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Five Ways Netflix and Weinstein Co. Push into the Future with ‘Crouching Tiger 2’

Five Ways Netflix and Weinstein Co. Push into the Future with 'Crouching Tiger 2'

This time of year, when The Weinstein Company makes news, it’s usually about their slate of award contenders and take-no-prisoners Oscar campaigns. But this week has brought a rash of news. For one thing, following a weak summer at the box office, they announced that Dylan Sellers, TWC’s president of acquisitions and production, will leave shortly when his contract expires. That’s usually a sign that the company is scapegoating a senior exec for poor company performance. 

But that’s not the big story. Weinstein is making swift changes that reveal a company in turmoil and transition as they move to the forefront of a rapidly evolving system for delivering films to the public. They are partnering with Netflix to release the highly touted upcoming sequel “Crouching Tiger Hidden Dragon: The Green Legend” day and date with IMAX screens in August 2015. 

Booking IMAX theaters was clearly a back-door route to playing theaters that normally shun films available on home-viewing platforms. But so far this plan has backfired: the four major American theater chains — Regal, AMC, Cinemark and Carmike, all boasting prime IMAX screens — have stated that they will not play the film, consistent with prior policy (AMC sometimes rents screens to VOD companies to get around the exhibition ban). The swiftly negative exhibitor reaction shows how big they consider this potential threat.

The “Crouching Tiger” deal is an advancement on TWC’s longer-term Netflix relationship. Their prior deal makes the subscription web service the initial post-theatrical venue for their films, instead of other streaming services and before pay cable companies. But that deal has no impact on traditional release patterns. It allows Netflix’s 50 million-plus monthly subscribers to see all TWC films on their initial post-theatrical availability, and at no extra charge (unlike VOD and other streaming services).

Weinstein’s sister company RADiUS usually releases its slate via VOD sites concurrent to their (usually limited) theatrical release. But this is the first time TWC, up to now a 100-percent theatrical distributor, has announced in advance that one of its films is slated for alternative presentation. (This summer TWC gave “Snowpiercer,” which was originally slated to release wide with $25 million in P & A, to RADiUS to release on VOD after just two weeks in theaters.)

What this means is not at all certain. It could be 1) a game-changing announcement, 2) much ado about not a lot, 3) a test for an alternative formula, 4) a way for TWC to reduce its financial exposure on a less-than surefire release, or 5) all of the above.  Let’s argue the different cases. 

1. It’s a game changer.

Netflix is cash rich and continuing to change the paradigm for original content viewing. Netflix CEO Reed Hastings and his content chief Ted Sarandos have aggressively and successfully morphed Netflix into a robust rival to cable via their own first-run original exclusive content (“House of Cards, “Orange is the New Black”). But so far, while they’ve acquired docs (“The Square,” “Mission: Blue”), they haven’t broken into first-run feature film production or tried to change long-established rules of screening, reviewing, marketing and release. Audiences and media still perceive differently movies that have not shown in theaters. 

While the studios are mired in their lucrative cable deals and consider Netflix a competitor, the indies have more latitude to experiment. Harvey Weinstein has always been willing to take chances, especially when the indie specialty market is not churning out the cash it once did. With his ties to Netflix, it makes sense that his company would be the first to pursue this kind of experiment. The right film leading to a surge in Netflix subscribers could open the doors to more filmmakers not only wanting to sell their completed films to Netflix, but go to them to finance them in the first place.

For more than a century, movies as we’ve known them have never, on their first exposure, been available to consumers only through one company. Multiple exhibition companies, in fierce competition, have screened current films in different locations with no one going to see films vis one theater chain. Netflix could become a dominant source for viewing from the start of release for prime movies –without theaters. Under this game plan, getting a major company like TWC to make Netflix the primary destination for viewing a recognizable title is an important first step.

No wonder the theaters are upset.

2. It’s a minor stand-alone case.

Ang Lee’s “Crouching Tiger Hidden Dragon,” which was a Best Picture nominee and won four Oscars, was a success for Sony Pictures Classics domestically and global Sony ($213 million worldwide). It was as widely seen in theaters as any subtitled film (previous hits like “La Dolce Vita” and “Z” were often shown dubbed).

15 years later, the sequel “The Green Legend” boasts few of the original participants involved (including Lee) and on paper could perform more like a standard action film that might not break out to a broader upscale audience as the barrier-breaking original did. (Its director is legendary Hong Kong action maestro Yuen Woo Ping.) But such a brand title brings pre-sale value for ancillary markets–international, DVD/Blu-Ray, and pay TV. Which makes it appealing to Netflix.

Last year TWC released Wong Kar-wai’s stand-out martial arts film “The Grandmaster” (via Megan Ellison’s Annapurna Films). After some reediting, it was released in a fairly wide fashion with a domestic gross of $6.5 million, about half of which went to TWC. But given the expense of the release — beyond the company’s initial outlay in acquiring the film — it’s unlikely they made their money back. And with their Netflix deal (the details of which have never been disclosed), they receive limited other ancillary income.

Sony Pictures Classics took the theatrical route for “The Raid 2” earlier this year (an Indonesian-made sequel to the recent original) and managed only $2.6 million while playing in nearly 1,000 theaters despite the success of the original. That helps to explain their thinking on “Snowpiercer”–which turned out to be more commercial than they had feared– and “Crouching Tiger 2.” 

