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The Movie Deal Netflix Wants to Make — And It’s Not Day-and-Date

Ted Sarandos wants to secure rights to films hot on the heels of their theatrical bows

“Why not premiere movies on Netflix the same day they’re opening in theaters?” Ted Sarandos posited in a keynote speech at the recent Film Independent Forum.

The streaming service’s chief content officer stopped short of saying he was actually pursuing such an arrangement, but make no mistake, this was no hypothetical. Sarandos is actively seeking a deal to secure financing for at least one, if not an entire slate of films budgeted well above indie levels, according to sources.

While releasing those titles day-and-date with cinemas would be a tall order, Sarandos wants them 45 days or even 30 days after their theatrical bow.

Netflix declined comment.

That may be a tough get, considering exhibitors are not likely to relax their long-held hard line against anything that encroaches on their exclusive release window, which enables theaters to play movies for at least 90 days before they can be seen on other platforms.

Sarandos clearly understands that, and isn’t happy about theater owners’ intractability. He accused them of stifling innovation, warning that “not only are they going to kill theaters — they might kill movies,” a broadside that is drawing an equally vociferous response from exhibitors.

“It’s my opinion that if we do not keep the windows as they are, theaters won’t have a chance,” said Larry Allen, president and CEO of Allen Theaters, a 108-screen circuit based in New Mexico. Sarandos’ proposal would “put us out of business,” he added.

A week after floating the day-and-date notion, Sarandos struck a very different tone on the idea, though he still held out the possibility of getting into the theatrical game.

“I wasn’t calling for day-and-date with Netflix,” he said in an appearance at a Bloomberg event Nov. 4. “I was calling to move all the windows up to get closer to what the consumer wants.”

While insiders say it’s unlikely Netflix could surmount the significant obstacles that stand in the way of altering traditional windows, they acknowledge it’s not impossible. The streaming service may represent the best hope for reviving what’s been called premium VOD, a prospect that is starting to seem newly enticing after an overcrowded summer hurt the longevity of pictures like “World War Z” and “Man of Steel.”

Sources privy to Sarandos’ thinking say he is encouraged by how original TV programming has moved the needle for Netflix, and frustrated by the lack of demand on the service for movie titles supplied through various output deals with companies like Relativity and the Weinstein Co. He’s hoping that by accelerating the windows on certain titles he can work the same magic with movies that he has with TV hits like “House of Cards.” It’s unclear whether he intends to charge Netflix subscribers a separate fee on top of the $7.99 a month they currently pay.

In his original speech, Sarandos suggested going day-and-date on a “big” movie, though how expensive a production he’s really talking about is another murky matter. While indie films often go the route of VOD day-and-date release — and in many cases, even pre-theatrical release — “big” to the Netflix chief likely means movies that are in the $15 million-$30 million range, where the proceeds from foreign pre-sales alone can considerably mitigate risk.

Given its own reluctance for deficit financing even with its TV properties, Netflix would almost certainly have to partner with a secondary source of financing that shares the company’s appetite for risk-taking to leverage such a plan.

Collapsing release windows continue to be such a hot-button topic in Hollywood that studio executives are loath to address it on the record for fear of offending exhibitors, their longtime partners in shared box office revenue. John Fithian, the president of National Assn. of Theater Owners, refused to be interviewed for this story.

Major studios don’t have reason to engage in conversations with Netflix yet, but Netflix may need a studio on its side in order to gain leverage and credibility on the issue. If the streaming service were to go forward and produce films on its own, movie theaters likely would balk at showing them. Larger chains such as AMC Theaters and Regal Cinemas don’t show films that are released on VOD the same day as theatrical.

“I think there would have been a better chance at that prior to (Sarandos’) keynote address,” quipped Tim League, CEO and founder of Alamo Drafthouse Cinemas, an indie chain with screens in Texas and New York. “If it were a good movie we thought we’d have an audience for, we’d play it. We’ve had great success with some VOD titles.”

But some studio execs are privately cheering for Netflix even as they concede the company’s odds are slim of gaining traction on shrinking windows.

The studios feel that Netflix may be the best partner available for premium VOD, because while pay-TV distributors’ VOD platforms play second banana to their linear channels, Netflix has a proven ability to drive eyeballs to an on-demand attraction.

Some say they saw all along that Sarandos was talking a big game on day-and-date, and add he might really be aiming for getting a title after 30 or 45 days in theaters, the latter period reserved for hotel-based VOD, where top titles can go for $20 per rental.

While exhibitors don’t want the time new releases spend exclusively in theaters curtailed, a 45-day window would also inflame outlets that typically get the homevideo window to themselves, whether that’s Walmart or Apple’s iTunes.

Since the studios have never been willing to experiment, there’s no research on the effect a more compressed window would have on a film’s lifetime cume.

According to Doug Stone, president of Box Office Analyst, 96% of theatrical box office for wide release films this year has come from the first six weeks (or 42 days) of a movie’s wide release, up from 93.9% in 2006. The average window is still 120 days, and many agree with Sarandos that there’s no good reason to keep films away from consumers’ homes for so long.

“Whether (the 90-day window is) worth fighting for is still a question in my mind,” says Stone. “Everybody predicted the doom of theatergoing when videotapes were out and permeating the market. What happened is box office kept increasing, and there was more funding for the production of films.”

In the end, Netflix may just make a theatrical deal by going the traditional route, said Stone, debuting new movies in theaters like everybody else. “This is a business,” he added. “It’s not a philosophical argument.”

(Andrew Stewart contributed to this report.)

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