (Leonardo DiCaprio, Matt Damon, Mark Wahlberg). There’s a reason why every major studio rejected Irishman when it came around at its budget and Scorcese had to go to Netflix in the first place – it never seemed like it would have much box office potential. Netflix is doing the theaters a favor by offering their films more than the other way around.

In fact most of Netflix’s slate has been the kind of movies that traditional studios wouldn’t touch for being not safe enough. Arthouse black-and-white foreign titles like Roma, stop-motion movies which never do well at the box office, and big-budget original blockbusters like Bright or Six Underground which don’t have any IP to rescue them. For all the complaining by theater owners, Netflix isn’t killing cinema. It’s reviving it. They’re just jealous they’re not getting a slice of the revenue.

Myth #3: Being hard on Netflix will prevent other studios from acting the same way

As said before, the kind of films Netflix makes aren’t the ones that would likely light the box office on fire in the first place. That’s why it’s Netflix that is making them, because they can differentiate themselves from the rest of the movie market. Plus there’s the simple fact that after all they don’t have any big IPs to work with in the first place. The Big Five (Universal, Paramount, Warner Brothers, Disney, and Columbia) have each been around for nearly or over a century, with the thousands upon thousands of films in their libraries to inspire new titles. Netflix started making original content six years ago.

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Since these Netflix titles aren’t would-be major money-making films, the theater chains can afford to ignore them in order to take a stand, without impacting their bottom line much. However, what if one day a Disney or WB decides to shrink the theatrical window? After all, both companies are gunning hard to compete with Netflix through Disney+ and HBO Max respectively. Getting a major movie on their services earlier would be a major coup. Will AMC or another company be willing to forgo a Avengers or Joker level megahit because of a week or two difference in exclusivity?

Myth #4: Strict windowing won’t hurt theatrical film selection

The bigger issue for the next few years though won’t be the blockbusters not coming in theaters. It’s that the insistence on lengthy exclusivity periods by theater chains will give distributors only three options – either go full theatrical, have an extremely limited theatrical release with none of the major chains, or forgo any real theater release at all.

None of these options are necessarily hugely appealing for a smaller film. Releasing a film with a full theatrical launch means committing to a significant marketing spend and having to wait for the extended theatrical exclusivity window to end before you can send the movie to video-on-demand, physical media, or streaming. Releasing a film theatrically Netflix-style means you’re paying marketing for a theatrical release, but are unlikely to have enough breadth in theaters to make much money. (There’s a reason why Netflix doesn’t officially release the box office results of their theatrically released films and only estimates are available – the numbers are quite poor.) Direct to streaming can be good for your streaming service but means no additional revenue from the film at all.

We’re already seeing this issue become a problem for some titles, even those released by the studio that benefits from the current theatrical experience the most of all, Disney.

Noelle (Walt Disney Studios)

Take a look at the film Noelle. A decade ago, it would have been a slam dunk for a theatrical release and probably would have done pretty well there too. It has an experienced director behind the camera with Marc Lawrence, who has been directing comedies exclusively for nearly two decades now. It has two pretty well-known actors as the lead stars, Anna Kendrick and Bill Hader. It’s got a decently appealing hook – Santa retires, his son is supposed to take over, but instead shenanigans ensue and Santa’s daughter has to take up the slack. No one would confuse it for a would-be billion dollar blockbuster like an Avengers or Star Wars movie, but in the past it would have probably been a modest hit.

In fact, it was supposed to be a theatrical release, but last year the studio decided to move it to Disney+ instead. After all, mainstream family-friendly comedies that aren’t from big animation studios or are filled to the brim with visual effects aren’t really doing well anymore. It’s not that kind of film audiences are willing to go out to see in theaters, so why go through the hassle of a full theatrical release at all?

A similar logic has led the Lady and the Tramp remake to be designed from the start not to open in theaters, but on Disney+. The effects-stuffed Disney remakes of the studio’s most famous films like this year’s Aladdin or Lion King, or 2016’s Jungle Book, continue to make big bucks in theaters, but lower-key adaptions like Pete’s Dragon or Christopher Robin performed pretty softly at the box office. Why risk a potential underperformer in theaters for the Tramp remake?

In another world where theater chains would have been more willing to relax the theatrical window, Disney might have been willing to launch Noelle or Tramp in cinemas as a lower-key release for a few weeks and then move it to Disney+. However, the chains have made that impossible. (Disney has leverage with their blockbusters, not their tiny films.)

This will continue to grow as an issue with many of the major studios introducing their own streaming services this year and next year. Disney will launch Disney+ in a week. In 2020, Warner Brothers will launch HBO Max and Universal will have Peacock. Paramount will get both Pluto and CBS All Access once the merger between Viacom and CBS is complete. Damn, even Sony has Crackle. Even the smaller studios aren’t immune from the allure of streaming. Indie darling A24 recently signed a multi-film deal with Apple’s TV+.

A dark future for theaters

Unless theaters are willing to budge, they will end up with a world where only the blockbusters are still willing to show up on the silver screen. Their quarterly earnings will be entirely at the whim of the success or failure of a handful of massive films. (After all, even the most seemingly surefire franchises fail sometimes, look at Solo for example.) Studios will be able to dictate more and more ornerous terms from theaters. (See Disney asking for 65% of ticket sales, imposing noncompliance taxes, and forcing extended screen requirements for The Last Jedi).

Earlier this year, AMC announced that it was putting together a new initiative to highlight unique smaller films called AMC Artisan Films. If you want to really keep vibrant filmmaking not just alive though but in theaters, slapping a gold border around a bunch of posters isn’t going to cut it. Theater chains need to be willing to make real change to their insistence on extended theatrical exclusivity windows. Otherwise, the movie industry is going to just continuing changing around them, and the results won’t be good for anyone involved.

Categories: Analysis