In what has become an annual event, a group of theater owners have banded together against streaming pioneer Netflix, Inc. (NASDAQ:NFLX) and are refusing to show one of the company's original productions. In this latest turn, the three largest theater chains in South Korea, which control 90% of the movie screens there, are boycotting Netflix original Okja unless the company agrees to delay streaming by three weeks.

The modern fable was directed by internationally acclaimed South Korean director Bong Joon-ho, who has helmed The Host and SnowpiercerOkja received a four-minute standing ovation after being shown at the Cannes Film Festival, though its screening was not without controversy. The National Federation of French Cinemas complained that features that wouldn't make their debut in French theaters should be barred from the competition. As a result of the kerfuffle, Cannes introduced a new rule beginning next year that requires that films must be distributed in French theaters to be considered for the festival.

Netflix screenshot for movie Okja states "A gentle giant and the girl who raised her are caught in the crossfire between animal activism, corporate greed and scientific ethics."

Okja stirs controversy in France and South Korea. Image source: Netflix.

The controversy illustrates the billions of dollars that are at stake should the traditional windowing period break down. Movies have historically had an exclusive 90-day window in theaters before the various stages of home video, pay-per-view, and television release. Since Netflix began the practice of day-and-date releases, where the program appears on its streaming service and in theaters simultaneously, the windowing system has been under siege.

Cracks in the window

The long-held positions of studios and exhibitors appear to be on the verge of change. Major Hollywood studios are pushing a plan for premium video on demand, which would allow consumers to pay between $30 and $50 to watch movies at home in 30 to 45 days. Studios would then pass a cut of the revenue on to exhibitors. 

Theatrical exhibitors have been loath to revise the 90-day window for fear it will further cut into falling profits. Domestic movie attendance peaked at 1.6 billion moviegoers in 2002 and has been in a gradual decline ever since. Though 2016 was a record year for box office, that was the result of higher ticket prices. Exhibitors, meanwhile, have been fighting declining ticket sales with reclining seats, alcohol service, and reserved seating.

Different approaches

It isn't new for theater owners to boycott Netflix. Exhibitors rebuffed plans to release the 2014 sequel to Crouching Tiger, Hidden Dragon for streaming and in theaters simultaneously. In 2015, the same thing happened as major theater chains refused to show Director Cary Fukunaga's Beasts of No Nation, even though it screened to rave reviews at both the Toronto and Venice film festivals. 

Description of movie Beasts of No Nation.

Theater owners boycotted Beasts of No Nation. Image source: Netflix., Inc. (NASDAQ:AMZN), the other major player in the streaming space, is expected to spend $4.5 billion on content this year. The company has taken a different path and tends to abide by traditional windowing, by giving its films a standard theatrical run before releasing them 90 days later on its Prime Video streaming service. "We believe in the theatrical window fully for our releases," says Jason Ropell, VP of worldwide motion pictures at Amazon Studios.   

Breaking glass and taking names

Netflix recently exceeded 100 million subscribers and surpassed quarterly revenue of $2.5 billion for the first time, and it plans to spend $6 billion on content this year. The company doesn't appear to have suffered from the controversy. In fact, CEO Reed Hastings pointed out in an interview at Recode's Code Conference that the dispute brought "a lot more awareness" to Okja and that "sometimes the establishment is clumsy when it tries to shut out the insurgent, and then the insurgent's role is to play that up, which we did" -- which resulted in free press for the film. 

Netflix has forever changed the entertainment landscape, first by causing the imminent demise of the venerated video store, and then with the arrival of streaming -- which the company pioneered -- and the advent of binge watching. Its entry into original content has provided its own set of consequences for the industry, and we still don't know how they will play out. But onne thing is for sure: Netflix isn't done yet.

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