Theater owners fear that Warner Bros.’ purchase by Netflix won’t kill their business
Movie theater operators are reeling after Netflix, long considered public enemy No. 1, announced it had reached a deal to buy Warner Bros. for $82.7 million. The sale, which still needs regulatory approval, has the potential to reshape a business that is already struggling to return to its pre-pandemic pace, leaving theaters with fewer films to show on their screens.
“The world just flipped on its axis,” said Stacey Spikes, co-founder of MoviePass, a subscription ticketing service.
Some movie theater owners openly argue that the federal government is denying Netflix the opportunity to shed Warner Bros. because they rely heavily on the 12 to 14 films the studio releases each year.
“I hope the deal gets canceled so Warners can be sold to a better entity,” says Chris Randleman, chief revenue officer at Flix Brewhouse, a Texas-based luxury theater chain. “The ball is in the court of Hollywood talent. I hope they object, because it could make a difference. All the intellectual property in the world will be meaningless if you don’t have filmmakers and movie stars willing to work with you.”
Publicly, Netflix executives have stressed that they “expect” to continue releasing films in theaters. 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 of the theatrical experience — although he did promise that commitments made by Warner Bros. to release upcoming films in theaters would be honored.
“I wouldn’t consider this a change in approach for Netflix films or for Warner films,” he said. “I think over time, window displays will evolve to be much more user-friendly, so we can meet the public where they are quicker.”
Exhibitors and filmmakers seized on these commitments, believing that Sarandos had said the silent part out loud.
“The most worrying words I read were that windows will ‘evolve,'” says one leading director. “I know exactly what that means. Netflix wants to release the movies in theaters for one to two weeks and then stream them. At that point, why release them?”
During the pandemic, many studios have reduced the length of time they show films exclusively in theaters. Pre-COVID, most films stayed in theaters for 90 days before debuting in home entertainment. Now, select theatrical releases are available for purchase or rental within a few weeks. Salon executives fear that if Sarandos shortens the windows further, the consequences could be disastrous.
“It has been widely proven that shorter windows will result in lower revenue-generating potential for films,” says Eduardo Acuna, CEO of Regal Entertainment. “These revenue declines would inevitably lead to theater closures, which would limit consumers’ ability to see films in the format that filmmakers originally intended. Additionally, it would result in job losses and economic harm to surrounding businesses as a result of these theater closures. Ultimately, consumers would be worse off.”
Other theater operators tried to appear more optimistic. They believe that once Netflix operates a studio like Warner Bros., with a library that includes franchises like “Batman,” “Ocean’s 11,” “Lord of the Rings,” “Harry Potter” and “The Conjuring,” they will realize they are leaving money on the table by not keeping films in theaters longer.
“This could be a big win for us,” predicts Tim Richards, founder and CEO of Vue Entertainment, Europe’s largest private cinema operator. “Once they release movies like ‘Barbie’ or ‘Minecraft’ that make a billion dollars in theaters, they’ll understand that our business model can make them a lot of money, while generating interest in the movies when they’re streamed.”
Even before the deal was announced, exhibitors were grappling with a lack of compelling films to screen. Studios have been reducing the number of projects they produce, and the sale of 21st Century Fox to Disney in 2019 left the company with one fewer major studio. They are particularly concerned about the Netflix acquisition because Warner Bros. is on a roll this year. The studio is No. 1 in market share, with hits like “Sinners,” “A Minecraft Movie,” “Superman” and “Weapons.”
“It’s very substantial,” Acuna says. “Warner Bros. had seven films open to over $40 million this year. It’s never been done before and they’ve done a fantastic job making many films in many different genres.”
During the investor call, Sarandos noted that Netflix had released 30 films in theaters. “It’s not like we have this opposition to releasing films in theaters,” Sarandos emphasized during his call to investors.
However, many of these films, such as “A House of Dynamite” and “Jay Kelly,” are released on hundreds of screens, not thousands like a typical wide release. They make their film debut in order to qualify for the Oscars. But exhibitors benefited from this arrangement. Netflix typically only takes 35% of ticket sales, while major studios receive between 50% and 60% more on their biggest releases.
Some operators hope that the debt Netflix assumes to buy Warner Bros. could encourage the company to look for new sources of revenue.
“My official position is: I hate this and I don’t want this to happen – but I’m not in full panic mode,” Randleman says. “Money is money. You can only raise your season ticket prices so much. How do you pay for your $80 billion investment? Well, ticket sales can help you make a dent.”
