Netflix flips the script on film production financials

Netflix has dove headlong into acquiring the rights to original movies in the last few months, but its deal-structuring with producers and a refusal to pay a percentage of box-office proceeds is shaking up the industry status quo.

The SVOD leader has been going headlong into feature film acquisition. Notably, it has picked up Manson Family Vacation and 6 Years,Manson Family Vacation and 6 Years, films that premiered at SXSW this week. Also, it has secured Cary Fukunaga’s African war film with Idris Alba, Beasts of No Nation, and Jadotville, an Irish war movie starring Jamie Dornan. It also has separate four-movie deals with the Duplass brothers, who produced Manson Family Vacation, and Adam Sandler, who has started work on Ridiculous 6, co-starring Taylor Lautner, Whitney Cummings and Dan Aykroyd. And, it has a deal in place with Leo DiCaprio to produce environmentally-themed films. The Weinstein Co-produced Crouching Tiger Hidden Dragon sequel is slated for release in late August.

According to the Hollywood Reporter, , Netflix paid $12 million for Beasts, which is equivalent to 200% of the movie’s budget—an unheard of sweetheart deal for the producers. It also paid $17 million for Jadotville, which is more than 140% of its $12 million budget.

But here’s the catch: Netflix isn’t planning to pay out any box-office proceeds. In a way, producers are gaining guaranteed money upfront instead of rolling the dice and hoping a movie does well in the theatres, but it’s a marked departure from the traditional way that things are done.

Some appreciate the more streamlined financial approach.

“The traditional ‘independent’ model would have meant an interparty structure of seven or eight individual parties wrapped up in a banking deal and the ever possible potential for differing creative objectives. This way, we have one source of financing and a very supportive creative partner,” Jadotville producer Alan Moloney told the outlet. “What’s not to love?”

Of course, if a movie is a huge hit, producers stand to lose out of a bucketful of future revenue. An unnamed source close to Beasts noted, “It was a buyout. Netflix has to make it worth your while to give up the lottery ticket — what if your movie is the next King’s Speech?”

This lack of a “backend” has many producers spooked, particularly since all future revenue will be sewn up for a long, long time. Sources say that the SVOD giant insists on holding global distribution rights for up to 20 years.

Taken together, it’s a massive sea change for the industry. “Netflix wants to break new ground with this film and create a new paradigm for watching specialty movies,” said Daniela Taplin Lundberg of Red Crown Productions, which made Beasts with Participant Media.

But what are the chances of enormous box-office success? Netflix films are indie films and will mostly enjoy a limited release. Beasts for example is slated to premiere in just 200 or so independent theatre. The top theatre exhibition chains are also wary of taking on Netflix films, since they will also debut simultaneously on the streaming leader’s online on-demand service—which is enjoyed by 57 million people. For instance, chains like AMC and Cinemark are refusing to show the sequel to Crouching Tiger, Hidden Dragon, due on Netflix in August, because of the simultaneous windowing.

Ironically, that scale is exactly what’s allowing Netflix to flip the script on financing and release practices—and ignore theatre pushback.

“If what you want is for people to see your movie, Netflix has almost unparalleled power because of their direct relationship with the consumer,” one Hollywood agent said.

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