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Netflix, MoviePass and how technology is radically redefining the movie business

With Netflix encroaching on the blockbuster movie turf, how can movie theaters fight back?
With Netflix encroaching on the blockbuster movie turf, how can movie theaters fight back?
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The reveal of The Cloverfield Paradox on Netflix menus during the Super Bowl
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The reveal of The Cloverfield Paradox on Netflix menus during the Super Bowl
Bright, costing nearly $100 million dollars was the biggest Netflix movie yet
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Bright, costing nearly $100 million dollars was the biggest Netflix movie yet
MoviePass' app that lets subscribers know of nearby participating cinemas
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MoviePass' app that lets subscribers know of nearby participating cinemas
In a large step into the movie business world, MoviePass made its presence known at this year's Sundance Film Festival, ultimately purchasing distribution rights to a new film
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In a large step into the movie business world, MoviePass made its presence known at this year's Sundance Film Festival, ultimately purchasing distribution rights to a new film
Can a subscription model bring audiences back into the cinema?
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Can a subscription model bring audiences back into the cinema?
With Netflix encroaching on the blockbuster movie turf, how can movie theaters fight back?
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With Netflix encroaching on the blockbuster movie turf, how can movie theaters fight back?

As Netflix steps into blockbuster movie territory and MoviePass brings new disruptions to an old theatrical model, we're witnessing a transformative moment for the movie business. What can movie theaters do to rekindle their dwindling audiences? Is the answer in the very same technology that is threatening its existence?

For several years, Paramount and super-producer J.J. Abrams teased a big-budget sci-fi thriller titled God Particle. Initially set for release in early 2017, the film was pushed back amidst rumors it was actually the third entry in the expanding series of unpredictable Cloverfield films.

Anticipation built over the course of 2017 until everything went quiet late in the year. Rumors began to swirl in January that Netflix was in talks with Paramount to buy the film. Then, in a remarkably paced turn of events, Netflix dropped a trailer for newly retitled Cloverfield Paradox during the Super Bowl announcing the entire film would be available to stream immediately following the game.

This was perhaps the most unconventional and unexpected blockbuster film release ever. Social media lit up, people were excited. A big budget sci-fi film, teased for years and part of a major franchise, was suddenly available to stream on Netflix with virtually no warning. Never mind that the film itself was rubbish, and unsurprisingly sold off by Paramount, Netflix had got value for money out of its investment.

The reveal of The Cloverfield Paradox on Netflix menus during the Super Bowl
The reveal of The Cloverfield Paradox on Netflix menus during the Super Bowl

The dawn of the Netflix blockbuster

In recent years Netflix has fundamentally disrupted the TV business, releasing entire seasons in one go and allowing the binge-watch model to alter the way we consume media. But the movie business had still been holding strong. After all, if you wanted to see a new film then you had to leave the house and go to a cinema.

Netflix is now setting its targets on the movie business, with plans to release over 80 original film titles in 2018 – that's almost two per week, from small independents to giant blockbusters. Last year, just a fortnight before Christmas, its biggest film to date appeared on subscribers' home menu screens. Bright, an original Netflix production, cost a reported US$90 million dollars, starred a bonafide movie star, and was promoted in advertising and on billboards like a big Hollywood blockbuster.

The film itself was not good, but maybe it didn't have to be. Unlike a traditional theatrical release, people inevitably have less investment in a Netflix film. You haven't devoted an evening to leaving the house. You haven't paid $10 to $15 for an individual ticket, and then lodged an extra bank loan to afford popcorn and drinks. Whereas bad word of mouth can destroy a film after its opening weekend, with a Netflix release it doesn't matter. All that counts is anticipation. The value is the build-up and then, once it is released, the excitement machine just moves onto the next thing. The Netflix model is to lure new subscribers and all the Bright billboards and PR would certainly have done the job.

Viewing figures for Netflix are notoriously murky, but the platform itself announced that Bright had more first week views than any of its other releases and immediately commissioned a sequel. Some estimates suggest that around 11 million people streamed the film in its first few days of release. That equates to a strong, but not spectacular, opening weekend for a theatrical film.

Bright, costing nearly $100 million dollars was the biggest Netflix movie yet
Bright, costing nearly $100 million dollars was the biggest Netflix movie yet

Should cinemas be worried?

