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Film deals reflect Netflix's growing clout

Film deals reflect Netflix's growing clout
Adam Sandler has signed a deal with Netflix to star in and produce four feature films for the service. The movies would be available exclusively via Netflix. (Frazer Harrison / Getty Images)

After turning the television industry on its head, Netflix wants to shake up Hollywood.

In its first original movie, Netflix said this week it would finance the Weinstein Co.'s sequel to the 2000 film "Crouching Tiger, Hidden Dragon," coming next summer to its streaming service and certain Imax screens.

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Two days after Netflix revealed the "Crouching Tiger" coup, the Los Gatos, Calif., company announced Adam Sandler would star in and produce four feature films for the service.

The movies — produced through Sandler's Happy Madison Productions with Netflix — would be available exclusively through the site, bypassing the traditional movie distribution process.

Movie critics took to Twitter to scoff at the Sandler deal. His latest comedies such as "That's My Boy" and "Jack and Jill" were panned by reviewers, and his box-office draw has weakened in recent years in the U.S.

But the deals are serious gets for Netflix, signaling its growing clout in the entertainment business at a time when consumer habits are rapidly changing in the digital era.

Like traditional movie studios such as Disney and Warner Bros., Netflix is looking outside the U.S. for growth.

It recently launched in six European countries including France and Germany, and having original programming has proven key to drawing new members. This summer the company said it had surpassed 50 million total subscribers, most of whom are in the United States.

The choice of movies was not a surprise. Adam Sandler and martial arts movies both get strong play outside the U.S. where Netflix is looking to grow. Sandler is part of a stable of actors whose movies often rank among the most-viewed by Netflix subscribers in the U.S. and internationally where the streaming service is available, according to the company.

For Netflix, releasing original movies is another way to attract monthly subscribers to its streaming service and thereby increase revenue.

"Netflix has one goal in life — they want to add value to a member subscription service," said Richard Greenfield, a senior analyst at BTIG. "Both pieces they've announced appear to play very well globally. Having global appeal is going to be of an increasing value."

The Hollywood effort comes after Netflix helped change the way many people watch television shows. With series such as "House of Cards" and "Orange Is the New Black," it releases all the episodes at once, allowing people to view whole seasons in a matter of days rather than waiting a week between each episode.

Now it's trying to do something similar in the feature film industry. Its latest moves could shake up the movie business by bringing new films to audiences at home and giving them less reason to trek to the multiplex. This comes as theaters already are struggling with long-term declines in attendance, with Hollywood coming off its worst summer at the U.S. box office since 1997, adjusting for inflation.

"When people hear about things in the Internet world, they expect to be able to have access to it right then," Netflix's chief content officer, Ted Sarandos, told the Los Angeles Times on Tuesday.

The decision to release "Crouching Tiger" in the home on the same day it hits cinemas drew protests from theater chains, who rely on having movies to themselves before they're released for home video. The nation's largest exhibitors have said they would refuse to screen the new film. It is not clear if any of the Sandler films will get a theatrical release.

But working with Netflix can make sense for a studio trying to release a mid-budget movie like the "Crouching Tiger" sequel that is not guaranteed to succeed.

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"Crouching Tiger, Hidden Dragon: The Green Legend" has a roughly $45-million production budget and follows a movie that came out 14 years ago — not the kind of film major studios bet on for their box-office results.

With backing from Netflix, the Weinstein Co. is able to minimize the risk it takes on the movie. Also, it throws out the traditional way a film's success is judged: its domestic box-office total. This mirrors how Netflix has approached its original TV shows, for which it does not release ratings.

"Netflix will essentially control the data and therefore messaging for the film's performance and make it very difficult if not impossible to know if this experiment makes financial sense," media analyst Michael Nathanson wrote in a blog post this week.

Netflix's streaming service, started in 2007, earned plenty of attention for reviving the short-lived cult comedy series "Arrested Development" for a new season online. Besides these shows that bring prestige to Netflix, it also has made its mark with kids shows, documentaries and stand-up comedy specials.

Analysts said Netflix's foray in the movie business was a natural progression for the company.

"When you want to get to be in 50 million homes, you have to be all things to all people," said Anthony Wible, an entertainment and digital media analyst at Janney. "You have to appeal to the 10-year-old who wants to watch a racing snail, but you also have to appeal to the college student who gets his laughs from Adam Sandler or the action fan who wants to see some cool fight scenes."

Wible added that the move to invest in original films follows a similar pattern to that of premium cable channel HBO. The channel has built a log of original, critically acclaimed movies with A-list stars such as Al Pacino, Julia Roberts and Michael Douglas.

Analysts don't expect other studios to follow suit because, for now at least, box office is still king and studios don't want to anger theater owners further by shortening existing release windows.

BTIG's Greenfield said not to discount Netflix's foray into Hollywood so easily. After all, its largely successful original television series effort started small, with the Norwegian comedy-drama "Lilyhammer," starring Steven Van Zandt.

"Nothing guarantees they will be successful, nothing other than they've done pretty well with a standing start in television," Greenfield said. "Now they have 'House of Cards,' 'Orange is the New Black,' and Judd Apatow is doing a comedy for them. You've got to start somewhere."

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