posted 04-19-2018 05:32 PM                       

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Netflix, the global streaming giant that has dramatically changed the TV industry and clashed with movie theater owners, may be ready to move onto the big screen in a new and surprising way — by owning cinemas.

The Los Gatos, Calif., company has explored the idea of buying movie theaters in Los Angeles and New York that would enable it to screen a growing pipeline of feature films and documentaries, according to people familiar with the situation.

Netflix executives considered acquiring Los Angeles-based Landmark Theatres, the circuit co-owned by Mark Cuban, but recently backed off the idea, said two people who spoke on condition of anonymity because the plans are private.

One of the knowledgeable people said Netflix decided not to pursue a deal because executives believed the sale price for Landmark was too high.

Although no cinema deal has materialized, the idea of Netflix buying a theater chain would mark a new phase in the company's rapid ascent to become one of the most powerful players in the entertainment industry.

Netflix has attracted its 125 million subscribers worldwide by releasing dozens of original films and TV shows annually on its fast-growing streaming service, bypassing the traditional theatrical market, as well as the cable bundle.

Netflix has promised to spend as much as $8 billion this year on original and licensed content for its subscribers who pay a monthly fee to binge shows and films. The company said in October that it would release 80 original movies this year alone, and has done film deals with such high-profile figures as Adam Sandler, Martin Scorsese and the Duplass brothers.

The downside for Netflix is that its movies are locked out of major theater chains, and have been effectively blocked from one of the world's most prestigious film festivals.

Netflix last week said it would not go to the Cannes Film Festival this year because the festival decided to ban movies from competition that don't have theatrical distribution in France. Last year, Netflix movies including "Okja" competed at Cannes.

"We want our films to be on fair ground with every other filmmaker," Netflix Chief Content Officer Ted Sarandos told Variety. "There's a risk in us going in this way and having our films and filmmakers treated disrespectfully at the festival."

Representatives of Netflix and Landmark declined to comment for this article. A person close to Netflix said there were no plans to buy Landmark.

The company's interest in cinemas may seem like an about-face, given Netflix's long-standing view that the traditional model of releasing movies in theaters before they hit streaming services is antiquated. Sarandos has consistently advocated for the simultaneous release of movies in theaters and on Netflix, an idea that is an anathema to most theater owners.

Owning a theatrical outlet would give Netflix a boost for awards consideration and make it more attractive for filmmakers who still want to see their movies play on the big screen.

"It seems Netflix would like to get some of its movies for Oscar contention or other types of industry awards," said Eric Handler, an analyst with MKM Partners who covers the major theater chains. "They're trying to get credibility. Netflix took off when a couple of their own titles got nominated for Emmys. That lent credibility to what they're doing. If they can do that for various awards, that might raise the platform a little bit."

Despite its ambitions and spending, Netflix has yet to crack the code of the movie industry. The buzz for its movies has rarely matched that for its TV shows, such as "Stranger Things," "The Crown" and "Orange is the New Black."

Recent awards contender "Mudbound," Dee Rees' acclaimed tale of racial divisions in the American South, was nominated for four Oscars but didn't win. Some industry insiders said the movie would've received more attention from academy voters if it had received a wide theatrical release. Netflix did win a best-documentary Oscar for "Icarus," about the Russian athletic doping scandal.

Netlfix's attempts at Hollywood-style blockbusters have been ambitious, but mixed. Its $90-million Will Smith movie "Bright" was lambasted by critics, though Netflix said it was a highly popular viewing choice for its subscribers. Netflix does not release viewership data for its shows and films.

The company also struck a deal with Imax to release the 2016 sequel to "Crouching Tiger, Hidden Dragon," but few theaters would agree to screen the movie. Netflix in 2016 signed a deal to screen its movies at Florida-based chain IPic Theaters, which operates 15 luxury cinemas. Netflix's prestigious early cinematic effort "Beasts of No Nation" screened at Landmark's theaters in 2015.

"Netflix wants to establish itself as a critical exhibition source on both coasts," said a person familiar with the plans. "For awards consideration they need to be able to release pictures on screens in major markets."

Netflix's interest in the theater business comes as exhibitors are consolidating. AMC Theatres, the world's largest chain, was sold to China's Dalian Wanda Group in 2012. AMC then bought Carmike Cinemas and British exhibitor Odeon Cinemas. London's Cineworld reached a deal to acquire Regal Entertainment in December.

No one expects Netflix to purchase one of the giant domestic theater operators. Instead, it's more likely to pursue a deal with a smaller player that would give it a foothold in key industry markets.

An obvious choice would be Landmark, which hired an investment bank this month to explore options after potential buyers expressed interest in doing a deal, according to people familiar with the situation.

A deal to purchase Landmark, owned by Cuban and Todd Wagner, would give Netflix a footprint of theaters in major media markets across the country. The privately held chain has 53 theatres comprising 255 screens in 27 markets including New York, Denver, Washington and San Francisco, according to its website. The exhibitor has three Los Angeles locations.

Crucially, Landmark specializes in the types of specialty and foreign movies that often get Oscar buzz.

Buying a smaller movie theater chain such as Landmark would hardly be a financial strain for Netflix, which carries a market value of more than $130 billion.

Cuban and Wagner bought Landmark in 2003 from Los Angeles-based asset manager Oaktree Capital, which spent $40 million to take the company out of bankruptcy. Cuban and Wagner previously put Landmark on the block in 2011, but no sale occurred. Cuban and Wagner also own indie film distributor Magnolia Pictures.

An outspoken billionaire and "Shark Tank" personality, Cuban has long been bullish on Netflix. At a November business conference, he said that his largest holding is in e-commerce giant Amazon, followed by Netflix. Amazon is one of Netflix's biggest competitors in the streaming video market.

Amazon, in contrast with Netflix, has embraced the theatrical windowing model for now, partnering with established studios and distributors to release titles such as "Manchester By the Sea" and "The Big Sick" around the country before streaming them for Amazon Prime subscribers. Amazon's strategy has been welcomed in the exhibitor industry, which meets next week at the annual CinemaCon conference in Las Vegas.

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