In a speech hosted by Film Independent, Netflix (NASDAQ:NFLX) Chief Content Officer Ted Sarandos floated the idea that Netflix could stream "big" movies to its 40 million subscribers the same day they're released in theaters. Netflix might produce such movies itself or partner with a big movie studio like Disney, Comcast's Universal, or Sony.
The movie studios seem into the idea. In the past, the three aforementioned studios have experimented with super-premium Video on Demand, or VOD, in windows ranging from three weeks to 60 days.
Netflix is definitely into the idea. The potential of drawing a blockbuster-sized crowd to its streaming service is huge for the company.
But there are a couple things that the whole system hinges on that could be very costly: the box office and DVD sales.
Regal Entertainment (NYSE:RGC) and AMC Entertainment, which are instrumental in marketing big-budget films, rarely agree to screen a movie without an exclusive 90-day window. This ensures people actually come to see the movie instead of waiting for a home release.
It's unlikely Regal or AMC will take kindly to a simultaneous release with Netflix. The service costs $8 per month, less than your average movie ticket, and there's only so much value theaters can add to the experience to attract a crowd.
The same argument extends to DVD sales. DVDs play a large, albeit shrinking, role in generating revenue for studios. An early release on Netflix will likely hurt DVD sales. That's why studios have pushed back against Netflix in the past in order to give a larger window for DVD sales.
Someone's got to pay
A lack of theater support is bad for the studios. It means they'll have to increase their out-of-pocket marketing spend to make up for the lack of support from Regal and AMC. While Netflix could pitch in to help market the movies, making up for the lost theater support, studios will still be missing out on a huge revenue stream in box office sales. Studios aren't going to sacrifice their bread and butter just to make a subsection of its audience happy.
That lost box office revenue is going to have to come out of Netflix's pocket -- potentially tens of millions of dollars. Money that's probably better spent on larger content deals than a new release. Once the novelty of a "big" movie release wares off, Netflix will be left without much more than another huge bill on top of its growing content costs.
Perhaps Netflix will go the route of super-premium VOD, and offer same-day streaming to its subscribers for an additional price. This model has failed in the past. Universal planned to release Tower Heist on VOD for $60 three weeks after theatrical release, but backed off due to opposition. In 2011, Sony and several other studios partnered with DirecTV for 60-day window VOD releases that saw disappointing sales. Disney has only tried twice and never in the U.S.: Portugal in 2011 and Korea this year.
Movies are not TV
Netflix loves to point to its success with "catch up" viewers. Subscribers are able to use the service to catch up on hit TV shows before a new season begins. This benefits both Netflix and television studios, which see their ratings improve each season.
But there's no additional benefit to a movie studio by releasing a movie early on Netflix. Yes, Netflix could hedge the risk of big budget movies, but at the same time limit the potential upside from box office and DVD sales. Someone will end up making up that difference, and it's probably not going to be the movie studios.
Adam Levy owns shares of Walt Disney. The Motley Fool recommends Netflix and Walt Disney. The Motley Fool owns shares of Netflix and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.