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As Theaters Boycott Netflix, Collapsed Windows Seen as Inevitable

Major theater chains are united in their opposition to a plan by IMAX, Netflix and the Weinstein Co. to make “Crouching Tiger, Hidden Dragon: The Green Legend” available for streaming on the same day it hits theaters in 2015 but the question remains — how much longer can theater owners withstand the battering ram of technology?

The “Crouching Tiger” standoff heated up Tuesday after the four largest exhibitors in the U.S., AMC, Regal, Cinemark and Carmike, pledged not to show the martial arts sequel next year. That represents 257 of IMAX’s 418 U.S. screens, and these theater chains were joined by Canada’s largest exhibitor Cineplex, and Europe’s second largest theater chain, Cineworld, in a boycott that has grown international in scope.

It means “Crouching Tiger” could play on a limited number of IMAX screens in the U.S., and likely for no more than two weeks, the typical IMAX playing time.

But their efforts may be for naught, analysts say. Even if they succeed in preventing the “Crouching Tiger” revival from showing in theaters while it bows on Netflix at the same time, the old release date patterns are starting to look too archaic to the current insta-generation of consumers.

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“The reality is that the future is going to be a lot different in the way that movies are consumed,” said Daniel Ernst, an analyst at Hudson Square Research. “There is zero doubt in my mind that over the next 20 years a lot of these windowing things will erode.”

Tuesday’s show of solidarity among theater owners has not been seen since 2011, when exhibitors banded together and refused to screen “Tower Heist” after Universal unveiled a plan to make the action comedy available on-demand for $60 three weeks after hitting theaters. Since then a tentative peace agreement has adhered to at least a three month window between when a film debuts and when it premieres on home entertainment platforms.

But Hollywood knows that change is coming — a lot faster than 20 years from now.

DreamWorks Animation CEO Jeffrey Katzenberg predicted earlier this year that theatrical windows would shrink to three weeks in the next 10 years, suggesting that audiences should “pay by the inch” to see a movie based on the size of the screen they watch it on.

“A movie screen will be $15,” he said, “A 75-inch TV will be $4. A smartphone will be $1.99.”

Privately, other studio executives may also be ready for the next step. There’s a sense among many Hollywood leaders that the window between a film’s theatrical debut and its release on homevideo is too long, especially for the Internet age. Plus, studios spend tens of millions of dollars marketing films to the masses only to have to turn around and shell out again to re-familiarize audiences with a particular picture when it hits home platforms.

“The moviegoing experience is evolving quickly and profoundly, and Netflix is unquestionably at the forefront of that movement,” said TWC co-chairman Harvey Weinstein in Monday’s announcement.

IMAX claims that the “Crouching Tiger” experiment’s success hinges on its burgeoning network of overseas theaters, but it will need a much warmer reception overseas than it received among North American and European exhibition giants.

If it works, the theater company, Netflix and the Weinstein Company aren’t ruling out other release date tests.

“If there’s an appetite there among exhibitors and among audiences we expect to do several more, but I’m not committed to a strategy,” said IMAX CEO Rich Gelfond. “We’re going in with our eyes open and we were fully aware of the issues people might have.”

IMAX will have over 200 screens in China by the time the “Crouching Tiger” sequel debuts on Aug. 28, 2015, so it may be able to make up for the loss of China’s Wanda, which owns AMC theaters. It also helps that Netflix does not operate in China, which means the film will not ignite as much controversy among exhibitors.

“Provided it gets through the quota on foreign films, this is an important market and we do intend to show it there,” said Gelfond. “Given the nature of the film, it should do well there.”

Not every one is convinced that releasing the “Crouching Tiger” film on Netflix and in theaters at the same time endangers ticket buying. The late August release date was selected by IMAX and its partners because it historically is one of the worst box office weekends of the year. Moreover, the film itself is modestly budgeted in the $20 million range.

“We believe there are a number of relatively small sized budget films ($15mn-$30mn) which could draw an audience via Netflix without impacting exhibition industry grosses,” wrote Eric Handler, an analyst with MKM Partners, in a note to investors. “In fact there are hundreds of films every year that bypass theatres and launch direct to DVD/VOD.”

He noted that films like “Arbitrage” and “Margin Call” have been unveiled on-demand at the same time they hit theater without disrupting the exhibition game — all films that opened in limited release, like Radius-TWC’s own VOD success this summer, “Snowpiercer.”

If theater chains want to thwart the digital threats, analysts argue, they need to improve the premium nature of their experience. Not only must they compete with each other, they would need to head off against gleaming home entertainment systems and the ubiquity and convenience of streaming services and mobile devices.

“It’s got to be different,” said Ernst. “You’ve got to win customers every single day.”

There is one issue on which theater chains and IMAX’s leadership agree:  the best way to see a movie is in theaters.

“A movie like ‘Crouching Tiger,’ which is a visual spectacle that comes off a highly successful prequel, should be seen in the way it was meant to be seen — with big screens, big images and great sound,” said Gelfond.

The only difference is that in the case of the “Crouching Tiger” sequel, people can see it on a 3-inch screen instead, and that’s what has theater chains seeing red.

CORRECTION: An earlier version of this article misattributed the investor note by Eric Handler to a different analyst.

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