How Netflix Became Movie Theaters' New Best Friend

Movie theaters, directors and producers who may previously have avoided doing business with Netflix which they viewed as streaming competition that cannibalized their in-theater business now embrace the company. 

Movie theaters are short of content - a situation likely to continue for three years due to the pandemic - so are showing Netflix pictures, in part because nothing else is available. And talent who avoided the company because they wanted theatrical releases now see working with the company as a viable option. JL 

Erich Schwarzel reports in the Wall Street Journal:

With major Hollywood studios paring back their release calendars—or shipping movies to their own streaming services—theater chains are expecting to be short of programming for at least three years. Some are turning to an unlikely source for more: Netflix. Pandemic-related production shutdowns and a strategic shift away from the big screen leave theaters with no choice but to make deals with Netflix and other streaming services. For Netflix, the theatrical runs use some of its biggest movies as a marketing tool that burnishes the service’s claim that its films are on par with traditional studio offerings.

The nation’s movie theaters are running out of movies. Some are turning to an unlikely source for more: Netflix Inc. NFLX 1.38%

With major Hollywood studios paring back their release calendars—or shipping movies to their own streaming services—theater chains are expecting to be short of programming for at least three years. That’s one reason several chains premiered the Netflix zombie-heist movie “Army of the Dead” Friday, one week before it becomes available on the service.

The unlikely alliance between movie houses and the streaming giant is another sign of the ways Covid-19 has upended the decades-old dynamic between Hollywood entertainers and the theaters that show their movies. Pandemic-related production shutdowns and a strategic shift away from the big screen have resulted in a programming crunch likely to last years, leaving theaters with no choice but to make deals with Netflix and other streaming services that allow them to play movies at home soon after their big-screen premieres.

Theaters are now compromising on terms they once considered sacrosanct, especially the length of time studios must wait before making movies available to watch at home.

“Pre-Covid there were these rules,” said one theater executive. “Post-Covid there’s a whole new ballgame. We can negotiate anything now.”

Most in the theatrical industry have viewed Netflix as a mortal threat, not a business partner. Before the pandemic, major cinema chains refused to budge on an exclusive theatrical “window” of about 90 days, designed to avoid giving viewers a reason to stay home and wait to watch a movie online. When Netflix insisted on a drastically reduced window for its original productions, something it says caters to consumer demand to watch movies anywhere, the big chains balked. As a result, the movies Netflix wanted to release in theaters—often so they would be eligible for awards such as the Oscars—played in only a handful of circuits willing to accommodate its terms.

But theater executives and Hollywood agents now say they expect more deals with the streaming giant as U.S. cinemas emerge from pandemic shutdowns that decimated business and shifted the focus of studios and audiences alike to at-home services. One theater executive projected his chain would have 25% fewer titles in 2022, 2023 and 2024 than in pre-pandemic years—a forecast that drove his decision to book “Army of the Dead.”

A pileup of delayed 2020 releases like “Black Widow” and “Top Gun: Maverick” fill the calendar for the next year, but after that, studios are expected to opt for more of their films to skip the theater and go to streaming. Now every major studio but Sony Pictures is attached to a streamer.

The nation’s No. 3 exhibitor, Cinemark Holdings Inc., along with a handful of small and midsize operators, will show “Army of the Dead” on a total of 600 screens before it premieres on Netflix. The chain’s chief rivals, AMC Entertainment Holdings Inc. and Regal Entertainment Group, are not showing the film. Netflix and Cinemark said it would be the first of many similar deals.

For Netflix, the theatrical runs use some of its biggest movies as a marketing tool that burnishes the service’s claim that its films are on par with traditional studio offerings. And if the service keeps the strategy going, it could help it secure deals with directors who have avoided working with the streamer because they want a guaranteed theatrical release.

The changing relations between Netflix and theater chains come as other Hollywood studios incorporate streaming into their release strategies.

For the rest of this year, AT&T Inc.’s Warner Bros. will release its movies on sister streaming service HBO Max on the same day they hit theaters. Disney+ carries certain movies also released in theaters for $30, on top of a monthly subscription fee. Paramount+ is putting some of the namesake studio’s movies on the service 30 to 45 days after they open in theaters. Comcast Corp.’s Universal Pictures and AMC cut a deal that shortens the theater chain’s exclusivity to 17 days.

When theaters closed due to the pandemic, studios’ streaming services became ready homes for some releases, from Warner Bros.’ “Wonder Woman 1984” to Walt Disney Co. ’s “Soul.” During the pandemic, ViacomCBS Inc.’s Paramount Pictures sold more than half a dozen movies on its 2020 and 2021 release calendar to Hulu, Netflix and Amazon.com Inc.

The plethora of at-home options could mean some moviegoers never return.

“Less supply from the studios will make it more challenging for box office to return to prior peak levels,” said an analyst report from MoffettNathanson earlier this month. The Netflix-Cinemark deal “should be able to at least partially offset the decline of product.”

Netflix theatrical releases have come in fits and starts, and usually with plenty of charged emotions. When it released its Oscar-nominated drama “The Irishman” in some theaters in the fall of 2019, no major chain would show the film, despite protracted negotiations. The head of the theaters’ lobbying group called Netflix’s decision to distribute the movie on a fraction of the nation’s screens with a 26-day theatrical window a “disgrace.”

As recently as September of 2019, Cinemark Chief Executive Mark Zoradi said his chain wouldn’t give Netflix any special treatment.

“We can’t have a different deal for Netflix than we have for all the other major studios,” he said at an investor conference.

Flash forward to a conference call Cinemark held with Wall Street analysts earlier this month, on which Mr. Zoradi touted the one-week theatrical window he had secured for Netflix’s “Army of the Dead.” The company, the CEO boasted, was “thrilled to provide our moviegoers the chance to see this movie in our theaters before it’s available to stream.”

To get “Army of the Dead” into theaters on such an unusual timeline, Netflix agreed to take a smaller cut of ticket sales than major studios typically receive, according to an exhibition executive whose company is showing the film. Before the pandemic, a studio like Disney could secure up to 65% of ticket sales on its biggest releases.

The movie is one of Netflix’s marquee releases this year—a gory zombie thriller directed by Zack Snyder, best known for his DC Comics adaptations “Justice League” and “Batman v Superman.” “Army of the Dead” follows a ragtag crew of mercenaries who brave a zombie-filled Las Vegas to pull off a casino heist.

Netflix, however, hasn’t been spending as much to market “Army of the Dead” as a major studio might on a big-budget film, and exhibition insiders don’t expect it to gross more than a few million dollars in the week before it appears on the service. As it has with past releases, Netflix has asked exhibitors not to release box-office figures.

Yet the film comes as die-hard moviegoers face a dearth of options. That’s what led Anthony Papetti to buy a $13 ticket to see “Army of the Dead” on Thursday at his local Cinemark multiplex in Hazlet, N.J.

“I need that two hours of escapism,” said the 27-year-old, who works for an auto-transportation company. “Just being able to sit down with my overpriced popcorn and feel that normalcy.”

Before the pandemic, he said, he saw about two movies a week, a habit he has maintained at home thanks to three streaming-service subscriptions, including Netflix. But he’s grown tired of watching a movie while his dog barks and the dishwasher runs—and finds he enjoys even a mediocre film more when he has the darkened theater and big screen to sweep him away.

“I’m getting a little exhausted of my attitude toward a movie being dictated by the environment,” he said.