Netflix Chief, Theater Owners Debate the Fate of Cinema

Ted Sarandos suggests theater owners are getting in the way of film industry innovation

Chief Content Officer of Netflix Ted Sarandos speaks onstage at Tony Bennett and Susan Benedetto's 'Exploring the Arts Gala' to support arts education in public high schools at Cipriani, Wall Street on Oct. 7, 2013, in New York City.
By + More

When Netflix chief content officer Ted Sarandos wasn't bragging about the well publicized rise of his online streaming website, he had a lot to criticize about the movie industry in a speech he made Saturday at the 2013 Film Independent Forum.

"Movies are becoming these cold spectacles that have to be sold around the world to recoup these huge marketing and production budgets," he said, while television, which makes up 70 percent of the content streamed on his site, has become the destination of quality programming. His criticism focused particularly on the typical distribution strategies for a major films, including a process called windowing in which studios must wait a set period (usually 90-120 days) after a film comes out in theaters before releasing it on DVD.

"My fear is theater owners rallied together to keep the window for movies really long," he said, arguing that the practice denies consumers the access they crave and suggesting that it could be driving Internet piracy.

Theater owners aren't just sitting back and letting Sarandos diss them. Not long after the speech, National Association of Theatre Owners president and CEO John Fithian told Deadline, "subscription movie services and cheap rentals killed the DVD business, and now Sarandos wants to kill the cinema as well." He added that only Netflix would benefit if studios shortened their time frame for when their movies were streamed online.

[READ: Amazon's Profits, In Perspective]

"There's a little bit of truth on both sides," says Doug Stone, a former AMC exec who now is the president of Box Office Analyst, a film industry newsletter, information and consulting service. (Stone also owns a small theater in Kansas City but says Box Office Analyst is his primary business).

"The theater owners are not going to accept this willingly. It would degrade the bottom line of theaters and it would enhance the bottom line of Netflix," he says.

However Netflix and other streaming avenues have also provided an avenue for smaller, independent films and documentaries to find an audience wider than the limited screens on which they usually play.

"It's fine with me if Netflix wants to run a small, independent film that's not going to play [much in theaters]," Stone says.

A producer of one such documentary, 2012's "The Queen of Versailles," was in attendance at Saturday's speech and questioned Sarandos about whether Netflix would change this model so indie filmmakers could make more money off of films that do well on Netflix. (Netflix currently pays a one-time licensing fee to stream films.) Sarandos said no, but brought up that Netflix was considering producing original documentaries and even feature films to follow up the success it has had with original television shows like "House of Cards" and "Orange Is the New Black."

Sarandos also mocked the film industry's summer: ""Think about this last summer, more movies with a production budget of over $75 million were released than ever before in the history of movies" he said. "The result of that was a 6 percent lift in attendance. So the studios have never done less with more."

In his response, Fithian said that number was actually 9 percent. For all its flops, the summer box office also had a lot of big hits, and it broke the record for domestic earnings in early September.

[READ: Online Piracy Grows, Reflecting Consumer Trends]

The industry's DVD sales have taken a dive, a trend in part Netlix and other streaming services are blamed for. However, while more movies are being consumed online than on DVDs, industry reports suggest that in 2012 DVDs brought in almost ten times as much revenue.

Of course, that doesn't mean the industry isn't exploring ways to change. AMC has led the charge to make theater-going more of a luxury and special experience, with full bars, comfy chairs, the top theater technology and gourmet food.

More and more independent films are being made available "day-and-date" – the industry term for releasing a film in theaters and on video onDemand the same day. When it comes to major pictures, studios have also began experimenting with "mega tickets" – $50-plus packages that include a ticket to a film's debut in theaters, a digital copy of the film when its out on home release, and some extra souvenirs. Sony and Disney have also allowed some of there bigger films to be available for online streaming a little early in South Korea, a country where the prevalence of online piracy is especially high.