3 Reasons Why Netflix Inc. is Passing the Popcorn

Netflix  is no longer a pushover when it comes to original shows, and now it's hoping to do the same thing with full-length features. 

When Crouching Tiger, Hidden Dragon: The Green Legend hits theater audiences next summer it will also simultaneously be available on Netflix's streaming platform. The sequel to Ang Lee's critically acclaimed Crouching Tiger, Hidden Dragon will have some of the original movie's stars, but it won't have Lee in the directing chair. It also won't have traditional multiplex support.

One wouldn't expect exhibitors to rally around a movie that is available at home for no additional cost to Netflix's more than 50 million streaming accounts. The theatrical release next August is limited to IMAX and its more than 800 supersized screens worldwide. It won't be the last time that we see this happen, as Netflix and IMAX are teaming up for "several major films" that will be financially backed by Netflix.

Why is Netflix doing this? Won't it upset studio partners and multiplex operators? Will the math work (these movies aren't cheap)? Let's offer up a few possible reasons for this tie-up.

1. Netflix told you this was coming
This isn't a surprise to anyone paying attention. Netflix content chief Ted Sarandos turned heads last October in a keynote speech to the 2013 Film Independent Forum.

Why not premiere movies on Netflix, the same day that they're opening in theaters? And not little movies. There's a lot of people and a lot of ways to do that. Why not big movies?

The comment about "little movies" could have been a knock on Amazon.com , which has provided financing for low-budget indie fare in the past. Either way, it was a clear indication that this is where Netflix was heading. 

2. There's value in prolific features
Netflix has embraced the initially derisive "rerun TV" tag that some have used to portray the streaming platform as a final resting place for old shows. That might be true, but Netflix knows that there's money to be made and subscribers to retain by offering binge streaming of several seasons of a particular show. This birthed the original programming movement that has delivered the goods through House of Cards, Orange Is the New Black, and other Netflix exclusives. 

However, Netflix knows that movies are also a big deal. There's a reason why folks are willing to pay an average of $8.15 per ticket to see a flick at the theater. Despite being a much costlier production per minute of eventual content, there are times when a group of people fire up Netflix and don't want to have to worry about everybody being on the same episode of a certain show. A movie solves that dilemma, giving viewers a complete meal in roughly two hours.

3. First-run movies can open the door on pay-per-view
Netflix streaming subscribers are paying just $7.99 -- $8.99 for new users -- a month. That has always seemed like a pretty good deal, and it's why Netflix has been able to quickly surpass 50 million subs worldwide.

It works. Revenue moved 37% higher in its latest quarter, with profitability more than doubling.

What do you think will happen to the value proposition of a Netflix subscription once the Crouching Tiger, Hidden Dragon sequel hits IMAX screens next August? After all, a ticket to that sensory experience will cost more than an entire month of Netflix.

Netflix knows that it has some degree of pricing elasticity. It kicked in a springtime rate increase for new members and still managed to grow its installed base nicely. Could we someday reach a time when Netflix can charge for some of these new releases -- at least in their initial run -- in addition to the subscription? Amazon already does this, and it has a larger catalog of pay titles than those it makes available to Amazon Prime members at no additional cost. 

Netflix apparently won't charge customers extra next summer. However, that will be an option if these screenings prove successful. 

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The article 3 Reasons Why Netflix Inc. is Passing the Popcorn originally appeared on Fool.com.

Rick Munarriz owns shares of Netflix. The Motley Fool recommends Amazon.com, Imax, and Netflix. The Motley Fool owns shares of Amazon.com, Imax, and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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