Netflix's 'War Machine': Should the film business be concerned?

Netflix is ratcheting up the spending as it enters the movie business. Is that a good thing?

There was a lot of understandable excitement Monday after the announcement that Brad Pitt’s “War Machine” was heading to Netflix. This was not only an A-list star of the kind Netflix has not had before, but the kind of source material that brings awards voters and festival programmers running.

The late journalist Michael Hastings wrote the nonfiction book “The Operators,” about the polarizing real-life U.S. Army Gen. Stanley McChrystal. That book will serve as the basis for a satire by writer-director auteur David Michod, who directed the Sundance sensation “Animal Kingdom” and last year had the underrated thriller “The Rover.” Both the roman and the clef are bound to be interesting.

So you could understand proclamations of the kind we saw Monday that by backing the film, which will shoot this summer, “Netflix has scored again.” Or that the deal was a “Game Changer!”

The game is indeed changing. The question is whether, in the long term, it will be for the better.

People like to focus on the distribution side of matters when they talk about Netflix’s movie effort. And for good reason. Movies made the traditional way — with outside financiers or studios or a combination of the two — would normally go through a theatrical window, taking months to reach DVD or our TV screens (and if it’s an art-house movie, taking months sometimes even to reach other theaters). A Netflix movie like “War Machine” will of course be available right away to everyone.

That’s notable. If a major awards candidate, as this film has designs to be, can be seen by everyone everywhere on their computers, that changes the equation, certainly for the awards consultants who plan a carefully staged rollout of these things, and also for the rest of us, who won’t have to wait until the film hits the window available to us to see it (though we will need a Netflix subscription).

What effect, over time, releases like this will have on move theaters and the concept of destination-based moviegoing remains to be seen. It could be substantial.

But there’s another, perhaps even more fundamental shift that could happen as a result of how Netflix is entering the movie business. The company isn’t getting in by simply throwing its hat in the ring. It's getting in by opening up the vaults in a way that few film companies can or would these days.

Included in the Netflix coverage was a bit about who was picking up the tab for “War Machine” — or, more specifically, who wasn’t. As my colleague Oliver Gettell wrote — “RatPac and New Regency were previously on board but are no longer involved.” That’s a key point. In fact, it’s the key point. The mainstream Hollywood entities — and it doesn’t get more mainstream than Brett Ratner and Arnon Milchan -- weren’t paying the kind of money Netflix was willing to pay. So Netflix it is.

Netflix has been doing this with a number of their high-profile films. Reports on this acquisition had them paying a hefty $30 million to produce and distribute “War Machine.” The company also backed up the Brinks truck -- a reputed $12 million -- for Cary Fukunaga’s African war drama “Beasts of No Nation."

Can you blame producers for making these deals? Of course not. It’s hard enough to get prestige movies made as it is (look at how Pitt’s Plan B struggled for years to get “Selma” financed. "Selma!") If Netflix is willing to bankroll you and offer you a bigger budget and payout in the process, what red-blooded filmmaker would walk away?

Then there are the rumors that Adam Sandler’s multi-picture deal with Netflix went well above the $20-million barrier. You can’t blame him either.

But that’s not the end of the story. Because when someone spends a lot without any obvious need for, or way to, recoup that investment, that can have a ripple effect.

In a best-case scenario for the industry, Netflix overpays to get into the game -- the film business is like a high-stakes poker contest in more ways than one -- and then starts coming down to normal prices once they're at the table. In the process, they make some good movies that wouldn't have gotten made otherwise, certainly not at these budgets, and attracts some buzz and subscribers. (That is the Netflix calculus--these films will not, by and large, translate into dollar-for-dollar returns on investment, but they have other intangible effects.) Then the period ends. No harm, no foul, and we have some (hopefully) good new movies in the process.

In a slightly less-great scenario, Netflix keeps overpaying to make movies and absorbs losses, which causes damage to them and sends them out of the game. (Incidentally, what kind of development and on-set oversight Netflix will offer a movie that they are boarding in pre-production, and whether that’s ultimately better or worse for the film than traditional backers would be, is a whole other kettle of fish.) Not great for them, but not of material difference to others.

Then there's the worst-case scenario. Netflix's overpaying prompts others to overpay, and other companies and movies lose money too. And that pulls down other good projects or companies with it.

That ‎last scenario is, unfortunately, far from implausible. To stay competitive in this post-Netflix moment, companies are going to have to pay more to be in the prestige game. Some will stay disciplined -- Fox Searchlight, for instance, is known for rarely exceeding a budget ceiling of $15 million-$20 million -- but many won't ‎have the wherewithal or cachet to get away with that.

And that means if the damage does happen, it won't be contained. It would be like any other bubble. Outside and artificial pressures drive spending‎ and values up. And then one day the market can't sustain them and they come crashing down.

The reason to think this is a possibility is not just the historic nature of bubbles but the specific history of the film business. The success of prestige theatrical labels in the 1990s and early 2000s -- specifically, the success of Harvey Weinstein's Miramax -- drove entertainment companies to start or acquire whole specialty divisions. They then bought or made movies for numbers that in many cases were well beyond reasonable.

In 2008, with some added help from the brewing financial crisis, that bubble burst. A slew of divisions including Paramount Vantage, Wariner Independent and Picturehouse, along with a swath of smaller companies, all went out of business. It took years before the conglomerates were willing to take chances on upscale dramas again. Some still aren't.

That doesn’t mean this will all exactly be replicated here, of course. Netflix is a far more established and respected player than some (if hardly all) of the companies inflating the previous indie film bubble. So it's possible the kind of spree the company is on drives up prices sensibly and jars loose only good movies that were unfairly stuck in development. But it's reasonable to think it will have a less surgical effect.

Netflix's foray is already starting to move the needle at other companies. There’s a feeling Showtime and HBO, the latter of which was once involved in original features but has greatly scaled back in recent years, could be prompted to enter the world anew. That's more buyers and backers, which on its face it's not a bad thing. Ditto for Amazon. But what it's moving them to do is an open question. A few producer-financiers I’ve talked to have been looking at how to stay competitive with a Netflix, which is willing to spend without any obvious need to justify its costs on the basis of box office or ancillary revenue (because, well, there is no significant box office or ancillary revenue). These other companies can make the case that they offer various forms of backend and lure filmmakers that way. Or they can simply open their wallets wider.

No one ever wants to hear talk of reining in spending when the dollars are flowing, and I can hear the protests from producers even before I finish writing this paragraph. Lord knows prestige filmmakers have unjustly struggled to get worthwhile movies made for too long for them to be especially concerned about some dangerous effects down the road. But persistent overpaying should always raise red flags. Those flags are probably worth keeping an eye on, even if they’re hard to see among the green lights.

Twitter: @ZeitchikLAT

 

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