Doing the Backstroke

If you spend any time in the halls of power in Hollywood, you soon grasp the idea that originality is not a welcome trait. They have trained themselves to build on the success of others and they let formulas rule the day.? The studios have found themselves facing a problem totally of their own making. In some ways it is somewhat amusing, but Hollywood’s missteps have impacted so many others.?

Netflix, the #1 source of internet traffic in the world, began as DVD mail-order service has slowly evolved into the first mass market streaming service. The company has successfully navigated shifts in consumer demand, especially with the addition of streaming TV and movies in 2007. Today much like Aspirin, Netflix is known far and wide. But for the business of exhibition, it causes headaches. As Blockbusters declined Netflix rose, Both Redbox and Netflix offered a much more convenient method of renting DVD’s. As Blockbuster started bleeding all over its balance sheet Netflix started turning a profit one year after beginning operation.

As Blockbuster struggled to define itself, lazily focusing on snacks and ancillary sales items, Netflix took a strong position that streaming was the next in innovations. Ironically, Blockbuster turned down an offer to buy Netflix in 2000 for a paltry $50 million, instead of building on the success of Netflix, Blockbuster got stupid, partnered with another company and proceeded to go bankrupt.? Many claim that Netflix is behind the demise of Blockbuster, the truth is that Blockbuster was the author of its own failure.

Today Netflix is so much more than a streaming video service or a video rental service. While it started out as a pirate on the high seas of entertainment, it evolved in a juggernaut, quashing linear TV, creating original programming and in the process moving deftly towards global domination. ? Because of the chaos and excitement created by the meteoric rise of Netflix, Hollywood as always slumbering through innovation woke up. It saw the world was changed and firmly set their beady unoriginal eyes replicating Netflix.?

Let’s spawn Disney+, HBOMAX, Paramount Plus, yada yada. So they put all their focus and all their money into jousting with NETFLIX. The studios went headlong into the abyss of streaming, started to ignore theaters and then when COVID hit Betty bar the barn…they cried out the future is streaming.

Hollywood has for the past five years tried cloning their own version of Netflix and are regretting that decision and are beginning to attempt to reverse themselves. The problem is that with the billions of dollars of expenditures and rebuilding of a corporate infrastructure, they cannot in any way do an about face. They have realized that they cannot ignore streaming like they did theatrical, they need to rebuild the support infrastructure for the markets they had previously dispensed with. Within the board rooms there is the renting of fabric and the wailing and lamentation. Brakes are being put on and the massive amount of cash poured into original movies for streaming is not paying off. The subscriber-based system does not throw off enough money to sustain itself.

The pandemic with the cloud of gloom pushed the studios into solely releasing onto streaming. It provided a temporary boost to a subscriber model. Pandemic aside, here is the bottomline, without a theatrical release the ecosystem is broken and will not work. A theatrical release doesn’t diminish streaming; it adds to it. Funnily enough the movies that get the most viewership of streaming services were first shown in theaters. The top three movies on Netflix were ones that other studios produced and distributed. The majority of the most-watched streaming movies last year were released in theaters first. In order to succeed you need the buzz off of a theatrical release and the exposure to provide marketing value.

Studios have begun building a Berlin Wall about their own content, to the point that in some instances they have spent hundreds of millions buying back rights. When the Comeback Kid, Bob Iger announced the Mouse’s entry into streaming, the first thing he did was pull all the rights from Netflix, denying itself a large payday. Warner soon followed suit.

Studios are now moving hard and fast to build their own advertising support networks and abandoning the subscription model. Netflix is doing the same thing.? Studios are starting to break down that wall and are starting to sell each other their content. The eyes are slowly turning back to theatrical.

As the ecosystem slowly gets put back in some semblance of order, it is imperative that exhibitors recall the years of anguish studios put them through…and ask them to take away at least part of their plan. A 45% movie rental is more than appropriate.