Movie theater operators are reeling after Netflix, long viewed as public enemy No. 1, announced that it has a deal in place to buy Warner Bros. for $82.7 million. The sale, which still needs regulatory approval, has the potential to re-shape a business that is already struggling to regain its pre-pandemic stride, leaving cinemas with fewer films to showcase on their screens.
“The world just shifted on its axis,” said Stacey Spikes, co-founder of MoviePass, a subscription ticketing service.
Some theater owners are openly rooting for the federal government to deny Netflix the chance to vacuum up Warner Bros., because they rely heavily on the 12 to 14 movies that the studio releases annually.
“Hopefully the deal gets killed so Warners can be sold to a better entity,” says Chris Randleman, chief revenue officer at Flix Brewhouse, a Texas-based luxury movie theater chain. “The ball is in the court of the talent in Hollywood. I hope they come out against this, because that could change things. All the IP in the world isn’t going to mean anything if you don’t have filmmakers and movie stars willing to work with you.”
Publicly, Netflix’s leaders have stressed that it “expects” to keep releasing films theatrically. But on a call with investors and press on Friday shortly after the sale was announced, Netflix co-CEO Ted Sarandos didn’t exactly give a ringing endorsement for the theatrical experience — even as he promised the commitments Warner Bros. made to release upcoming films in cinemas would be honored.
“I wouldn’t look at this as a change in approach for Netflix movies or for Warner movies,” he said. “I think, over time, the windows will evolve to be much more consumer friendly, to be able to meet the audience where they are quicker.”
Exhibitors and filmmakers seized upon those commitments, believing that Sarandos said the quiet part out loud.
“The most ominous words I read were that the windows will ‘evolve,’” says one A-list director. “I know exactly what it means. Netflix wants to put movies in theaters for one week to two weeks then it’s right to streaming. At that point, why put it out?”
During the pandemic, many studios shortened the amount of time that movies screen exclusively in theaters. Before COVID, most films stayed in theaters for 90 days before debuting on home entertainment. Now, some theatrical releases are available to buy or rent within a few weeks. Exhibition executives fear that if Sarandos further shortens windows, the consequences could be dire.
“It has been widely proven that shorter windows would result in lower revenue generation potential for movies,” says Eduardo Acuna, CEO of Regal Entertainment. “These lower revenues would inevitably result in theater closures, which would limit consumers’ ability to see movies in the format that filmmakers originally intended. Furthermore, it would result in job losses and economic harm to surrounding businesses to those theater closings. Ultimately, consumers would be worse off.”
Other theater operators tried to sound more optimistic. They believe that once Netflix operates a studio like Warner Bros., with a library that includes franchises such as “Batman,” “Ocean’s 11,” “The Lord of the Rings,” “Harry Potter” and “The Conjuring,” they will understand that they are leaving money on the table by not keeping movies in cinemas for longer.
“It could be a big win for us,” predicts Tim Richards, founder and CEO of Vue Entertainment, Europe’s largest privately owned cinema operator. “Once they’re releasing movies like ‘Barbie’ or ‘Minecraft’ that are making a billion dollars in theaters, they’re going understand that our business model can make them a lot of money, while also driving interest in movies when they go on streaming.”
Even before the deal was announced, exhibitors were struggling with a lack of compelling movies to screen. Studios have cut back on the number of projects they produce, and the sale of 21st Century Fox to Disney in 2019 left the business with one fewer major studio. They’re particularly concerned about the Netflix acquisition because Warner Bros. has been on a roll this year. The studio is No. 1 in terms of market share, having released hits like “Sinners,” “A Minecraft Movie,” “Superman” and “Weapons.”
“This is very consequential,” says Acuna. “Warner Bros. had seven movies open to over $40 million this year. That’s never been done before and they’ve done a fantastic job of making a lot of movies across many different genres.”
On the investor call, Sarandos noted that Netflix has released 30 movies in cinemas. “It’s not like we have this opposition to movies into theaters,” Sarandos stressed on his call with investors.
However, many of these movies, such as “A House of Dynamite” and “Jay Kelly,” show on hundreds of screens, not thousands like a typical wide release. They debut in theaters in order to qualify for Oscars. But exhibitors have benefitted from the arrangement. Netflix usually only takes 35% of ticket sales, compared with major studios who receive more between 50% to 60% on their bigger releases.
Some exhibitors hope that the debt that Netflix is assuming to buy Warner Bros. might incentivize the company to look for new revenue streams.
“My official position is, I hate this, and I want this to not happen — but I’m not in full freakout mode,” says Randleman. “Money is still money. You can only raise prices so much on your subscriptions. How do you pay for your $80 billion investment? Well, ticket sales can help you make a dent.”