TWC is looking for a better way. 

3. It’s a symptom of specialized industry woes.

This year has seen several breakout specialized successes — all outside the awards season — led by “The Grand Budapest Hotel,” “Chef” and “Boyhood,” with domestic grosses of between $60 and (ultimately) over $30 million. But it has also seen a large number of underperforming money-losing releases from such usually reliable companies as Fox Searchlight (“Dom Hemingway,” “I Origins”), Focus (“Bad Words,” “Wish I Was Here,”), and Sony Pictures Classics (“The Third Person,” “Land Ho”) among others. TWC had its share of disappointments, and even in the last few weeks fall entries “Tracks” and “The Disappearance of Eleanor Rigby” have done little business. Even their crossover modest hit “Begin Again” might not be an easy profit-maker — its acquisition cost was around $7 million, about what they will retain in film rental, with a likely $10 million+ in marketing for its overall marketing including a wider rollout.

One leading veteran distribution exec says that it no longer makes sense to release most movies theatrically, including all but a handful of truly indie lower-cost films, if they can’t gross at least $5 million. Only seven movies this year in arthouse/limited release world have reached that level so far (down from 11 at this point last year). The dropoff in theatrical interest in specialized films has been dramatic, particularly for films not targeted at the more reliable older audience.

The prospects for “Crouching Tiger Hidden Dragon 2” as either a specialized and/or wide release film (with varying marketing costs as well as potential rewards) were uncertain. It’s no surprise that a smart distributor with an established outreach to Netflix would cut down his risk by positioning this film outside of the usual framework. Though the details of this deal were unannounced, it seems safe to assume TWC will come away with a profit, not a certainty with a theatrical release.

4. The Weinsteins are backing away from the theatrical model.

The Weinsteins have always pursued other businesses, from TV (“Project Runway”) and theater (the upcoming Broadway show “Finding Neverland” is their latest show) to publishing and fashion. But Harvey Weinstein remains a bigger than life figure in the film community, not only for his omnipresence during awards season, but his attention grabbing moves throughout the year. He and his brother Bob have broken established patterns for nearly 30 years, often with huge success. So for them to be pushing the envelope with Netflix is not out of character.

But this is the second feint in this direction in recent months from TWC. Perhaps the real reason for the “Snowpiercer” VOD release was to mitigate the risk that a wide release would have entailed, which would have meant a gamble that the film would gross $40 million or higher. Perhaps Weinstein lost a chance at great rewards, but this way he was guaranteed some profit and tested out a new model that could be put to use in the future. (After they passed on “Snowpiercer,” Pacific Theaters, which owns L.A.’s Arclight, changed its blanket policy about never playing films soon to be on VOD; now they will make case-by-case decisions.)

With Oscars still a priority for TWC,  it is hardly likely that the company is going to make any wholesale changes any time soon. But in the future, TWC is more likely than the studios to take a must-see film — maybe a hot Quentin Tarantino title — and sell the domestic rights to Netflix for exclusive viewing so they make a profit without marketing expense.

No wonder the exhibitors are upset.

5. What should exhibitors do?

It’s easy to see why the four top players have dug in their heels on this, even with the theatrical plans focusing on IMAX screens and a less-than-competitive release date. Netflix is a giant threat, and unlike most cable venues, they don’t have strong ties to the studios and have no vested interest in the current paradigm. They are big, and they can’t be easily pressured, more so after they took the audacious and successful step of showing that their main interest isn’t second-run release of films on DVD or streaming. So it is Netflix, not TWC, that the exhibitors are casting as their main villain. Netflix has made it clear that original content is their future, content that they’d be thrilled to present, if necessary, away from theaters. 

Despite any ill-feelings towards TWC (Harvey Weinstein has always had a cantankerous relationship exhibitors anyway), the distributor still releases plenty of films that Regal, AMC, Cinemark and Carmike want to show, given that the year’s revenues are down over 5% and there are plenty of competing theaters.

TWC’s relationship with IMAX — a valued partner with all these companies, playing a role different from either exhibitor or distributor — is more complicated. IMAX was surprised by the theaters’ strong reaction. (The IMAX experience is so different that it is impossible to replicate via streaming, so they aren’t really the same thing.) But I expect the exhibitors’ decisions will stand, not because the chains are concerned about losing “Crouching Tiger Hidden Dragon 2” but because they need to send a clear message that this model does not pass the litmus test for what they will accept as an alternative presentation.

The theater stance could also be a sign that they don’t appreciate announcements like this being made without some groundwork made quietly beforehand — we don’t know what communication was done between the parties. But TWC would be more likely to announce something and see what happens than the more conservative studio distributors. And that in part might also be feeding the rejection.

What exhibitors fear most isn’t “Crouching Tiger 2” going to Netflix. The fear is that somewhere down the line a producer is going to sell the sequel to a gigantic hit — something like “Twilight of the Potter Games 6” — to Netflix for $250 million dollars, and then pocket a nice profit without spending anything in marketing, while still making money in foreign markets. It’s not happening soon. But the strong and very pointed reaction by the circuits (an AMC spokesman ridiculed IMAX for having only science museums and aquariums to show the movie in, an unusually caustic on the record comment) shows that they are going to fight hard against any major Netflix inroads.

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