Netflix Making Movies? Here's How It Could Happen

Contributor Tim Beyers sits down with The Motley Fool's Rick Engdahl to talk comics, TV, movies, tech, and related geekery. Beyers is a member of the Motley Fool Rule Breakers stock-picking team, as well as the real-money Motley Fool Supernova Odyssey I growth portfolio.

With Hollywood's focus on either blockbusters or low-budget, high-return fare such as horror films, is the middle ground being lost? In this video segment Beyers discusses how Netflix (NFLX 1.75%) and YouTube may be filling that gap, but are they truly a disruption?

A full transcript follows the video.

Richard Engdahl: Is there anything else in the movie space, generally, that you'd like to talk about?

Tim Beyers: Well, I think in terms of movies I do think that we're seeing what was mainstream is not really mainstream anymore. These comics properties are much more mainstream than they were, and the studios are a more interesting bet now, because they're taking fewer risks.

They're not funding a lot... in some ways, that's very bad for art. There aren't a lot of small potatoes, art-house-type films that big studios are putting out anymore. A lot of them are getting Kickstarted.

Engdahl: Kind of like in the world of music, the technology has advanced and the prices have come down so dramatically that anybody can pick up a cinema-quality camera for a couple thousand bucks now, and start making movies.

Is there any distribution in place? Is there a disruption afoot? Is there a disruption out there in the movie industry, that you see potentially making a difference?

Beyers: I think so, but I'm not going to talk about a Hollywood studio in that sense. I think that YouTube... there are lots of growth catalysts for Google (GOOGL -1.98%), but I think it's very easy to underestimate the potential of YouTube.

Remember, there's 2 billion users now, and people have started taking to short-form -- but quality -- programming. I'll just give a plug for one of my favorite programs on YouTube that I actually watch as if it were a show. It's called Tabletop.

I don't know if you've heard of this, but this is [from] Wil Wheaton, of Star Trek: The Next Generation fame, and on The Big Bang Theory. He does a demo show every two weeks on YouTube, on the Geek & Sundry channel, in which he's just playing board games or role playing games, and introducing audiences to games you haven't seen before.

It's hilarious. It's really fun. It's only like 20 minutes long, but it's brilliant. It's extremely well-produced, and the camera quality is great, the sound quality is great. [There is] an ad on the front end, and that's it. Then you're just getting involved in this show.

YouTube is very disruptive -- to your question -- I think, in that it can support not only these shows, it can support Kickstarted movies. It's almost a universal platform for putting great video content up, and then getting it widely distributed.

It's fascinating, and I think it's a huge catalyst for Google.

Engdahl: Is there a potential disruption coming from, say, a Netflix?

Beyers: Sure.

Engdahl: They've obviously, with House of Cards and others, moved into... they're starting to kick around television now, getting Emmy awards and all.

Beyers: Right.

Engdahl: Is there a potential there -- or maybe there's plans in the hopper, I don't know -- about their actually building full-length features?

Beyers: Wouldn't that be awesome, though, if they were? Netflix has not announced any of those plans to make a full-length feature, but you can see a company that is involved in media distribution funding some of these upstarts.

Let's take Apple as an example. What if there was an iTunes fund? An iTunes fund where a creator could apply for some iTunes funds to make a feature film that would run exclusively on iTunes. Similarly, Netflix doing something. ... They have a big originals budget, so you could have a Netflix Original movie.

This is not unprecedented, per se. There's always been an "ABC Family Special," that was just created specifically for the ABC Family channel. That's not new, but the distribution models have changed so dramatically that now companies that are in the business of distributing do have an interest in creating original content, so I could see it happening. It just hasn't happened yet.

Engdahl: I could see that leading to... Hollywood plays exclusively the blockbuster game -- like they've been doing anyway -- but then you have all the Sundance Films, and Once, and even Blair Witch or something. All those low-budget films that occasionally sneak out.

Beyers: Found footage films.

Engdahl: ... could suddenly rise in existence -- more of them could exist through these channels.

Beyers: Right, and the way Hollywood has changed... well, it hasn't changed, but it has gone to a two-tiered model. It makes very low-budget films that have very high profits [such as] horror films. Horror films are notorious for this.

I don't personally love horror films, even though I like The Walking Dead -- I do get the irony of that -- but you can make a horror film for about $15 million or less, and earn $30, $40, $50, or in the case of, say, Paranormal Activity, a found footage film, it can be over $100 million.

Ridiculously profitable, so your studio is making profits at low levels, and is just keeping the doors open. Then you make some bigger bets on bigger-production films that have a chance to earn $400 million, $500 million, $600 million, $1 billion box offices -- and nothing in between.

Which, like I said earlier, seems like it's bad for art, except that Kickstarter or Netflix or YouTube [is] filling that gap. I do think, yeah, that's a very disruptive niche that they can occupy -- probably to the studio's delight.