Wait, Why Does Netflix Want to Buy a Movie Theater?

Photo: Alberto E. Rodriguez/Getty Images

In the latest chapter of Netflix versus Hollywood, the streaming platform is pulling a move ripped straight from the cinema history books. According to several published reports, the global entertainment giant has entered negotiations to buy the Egyptian Theatre in Los Angeles, a grand but faded movie house on Hollywood Boulevard. Currently owned by the nonprofit American Cinematheque, Netflix would reportedly acquire the theater for a price in the “many tens of millions of dollars”–range.

Described as more of a partnership than an outright purchase, the move could offer greater financial stability to a fabled Hollywood landmark — perhaps more than the independent nonprofit dedicated to the celebration and preservation of film can provide. (Built in the early 1920s and modeled after King Tut’s tomb, the Egyptian was host to the first movie premiere in 1922.)

But the potential sale throws the motives of a company better known for its reluctant relationships with theaters into the spotlight. Netflix notoriously “four-walls” its splashiest releases — in other words, it rents a number of movie theaters for a limited time and receives all of a movie’s box-office returns thereafter — and refuses to abide by the industry’s typical 90-day theatrical release window before allowing subscribers to stream its films. Such behavior has positioned Netflix as an enemy combatant in Hollywood, at least according to institutions like AMC Theaters and Regal Cinemas, Festival de Cannes, and Steven Spielberg. (The Department of Justice, on the other hand, is squarely team Netflix.)

Spielberg, in particular, maintains that Netflix should be barred from the Oscars — and here’s where Netflix’s theater-buying decision gets strategic, and a little funny. The Academy requires a film to run for at least seven consecutive days at a commercial theater in Los Angeles County in order to be eligible for its awards. Purchasing the Egyptian would allow Netflix to showcase Oscar-eligible movies without having to deal with other theaters’ traditional release-window requirements. And as an added bonus — a “master stroke of shade,” if you like — the purchase would mean Netflix would own the Spielberg Theatre inside the Egyptian.

The news arrives almost one year after reports first surfaced that Netflix was exploring the possibility of purchasing the Landmark Theatres chain co-owned by billionaires Mark Cuban and Todd Wagner. (Last August, fellow streaming service Amazon also began seriously looking into purchasing Landmark, a chain with 50 theaters in 27 markets focused on foreign and indie films.) Under the yet-to-be-finalized agreement, Netflix would reportedly use the Egyptian on weeknights to host industry screenings and red-carpeted premieres. The American Cinematheque, meanwhile, would control the theater on weekends to run its signature lecture series, screenings of classic movies, and occasional film festivals.

The potential sale galvanized begrudging support from some industry executives, but it also managed to confound entertainment-biz observers over the legality of such a transaction. Central to their concern is a 71-year-old antitrust rule based on a Supreme Court case titled United States v. Paramount Pictures that effectively barred movie studios from owning movie theaters. The rule forced studios to sell their ownership stakes in theaters in 1948 — a time when the practice of “block booking” strong-armed theater owners into running studios’ schlocky B-movies in exchange for the opportunity to screen more in-demand releases. The case’s resulting consent decrees made headlines last August when the Department of Justice announced its plans to review and potentially overturn them, opening the door to a new era of Hollywood theater ownership.

So as a de facto studio and newly minted member of the Motion Picture Association of America, can Netflix legally buy a movie theater? According to a source in the movie exhibition community, the consent decrees wouldn’t present a legal barrier to the streaming behemoth — primarily because Netflix did not exist as a company until 1997 and is not named as a defendant in the Supreme Court ruling. The sale “will not be illegal under the Paramount consent decrees,” said this source, who was not authorized by his organization to publicly comment on the issue and thus declined to be identified. “They didn’t exist when the decrees were signed. The consent decrees were to remedy anti-competitive behavior. Netflix is not a party to the decrees.”

The source also noted that, over the years, other studios have found ways to acquire theater ownership despite the consent decrees. Down Hollywood Boulevard from the Egyptian, Buena Vista Theatres, a division of Walt Disney Studios Motion Pictures Distribution, owns the venerable El Capitan Theatre (where Disney, not coincidentally, hosts most of its Los Angeles movie premieres). And in 2001, Sony acquired a stake in Loews Cineplex Entertainment — a chain that eventually merged with others to become AMC.

So if Netflix wants a pharaoh-themed theater to premiere its highest-profile soon-to-be-streaming movies, the only thing standing in the way is probably those “many tens of millions of dollars.”

Wait, Why Does Netflix Want to Buy a Movie Theater?