Netflix, Theatrical Exclusivity, Box Office Profits, and the Cultural Conversation

By John Fithian, President & CEO, National Association of Theatre Owners

Pop quiz. 

First question. Of the 59 movies (not counting documentaries) Netflix has released in calendar year 2018, how many have you seen or how many can you name?

Second question. What’s the highest-grossing Netflix movie of all time?

Third question. How many Academy Awards has Netflix won for feature-length movies?

The first answer will vary, of course, but the point will not. Netflix movies rarely garner significant public attention. There is no publicly known second answer, because Netflix to date has not released any information regarding ticket sales for its movies. And the third answer is that Netflix has won only one Academy Award for a feature-length movie—Best Documentary for Icarus in 2018.

Now, leading into the 2019 Oscars season, Netflix desperately wants to expand its Academy Awards success rate. They are spending lavishly on advertising, public relations, and awards consultants, and the courting of Academy members. Bowing to the desires of their filmmakers, Netflix has recently announced that some of its movies will be released with a (very) short theatrical run before debuting on its streaming service.

But if Netflix wants to really be a movie company, and not just a highly successful television company, why won’t they consider the traditional movie business model? At least for their best movies from their most acclaimed filmmakers, wouldn’t Netflix make more money and establish a much deeper cultural conversation by offering a true and robust theatrical run first, and offering exclusive streaming to its subscribers later?

The relationship between motion picture exhibitors and movie streaming services has been frequently mischaracterized in two significant respects. First, many pundits have claimed that content streaming is disrupting exhibition. This theory suggests that the more movie lovers watch movies and other content on streaming services, the less they watch movies in movie theaters. Yet thus far in 2018, streaming services have signed up more and more subscribers even as the theatrical box office is headed toward an all-time record. As of the date this column was drafted, domestic box office receipts were up 9.89 percent year to date, and admissions were up 7.01 percent, and virtually every commentator and Wall Street analyst is predicting a record year.

To better understand this seeming paradox, NATO recently conducted a study with Ernst & Young of over 1,400 people who had watched at least one movie in theaters in 2017 and spent one hour per week on streaming services. The study found that 33 percent of moviegoers, who see nine or more movies per year—twice the national average—also spend 15 or more hours per week on streaming platforms. In other words, movie lovers are movie lovers everywhere. People who consume a lot of content do so across multiple platforms. The movie industry is not a zero-sum game. The more movie lovers we can create, the better off we all are.

Streaming service success in the home does not pose a threat to the theatrical industry. It poses a threat to traditional broadcast television, and to the already declining transactional home video market. Indeed, streaming services and the theatrical industry can work hand in hand.

Amazon created a robust streaming subscription service in its Amazon Prime platform. Yet when Amazon surveyed their Prime members regarding their movie preferences, those members expressed a preference for movies that had established themselves in the cultural conversation created by a theatrical release. Amazon announced that they would offer a robust exclusive run in movie theaters, and then made their first appearance at CinemaCon 2016 to describe their movies to theater operators at NATO’s official convention.

One of the movies highlighted during that presentation in Vegas was Manchester by the Sea. Amazon reportedly paid about $10 million for the picture, which went on to gross $48 million domestically over an exclusive theatrical run of 95 days, and garnered Academy Awards for Best Actor (Casey Affleck) and Best Screenplay (Kenneth Lonergan.) Then at CinemaCon 2017, Amazon showcased clips and stars from The Big Sick. Amazon reportedly paid $12 million to acquire that movie, which then grossed $43 million domestically over an exclusive theatrical window of 88 days, and garnered a nomination for Best Screenplay.

To be sure, not all movies, distributed by Amazon or anyone else for that matter, produce such stellar results. The movie business is tricky and fickle. But for movies with real quality, a robust theatrical run offers the best way to be discovered, and the best way to turn a profit.

Shouldn’t Netflix want their best movies to be discovered and to make money? As this author stated publicly during the Toronto Film Festival in September 2018, the movie theater door is open to Netflix if they want to support a customary theatrical window. It isn’t about streaming versus theatrical. It’s about the movie business model.

Subsequent to the Toronto Festival, Netflix equivocated on the issue of exclusive theatrical runs. On October 16 Netflix CEO and Co-founder Reed Hastings told investors that Alfonso Cuaron’s Roma would release simultaneously on Netflix and 100 movie screens worldwide. Netflix had just followed a similar simultaneous release plan on Paul Greengrass’s 22 July, which opened on October 10. “We believe in our member-centric simultaneous release model for our original films and welcome additional theatre chains that are open to carrying our films . . .” Hastings wrote in his letter to investors.

