Too busy to go to the theater to see that new release? No problem. Netflix (NASDAQ:NFLX) has you covered. At least in one instance.
Netflix and the Weinstein Co. plan to release the sequel to the critically acclaimed Crouching Tiger, Hidden Dragon next year. More interesting is that you'll be able to see Crouching Tiger, Hidden Dragon: The Green Legend in theaters at the same time as the release on Netflix. Well, some theaters. IMAX (NYSE:IMAX) has agreed to show the film on some of its movie screens around the world, though it's not clear how many theaters might refuse to show the film because of its unusual timing. The premiere is slated for Aug. 28, 2015.
The release is intended to be the first of many first-run films on Netflix, but that might not be so easy. Original films will cost Netflix much more than original series, because movies usually have big marketing budgets subsidized by big theaters. Without the theaters on board, Netflix might have a tough time attracting film studios.
Where'd my box office sales go?
Unsurprisingly, AMC Entertainment (NYSE:AMC), Regal Entertainment (NYSE:RGC), and other theater companies are not on board with the Netflix game plan. It's fairly rare that the major theaters will show anything with less than a 90-day window of theater exclusivity. The studios have tried in the past, and the results are always the same: The theaters drop the film. The Guardian is reporting that AMC, Cinemark, Regal, and Carmike, which it says own more than half the 400 IMAX screens in the U.S., have all said they will refuse to screen the film.
It makes sense that a simultaneous home release, particularly one with no added cost for 30 million-plus Americans, would cut into box office sales. If the theater operators don't change their minds about The Green Legend, IMAX will mostly screen the movie in China, where Netflix doesn't operate. (That might have been one reason Netflix chose to release a Chinese film -- in order to get a theater company on board.)
Without a wide theatrical release, box office will suffer. The original Crouching Tiger, Hidden Dragon brought in over $200 million in box office revenue. The sequel is expected to have a larger production budget, and will probably produce lower box-office sales. Netflix will have to make up the difference somehow.
And the costs keep coming. Not only will Netflix have to pay a high premium to eliminate the theater-exclusivity window, it will also have to spend money to market the movie. Usually, AMC and Regal pay out for marketing intended to attract viewers to their theaters. If they're not screening the movie, though, that means no marketing budget.
Between $40 million and $50 million is spent on average to market a film. That's a whole season of House of Cards. Of course, Netflix won't have to spend nearly that much, but it would be expected to help market movies for studios.
Big theaters will never get on board
Even if Netflix cuts into box office sales and theater profits just a little bit, it's enough for big theaters to refuse to distribute a film. Theaters must do whatever they can to prevent losing out on potential profits
When Universal tried to release Tower Heist through video on demand just three weeks after its theatrical release, the theaters were ready to pull the film. Universal balked, and the movie stayed in theaters. Blockbusters can't be blockbusters without theater support.
Considering that the major studios are focusing more on big-budget movies with blockbuster potential, the majority, if not all, of their releases require support from the theaters in order to turn cash flow positive.
The Weinstein Company was launched in October 2005 by brothers Bob and Harvey Weinstein, who founded Miramax Films in 1979.The Weinstein Company includes Dimension Films. Movies from The Weinsten Company include Lee Daniels' The Butler, The King's Speech, and Django Unchained.
Picking up the scraps
If Netflix can help studios turn a profit on films they otherwise would have never produced, the studios would be foolish not to work with the video streamer. But this would leave Netflix with only the smaller-budget and independent films.
Some independent films have used video on demand and small, short-run theatrical releases in recent years to maximize profits and still qualify for the Academy Awards. Winning an Academy Award would be great marketing for Netflix, but it won't change its relationship with the big theaters.
The release of Crouching Tiger, Hidden Dragon: The Green Legend next summer is the first step Netflix needs to take to prove me wrong. I would be very happy if it did.
Adam Levy has no position in any stocks mentioned. The Motley Fool recommends Imax and Netflix. The Motley Fool owns shares of Imax and Netflix. 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.