With New Acquisitions Afoot, What Is the Netflix Endgame?
A theatre, print magazine and radio station show the streaming movie service is up to something. But what?
In April 2017, on Netflix’s quarterly earnings call reporting the company’s fortunes to shareholders, CEO Reed Hastings uttered a sentence that would come to existentially define his work for the next two years. Addressing the looming challenges to their streaming market supremacy coming from the likes of Amazon and HBO, he reoriented the issue.
“They’re doing great programming, and they’ll continue to do that,” Hastings said. “But I’m not sure it will affect us very much, because the market is just so vast. You know, think about it: when you watch a show from Netflix and you get addicted to it, you stay up late at night. We’re really — we’re competing with sleep, on the margin.”
This is not the corporate mindset of a movie studio as we know it, which would normally be to fight tooth and nail to land the number-one spot at the box-office in any given week; that’s the order of the day at the majors like Universal and Paramount. This is the language of Silicon Valley, where the simple existence of any other business entity represents a threat that must be stamped out, and that includes human biological functions like sleep. For the continuously mutating tech behemoths, having anything less than everything is not enough. Netflix does not move onward — it expands outward. But this growth spurt may not be without its attendant pains.
Hastings’s faintly dystopian words echoed in the heads of industry reporters in recent months, as Netflix has aggressively diversified its portfolio of assets. What began as a humble DVD-rental-by-mail service found gold in them thar hills of streaming, and has been gobbling up everything in sight ever since. Last summer, Netflix unveiled plans for a massive production hub in Madrid to push their Spanish-language output into overdrive, and doubled the staff there just a couple weeks ago. Back in October, they announceda new office in Spain; it will be their fourth in Europe, in addition to outposts in Amsterdam and London and one more in the works for Paris. That same month, Netflix opened their first American studio in Albuquerque to the tune of $30 million, and cut the ribbon on an in-house animation outfit as well.
All of that pales in comparison to the past week, which has seen Netflix burning through money with Brewster’s Millions-esque abandon. They got in the satellite radio game by partnering with Sirius XM to brand Channel 93 as Netflix Is a Joke, a 24-hour feed of excerpts from their many stand-up specials featuring a daily talk show with comedians and celebrity guests. They placed a stake in print media with Wide, a For Your Consideration advertisement in print magazine form. The one-hundred-plus-page issue will promote Netflix’s shows and stars in time for Emmy voting with a mix of features, essays and interviews straddling the advertorial boundary lines. In the splashiest development of all, they purchased the historic Egyptian Theatre on Hollywood Boulevard. The home of the Nitrate Picture Show could one day play host to the Latter-Years Adam Sandler Film Festival.
Netflix has established partnerships with theater chains iPic and Landmark to show their titles in brick-and-mortar theaters, but the complete acquisition of the Egyptian came as a shot across the bough to the old guard. The vanguard of all things disruptive planted their flag on a center of old-school cinephilia, a symbol of Tinseltown glitz deeply entrenched in showbiz history. Though Deadline cites sources claiming that this decision does not mark the start of Netflix’s full march into the theatrical fray, some have wondered about the legality of the streaming giant laying claim to such a property in the first place.
After all, the likes of Sony and Warner Brothers have been forbidden from owning and operating proprietary theaters since 1948, when the landmark court case of United States v. Paramount Pictures, Inc. ruled against the big studios on antitrust grounds. If, say, Disney required their theaters to program all their films regardless of salability (a practice known as “block booking”) while restricting their exhibition from all other theaters, this would be harmful to capitalistic competition, the consumer and the American way. However, this decision leaves room for studios to run a single multiplex in a city with lots of other viewing options, which is precisely how Disney can highlight their proudest products at the El Capitan in Los Angeles. That’s the loophole through which Netflix has wriggled, widened by the fact that anyone with an internet connection can create plenty of competition for such a theater using only their laptop.
Peter Labuza, a PhD candidate at USC’s Cinema and Media Studies department, specializes in entertainment contract law, and he believes that U.S. v. Paramount’s days may be numbered. “[The Department of Justice] is currentlyreviewing the Paramount decree and will likely drop it as a ‘horse and buggy case,’ meaning that it’s only applicable to a outdated business model,” he tells InsideHook. If troubles with the feds are in Netflix’s future, he theorizes that it’ll be rooted in the current schism between writers and talent agents.
The Writers Guild of America and the Association of Talent Agents have entered a bitter standoff over the scourge of “packaging fees”: hefty bonuses that go directly to agents for signing multiple clients on a single project. While the complicated debate has been dissected in greater detail elsewhere, suffice it to say that Netflix has been one of the main proponents of a policy many now decry as unethical. “That’s a case that’s much closer to anti-competition,” Labuza says.
At the same time, the definition of “competition” itself has begun to break down.
As conglomerates like Netflix and Amazon take vertical integration — aka the Frankensteinian attachment of new corporate appendages that 30 Rock’s Jack Donaghy once called “the dreaded V.I.” — to new heights, and as Disney gets in the streaming game with the Disney+ service, ontological chin-strokers wondering what a studio really is have arisen.
“The question of whether Netflix counts as a studio is really difficult,” Labuza says. “Netflix just joined the [Motion Picture Association of America] as its sixth member, meaning they have more stake in regulating and appearing as part of a unified body with the studios.” The trade organization heretofore representing Disney, Universal, Paramount, Warner Bros. and Sony now regards Netflix as being of a comparable caliber. This could cause a great reckoning as the company that considers sleeping its main competitor comes to play by the same rules as everyone else.
“In the 1980s, Reagan’s [Department of Justice] and [Federal Communications Commission] deregulated a lot of the rules around antitrust, which is what created a lot of the conglomeration we now see,” Labuza explains. “There are so many major antitrust issues that we currently lack the laws to investigate, especially in the case of Amazon, Google and Apple. I think the DoJ sees Netflix as a business that has yet to do anything to actually force other streaming companies out, beyond being the most popular.”
Netflix will also be tried in the far harsher and swifter court of public opinion over the coming years, and hardcore movie lovers are maintaining a healthy sense of cynicism about the Egyptian’s new owners. There’s an element of trust involved when a beloved institution takes on new corporate overlords, and though Netflix has vowed to keep the attached American Cinematheque nonprofit in the black, they don’t have a strong track record of respect for cinema. Everything about their service — the paucity of pre-1980 titles, the immediate auto-cuing of another title as soon as the credits begin to roll — betrays a misunderstanding of why moving pictures are worth loving. The service may be hugely popular, but they won’t be able to shed their “barbarian at the gate” image without a commitment to preserving the art form’s remaining dignity. They can spend all the money they want in pursuit of the industry legitimacy they crave. But in the end, true acceptance cannot be bought, only earned.