On October 31 Netflix reversed course and announced that they would offer exclusive but very limited theatrical runs on some of its movies, with the Coen Brothers The Ballad of Buster Scruggs getting a one-week exclusive run and Roma getting a three-week exclusive run. The Hollywood press responded that Netflix had bowed to the desires of some of its top filmmakers for exclusivity in cinemas (see, e.g., The Hollywood Reporter, “As Netflix Blinks on Theatrical Runs, Which Directors Will Get A-List Treatment?” by Pamela McClintock, November 7, 2018).

Exhibition responded to the very modest alterations in the Netflix model. This author, for example, called the Netflix limited exclusive run “little more than a token.” To be sure, each individual cinema company decides the circumstances under which it will agree to exhibit movies, and several exhibitors have played Netflix movies with little or no exclusive window. Other exhibitors have stated the opposite conclusion.

In a conference call with investors on November 1, for example, Cinemark CEO Mark Zoradi said, “This issue comes down to the exclusive window.  And at such time that they’d be willing to abide by the windows that all of our major studios currently do, we would welcome them. As it currently stands with a one- or two-week window, I don’t anticipate that we would be playing the Netflix films.”

As of the writing of this column, there was one example of Netflix’s new release model. On the weekend of November 9–11, The Ballad of Buster Scruggs opened on three screens in the United States prior to the global streaming date of November 16. Results are impossible to quantify, of course, because Netflix blocked any public release of the grosses of its movie at those theaters, as it has consistently done for all its movies in theatrical release.

The movie Roma will no doubt play much wider than that. But how wide? And with what results? Roma has been reported as a possible Best Picture contender and has won significant awards at film festivals. Netflix clearly desires results at the Academy for this movie. But wouldn’t Netflix have made more money and generated a better level of social discourse if the movie played wider and longer in theaters?

Consider some examples of other successful and awards-worthy theatrical movie releases:

A-24’s Moonlight and Lady Bird

Independent distributor A-24 was founded only in 2012 but has achieved both box office and critical success quickly. The A-24 movie Moonlight played for 130 days exclusively in cinemas and won the Best Picture honor in 2017. The movie cost A-24 $4 million and grossed $28 million domestically. Then the following year, A-24 found success with Lady Bird, a movie that enjoyed an exclusive theatrical run of 123 days and garnered five major nominations from the Academy, including Best Picture, Actress, Supporting Actress, Director, and Screenplay. Lady Bird cost $10 million to produce and garnered $49 million in grosses domestically (plus another $30 million overseas).

Neon; I, Tonya; and Tom Quinn

Margot Robbie reportedly turned down a $12 million offer from Netflix for I, Tonya and went instead with a $6 million deal with Neon and 30 West. Why? Because Robbie wanted a substantial theatrical run and knew that such a run would help with Academy voters. The movie played exclusively in cinemas for 95 days and won Best Supporting Actress and received nominations for Best Actress and Film Editing. And for a movie acquired for $6 million, I, Tonya grossed $30 million domestically.

Tom Quinn at Neon understands the importance of the theatrical release better than most industry leaders. Quinn and his former partner Jason Janego once led Magnolia, and then Radius, an arm of the Weinstein Company. Both of those companies released movies simultaneously in theaters and in the home. Quinn and Janego left Radius, and its multi-platform day-and-date model, to form a company that would utilize exclusive theatrical releases. 

Now at Neon with partner and Alamo Drafthouse founder Tim League, Quinn says it best. He told IndieWire’s Eric Kohn in March of 2018 that filmmakers want their movies seen in theaters. “I don’t think that the same success or end results would have happened with the Netflix release,” said Quinn.  “The transactional value for film is diminished. It’s an all-you-can-eat buffet, you can dip in and out, and if you don’t like a movie, you move on. This is the one sort of crystallizing moment for me in building our business plan—film is dependent on its transactional value in order to succeed, to thrive, to compel, to challenge.” Referring to Moonlight, Quinn went on to say, “How long would a majority of the people who saw that film have given it on Netflix—as opposed to getting up and going to your local theater, sitting down, and committing yourself to watching the movie?”

The movie theater door is open to Netflix—to grow their revenues and improve their awards chances—if only they will give their best movies the time and attention they deserve, in cinemas. Filmmakers and movie lovers will appreciate Netflix so much more.

This article originally appears in the December 2018 edition of Boxoffice Magazine.

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