7 July 2015

It’s Netflix’s content, not distribution, that is killing movie theatres


Last month, I was at a cinema, about to embark upon the fourth adventure in the Mad Max series. I dived into a tub of overpriced popcorn to distract myself from the arduous and by now mandatory pre-movie trailer reel which occasionally excites, usually bores, and this time only tested my patience. All that the film industry could boast of was the fourth instalment of the Jurassic Park series, the sequel to the Ted film, the second instalment of the Avengers series featuring five or six superheroes (apologies for having lost count), each of whom have already appeared in their own equally mind-numbing superhero franchises. But do not mistake me for a film cynic, I am in fact an enthusiast, and despite it being the fourth instalment of the series, I really enjoyed the new Mad Max movie. But the fact of the matter is that if even film enthusiasts are losing interest in the movie line-up expected in theatres there may be a real cause for concern.

For a while now there has been a debate on whether Netflix is killing movie theatres. I strongly suspect that it is not the changing dynamics of distribution channels but the content itself that is killing movie theatres.

Let us first take a look at some numbers to ascertain that film folks are not panicking prematurely. In an interesting study of Hollywood’s domestic market by LEK, it has been seen that, though US box office figures have been growing, much of which is attributed to increasing ticket prices. But North American ticket sales declined from 1.57 billion in 2002 to 1.34 billion in 2013. In contrast, ticket sales in Europe have largely been flat, or at best cyclical. Unsurprisingly, the two chief reasons for the trend are often stated to be the rising ticket prices and the increasing availability of online streaming alternatives like Netflix, both of which are interesting phenomena.

Ticket prices are rising due to increasing 3D film releases which, after that blockbuster called Avatar in 2009, began to be considered as the saviour of the film industry. However, after a series of less than satisfactory 3D attempts since, the excitement has faded and seems to be deterring rather than encouraging cine-goers. On the other hand, Netflix grew from 44.35 million subscribers worldwide in Q1 2014 to 62.27 million in Q1 2015, not to mention the proliferation of competitors like a recent announcement by Alibaba.com on a new Netflix-like offering. Though I still believe that these channels have harmed television more than films, there are several examples that show the power of this medium, including the success of The Interview which was released directly on the internet. Similarly, Netflix created a stir more recently when it was announced that the Crouching Tiger, Hidden Dragon sequel would simultaneously release in IMAX and online streaming, making several cinema chains nervous, given the big-budget sequel films appeared to be the last bastion of the movie theatres.

Though the economic impact of distributing big-budget films online is yet to be determined, television shows have already been launched successfully online, like the recent launch of Orange is the New Black, Season three which “broke the streamosphere” on June 12. Yet, what is becoming evident is the bifurcation of entertainment genres between theatres and online channels: online focusing on the smaller budget dramas and documentaries, while theatres on the action, adventure and science fiction genres. However, it is not the about the genre, but the originality of content within the genre that I believe is hurting films. On Netflix, each great drama series is followed by another equally smashing series, however, in films it is a big superhero film followed by the sequel to the same film. When Netflix recently announced an increase in its price from £5.99 to 6.99, it could do so only because of the excellent content it leverages. On the other hand, movie buffs like myself, will stay away from the cinema not because we were busy binge-watching House of Cards or prefer to watch Jurassic Park on the laptop, but because we have seen three Jurassic Park films already (and so would rather wait for it to arrive on Netflix).

I truly believe that instead of fearing Netflix, movie theatres should learn from its business model that is focused on superior content. So, like Netflix, should IMAX produce its own content? Why not, or at least support original content that can have greater economic and cultural impact compared to just another sequel? And content is not only about the writing, but also about investment in the next generation of technological wave so that shoddy 3D can transform into magnificent 4D, and movie theatres can metamorphose into the spectacular visual experience that they had always promised to deliver.

The future of movie theatres is well-summarised by George Lucas who said in an interview, “You’re going to end up with fewer theatres, bigger theatres with a lot of nice things”.  And even as I gorge on Netflix, let all movie theatres out there know, that I do so only because I wait for the next Avatar that will truly justify the price of its ticket.

Ranjavati Banerji is a former management consultant, and a CapX contributor.