Maybe…

Industry analysts freaked out last year when the US summer box office numbers were the lowest in over a decade. While some, quite fairly, pointed out that this number was most likely related to the fact that many of the blockbuster films released were total flops, the inadvertent implication raised is the key behind any potential future theatrical downfall.

Big studios are making bigger budgeted films, and they are making less of them. Long term box office grosses may be stable at the moment but all the money earned is being divided amongst fewer and fewer films. To borrow a trite, but true, aphorism – the studios are increasingly putting all their eggs into fewer baskets.

There is an implication that movie theaters are the sole reserve of big spectacle. The new Star Wars or Marvel movie is what will get people out of the house and into a theater, so this is where big Hollywood studios are putting their money. Of course, when audiences tire of those films or simply get a run of titles that are just plain bad, Netflix is there waiting with a fresh bit of content at the click of a button.

If movie theaters, and Hollywood studios, are counting on cornering the blockbuster market, then Netflix's latest move into that territory would certainly be a concern. At $90 million, Bright was a legitimate giant production and it won't be the last. As well as buying mid-budgeted titles like Cloverfield Paradox, or the upcoming Annihilation, Netflix is seriously investing in gigantic movies from the ground up.

Martin Scorsese's next film, a gangster movie called The Irishman starring Robert De Niro, Al Pacino and Joe Pesci, is being bankrolled by the streaming service to the tune of over $100 million (and rumors suggest it is climbing higher by the day). There is no announcement on whether the film will get a release in cinemas or go straight to the stream.

Can a subscription model bring audiences back into the cinema?
Can a subscription model bring audiences back into the cinema?

"We're not anti-theater"

Last year, Netflix CEO Reed Hastings suggested his company is not "anti-theater", and that people will always seek out the communal cinema experience. But Netflix is disrupting a traditional model in ways that are a little more dramatic than anything ever seen before.

It's fair to say that the movie business has been in a state of constant disruption for almost a century. In the 1950s television was going to kill cinema. In the 1980s it was video. In the 1990s it was DVD and premium cable television. So it isn't unreasonable to just see Netflix and streaming as just the latest to join this list.

Except it isn't the same. When VHS threatened to kill cinema you didn't suddenly find giant movies only released straight to video and only available at one rental store. When Netflix spends $100 million on a giant blockbuster that will never appear in a movie theater, you know something serious is going on.

Despite young millennial audiences embracing streaming subscriptions at an unprecedented rate, they are still going to see movies in theaters… for now. One suggestion behind the reason younger audiences are still going to movie theaters is that streaming services lack the blockbuster content that social media demands users have an immediate take on. Netflix's encroachment into big budget movie content seems brilliantly calibrated to corner that market.

MoviePass' app that lets subscribers know of nearby participating cinemas
MoviePass' app that lets subscribers know of nearby participating cinemas

Fight a disruption with a disruption

So how can movie theaters keep people coming to see movies on the big screen?

Ironically, the answer could be in yet another technological disruption that movie theaters are firmly rallying against.

MoviePass was originally founded in 2011, but it wasn't until 2016 when the co-founder of Netflix, Mitch Lowe, became the company's CEO that the service started to appeal to a wide market. For about a year Lowe experimented with different pricing structures and tiered models, but everything changed in August 2017. Data analytics firm Helios and Matheson bought a major stake in the company and, not necessarily coincidentally, a new low flat-rate subscription fee was announced. For $9.95, subscribers could see one film, every day of the month.

The plan was that of a classic Silicon Valley startup. Money would inevitably be lost initially as the company built up its bank of subscribers, but the valuable data harvested from its customers could ultimately be sold back to advertisers eagerly seeking to target key consumers.

The world's largest theater chain, AMC, was not happy and immediately threatened legal action, but quickly backed off. Charging MoviePass a full ticket price for all its subscribers, AMC chose to sit back and bide its time, recognizing that a company can only run on a major loss for so long before it ultimately goes under.

But MoviePass, despite maintaining constant major financial losses, exploded in popularity. By December it had crossed one million subscribers and then remarkably, it added another 500,000 in just the first few weeks of January 2018. As of February 9, the company crossed the two million subscriber mark.

