Market Insight

Second Netflix title blocked by major US cinema chains

March 10, 2015  | Subscribers Only

Want to learn more?
Have an expert contact you.

The four leading US theatrical circuits Regal Entertainment, AMC, Cinemark and Carmike,  have moved to boycott the release of Netflix title and Oscar hopeful Beasts of No Nation because its release will debut side by side with the online streaming platform later in 2015.

The title is the second Netflix title to be boycotted by the major US theatre chains in response to an attempted shake up of the traditional windows releasing system. Netflix recently acquired the film for $12m, after winning a bidding war for the rights. Produced by Idris Elba, the film tells the story of a child solider removed from his family in Nigeria.  In order to meet the criteria for Oscar consideration in 2016, the film will need to be released theatrically in 2015 but could qualify with as many as 200 to 250 independent theatres in North America likely to still screen it.

The move comes as Netflix continues to build up its first-run movie portfolio following the sequel to Crouching Tiger: Hidden Dragon also scheduled for 2015 as well as the first from a slate from actor Adam Sandler, titled The Ridiculous 6. 

Our analysis

Although there has been some give and take in flexibility of the windows system for smaller independent titles, this is perhaps the first move to release a feature film with potential Oscar winning credentials simultaneously in cinemas and online. The title serves to further define a new premiere viewing window for first-run titles in the home environment that Netflix is looking to create.

For the content owner, the strategy is to maximise the audience for the particular title and through the Netflix platform, the title will have a potentially larger distribution than would be achieved through the traditional windows system. At the end of 2014 Netflix paying subscribers’ base was just under 40m members in the US and over 19m paying member internationally. For Netflix the premier release status of the film will be the major draw for its existing and potential audiences at home and across its international footprint. The move could also be linked to the wider publicity generated by an alternative release model, but one that will not be applicable long term for all titles.

The boycott of the major US cinema chains is perhaps the largest thorn in the Netflix strategy and their continued resistance will be crucial in the ongoing struggle to win over audiences of independent titles where there is to be a mixed release strategy.

However, the strategy is not to pit Netflix against the theatrical window but to offer a complementary platform based on viewing preferences. While this strategy may work for certain films and in certain situations, the strategy is risky for high profile content owners as there is a major potential loss at the box office level. The strategy also differs slightly from Netflix’s other scheduled feature film (sequel to Crouching Tiger: Hidden Dragon) for 2015, which is aimed exclusively at the premium cinema platform (Imax) as well as online streaming.

The move comes as the content portfolio of the US Studios has become increasingly concentrated on major franchises in the action and super hero blockbuster genre, with many attributing this lack of diversity and over reliance on franchises for the ongoing negative trends at the US box office (down by almost 5% in 2014). The advent of Netflix into the first-run film business is therefore exploiting a divide that already exists between tentpole titles and independent films, plus a noticeable void of mid-budget family films in between.

The arrival of Netflix into the first-run feature film market only serves to highlight this growing disparity, therefore potentially escalating the trend of a burgeoning two-tier market, where theatrical is pitted as a premium experience for blockbuster films and independent titles receive a mixed release. That said, there is also a definitive market for independent and art house cinemas, and it has yet to be seen how this side of the business will be impacted by a long term shift in this direction as it is indeed the independent cinemas that are more likely to screen such titles, even in the absence of the typical 90 day theatrical window in North America. Art-house cinemas are more likely to be aware of their target audience, know how to reach them and therefore generally benefit from different levels of customer loyalty and repeat business than their multiplex counterparts.

In building up its portfolio, Netflix is looking to provide unique content for its growing subscriber base, but its subscription-based model also raises questions about the long term value (whether real or perceived) of a first-run feature film industry which has long been based on transactional value for each unique title through theatrical admissions, physical disc, VoD or EST. That said, the theatrical window has also begun to experiment with a subscription based model in a bid to increase both overall revenues and improve audience retention. For example, US circuit AMC (owned by China’s Wanda Group) has begun to trial a subscription model in two locations.

The spectre of a subscription model in the theatrical sector comes as US exhibitors have also begun to explore promotional pricing strategies around certain films, including the recent move for an unlimited ticket for certain titles. However, the notion of a subscription model is arguably based on quantity over quality, and is at odds with the trend towards premium cinema in general or generating more per patron from fewer admissions. Although such trials in the theatrical setting are in their very infancy, the move raises some interesting questions about the nature of such models.

The development comes as digital cinema has opened up the opportunity for all areas of the business to be remodelled and reinvigorated but the latest development highlights that this evolution will need to be handled sensitively so as to allay uncertainty over theatrical’s role in the wider evolution of the film industry. On the flipside the theatrical window is also emerging as a premier viewing window for non-film content such as prime TV shows, following the success of the release of episodes of HBO’s Game of Thrones on Imax screens earlier in 2015, and further underlining the wider changes gained through digital cinema.


Share facebook Twitter Google Plus Linked In Add This Contact Us