Netflix (NASDAQ: NFLX) is known for producing and creating television content. With 112 Emmy nominations, Netflix's TV lineup is unique and arguably better than the content available on traditional television networks. As Netflix expands into filmmaking, they're expected to continue the same tradition of excellence.
As Netflix expands its capacity for film production, the Hollywood machine may face tough competition. Scott Stuber, Netflix's movie chief and former Hollywood executive, said: "If you're going to build a great film studio, you have to build it with great filmmakers." Accordingly, Netflix has filled its studio with a directorial ensemble including notable names like Martin Scorsese, Steven Soderbergh, Dee Rees, Guillermo del Toro, Noah Baumbach, and Michael Bay. The entire operation will churn out around 55 original movies, most of which have budgets reaching $200 million. The films that have thus far been produced, including Alfonso Cuarón's "Roma," have received widespread acclaim.
Whether Netflix-produced films achieve critical or commercial success, they pose a considerable threat to the traditional movie industry. "Given the marginal profitability of the theatrical business, if you lose 10 percent of the audience - some people stay home - some cinemas go out of business," said John Fithian, president of the National Association of Theater Owners (NATO).
While Netflix does screen some of its films in select mainstream cinemas, it often simultaneously releases them directly online or at luxury art theaters. Netflix may adopt a new model in which it releases its movies for a limited amount of time - say one or two weeks - and then displays them solely online. This increases audience exposure, though Netflix hasn't been able to get too many cineplexes on board. The company has reached agreements with about 140 theaters in North America for the upcoming movie "Roma" and nearly 600 more overseas.
Though traditional theater operators are concerned, a new study by EY's Quantitative Economics and Statistics group shows that there is a direct relationship between consumption of streaming content and cinema-going: they don't cancel each other out. The study established that participants visiting a movie at least 9 times in the past year watched more online content than consumers who visited a movie theater only once or twice within the same time frame.
"The message here is that there's not a war between streaming and theatrical," said Phil Contrino, director of media and research at NATO. "People who love content are watching it across platforms and all platforms have place in consumers' minds."