As of early 2018, MoviePass began to flex its muscles and took its first big swing at exhibitor giant AMC. A small handful of AMC theaters were suddenly removed from its subsidized platform, with insiders believing it a ploy to get a cheaper ticket price deal from the exhibitor. Clearly MoviePass felt like it was in a strong enough bargaining position, with enough subscribers, to be able to take a gamble like this.

In late January MoviePass also teamed up with a North American distribution company to buy the theatrical rights to a new film. The plan here, one imagines, is that the company can use its app and advertising outlets to target the film to its users and drive attendance to the film. It's another fascinating new ploy.

In a large step into the movie business world, MoviePass made its presence known at this year's Sundance Film Festival, ultimately purchasing distribution rights to a new film
In a large step into the movie business world, MoviePass made its presence known at this year's Sundance Film Festival, ultimately purchasing distribution rights to a new film

While MoviePass is an obvious threat to the classic exhibition model that big giants like AMC have relied on, it could also rejuvenate movie theater audiences. CEO of Helios & Matheson, Ted Farnsworth, claims that MoviePass brings people back to movie theaters.

"As we've grown our subscriber base, we've seen a dramatic increase in movie theater attendance among our subscribers, which proves to us that MoviePass is working to revitalize a declining industry," Farnsworth says.

It's an interesting idea, and one that could quite possibly appeal to a new generation of movie theater audiences. Just as Netflix banks on lower expectations for its films because people aren't paying for them individually, MoviePass plays on the same psychological gambit. The hypothesis is that when you're not individually paying for each movie, you're more likely to experiment with titles that stray off the beaten path. You may have some spare time and pop into a cinema more than just once a month for the big $100 million blockbuster. Maybe that cheap, weird indie, or the mid-budgeted drama will lure you into a cinema. MoviePass also claims that its customers are more likely to spend money on candy bar items as they haven't already shelled out directly for a ticket at the box office.

As it stands, MoviePass is not a sustainable model. How long it can keep hemorrhaging money is yet to be seen but even if it goes under in six or 12 months, the Pandora's box has been opened. Millions of customers have experienced a subscription model for movie theaters and they won't be happy moving back to the old system. Just like Spotify reframed how music is consumed, MoviePass is altering the way audiences go to see movies. The longer theaters attempt to keep a grasp on their old model, the more time Netflix will have to step in and completely consume it.

Technology may be killing the classic theatrical model, but it can also save it. In this situation resistance is not futile… it is fatal.

4 comments
Username
It's hard to reconcile the idea of the declining movie theaters with the record box office revenue reported almost weekly on boxofficemojo. Also a blockbuster use to be defined as an extremely successful movie. Cloverfield Paradox is anything but.
Joshua Tulberg
Netflix ditched their conventional star-rating of "user reviews" long ago, and just recently ditched their "star rating" self-reviews for a stupidly simple "thumbs-up/thumbs-down". Hiding user reviews, and simplifying self-reviews allows them to push crap content and get you to watch it. Even this article mentions how much crap they push. That's the real problem... Netflix is killing QUALITY content creation in favor of QUANTITY.
AttaBoy
I love my moviepass. I’ll stick with the monthly service agreement (instead of the annual one which is a little cheaper) just in case they go belly up ;-)
ljaques
I'm very glad that something is finally taking down the gilded, amoral palace that Hollywood built. With actors taking home $25 million to do a single stinkin' movie, it's just not sustainable. This is a perfect time for a reset. Yes, I adore action movies and like many of the stars, but the way these stars are yapping about current events sickens me. Stick to Hollywood, Hollywooders, and clean up your own house. // I turned off the TV set 14 years ago and haven't missed it. Netflix, Amazon, and Redbox fill in, and I'm not forced to see a single advertisement. I don't waste gas going to town to get in line to hear ringtones or screaming kids ruin quiet scenes in a movie. And for the price of a single movie ticket, I get a month's worth of Netflix. Yes, for a few things, like StarWars, Hobbits, and Marvel heroes, I'll still go watch a few in a theater, but home is much cheaper, much quieter, much less hassle, much less environmentally harmful, and my stereo is surround. What's not to like? There's only one theater within 30 miles of me, so a MoviePass wouldn't be a good fit for me, either.