How Netflix ‘Crouching Tiger’ deal sets theater chains against studios

The Netflix deal to finance Weinstein Co.’s “Crouching Tiger” sequel is opening a new front in the long-simmering conflict between Hollywood studios and theater owners.

Three of the nation’s largest theater chains said Tuesday that they would refuse to screen “Crouching Tiger, Hidden Dragon: The Green Legend” next summer because the Weinstein film would be available on Netflix on the same day it hits Imax theaters.

“When people hear about things in the Internet world, they expect to be able to have access to it right then,” said Ted Sarandos, chief content officer for Netflix. “The last holdout to this is movies, which are marketed sometimes a year in advance of their release.”

The standoff highlights a growing challenge facing studios grappling with digital disruption.

On the one hand, studios need to open up new distribution streams because of falling DVD sales that have traditionally been their main source of profit. They’re also grappling with long-term declines in ticket sales, with this summer being the worst since 1997, adjusting for inflation.

Delivering new releases into homes via streaming services such as Netflix and Amazon gives studios a new way to connect with younger consumers used to getting their entertainment on smartphones, tablets and personal computers.

Yet studios still make most of their money at the multiplex, which means they have to tread carefully on any initiative that would shorten the theatrical window when films are exclusively in theaters.

Weinstein Co. co-Chairman Harvey Weinstein said in a statement that “the moviegoing experience is evolving quickly and profoundly, and Netflix is unquestionably at the forefront of that movement.”

But leading theater chains balked Tuesday at Netflix’s plan. Regal Entertainment, Carmike Cinemas and Cinemark USA all said they would not screen the film in their theaters, affecting about one-quarter of Imax’s 418 U.S. theaters.

“We will not participate in an experiment where you can see the same product on screens varying from three stories tall to 3” wide on a smart phone,” said a statement from Regal, the nation’s largest cinema chain with 86 Imax theaters. “We believe the choice for truly enjoying a magnificent movie is clear.”

Cinemark, the nation’s third-largest theater chain, also said it would not screen the “Crouching Tiger” sequel in its theaters. The company has 14 Imax screens.

Carmike, the nation’s fourth-largest chain with 15 Imax screens, said: “We are committed to an exclusive theatrical release for the enjoyment of our valued guests. We are therefore opposed to showing [simultaneous] releases at our entertainment complexes.”

AMC, the nation’s second-largest theater chain, owned by China’s Dalian Wanda Group, indicated it had no plans to show the movie in its 147 Imax theatres. In a statement, AMC said it had not been approached about screening this “made-for-video sequel in the U.S. or China, so one must assume the screens Imax committed are in science centers or aquariums.”

The dispute puts Imax, the Canadian-owned big-screen theater technology company, in an awkward position with its theater partners. Imax has joint venture agreements to operate its screens at the major theater chains, with which it shares ticket revenue.

“I put this in the category of an experiment for us,” said Imax Chief Executive Richard Gelfond.

He added that the movie would be released during one of the slowest weekends in the year and that Imax was not requiring exhibitors to screen the film, waiving its customary rights over content plays in auditoriums.

“I would hope over time our partners will take a deep breath,” Gelfond added. “We’re not trying to make them do anything they don’t want to do.”

Furthermore, Imax expects the film to play well for growing audiences in China, where Netflix is not available and where Imax has an expanding business. “On a global basis, it’s going to be open on a lot of Imax theaters,” Gelfond said.

The dispute marks the latest controversy surrounding so-called release windows, the period of time between when a movie is shown in theaters and when it is available in homes.

Typically, studios make movies available in the home video market about 90 days after their premiere on the big screen. But past attempts to offer simultaneous releases or shrink the current theatrical window have sparked a fierce reaction among exhibitors.

In 2011, several major chains vowed not to screen the Ben Stiller-Eddie Murphy comedy “Tower Heist” after Universal Pictures planned to make the movie available at a premium price to consumers just three weeks after its launch at the multiplex.

The National Assn. of Theatre Owners had mounted a campaign to oppose such moves and enlisted the support of prominent filmmakers, including “Tower Heist” director Brett Ratner.

Theater operators have argued that making a movie available in the home at the same time that it appears in theaters detracts from the theatrical experience and discourages people from going to the cinema.

The deal for the release of the “Crouching Tiger” sequel is Netflix’s latest encroachment into the traditional entertainment industry. The company has been trying to improve its offering of movies and TV shows as it faces rising competition from rivals such as Amazon and Hulu.

After starting as a DVD-by-mail company, Netflix launched its streaming service in 2007 and has amassed more than 50 million subscribers. It continues to grow worldwide, recently pushing into countries in Europe including France and Germany.

The Los Gatos, Calif., company has already made a name for itself with TV series including the women’s prison drama “Orange Is the New Black” and the Kevin Spacey political show “House of Cards.”

Now it’s trying to do the same in movies.

Sarandos says reaction to the simultaneous release of the “Crouching Tiger” sequel is overblown.

“The Imax moviegoing experience is extremely differentiated from ours, just like a live event is different when you watch it from home,” he said. “You can pay to go to a football game that people can watch on TV. People still go to football games because the experience is different and cool. So theaters should distinguish themselves by experience, not by the time of availability.”

Weinstein has made a number of deals aimed at getting content on Netflix. The studio’s upcoming series “Marco Polo” comes to the streaming service this year. Netflix also has a deal in place for the exclusive U.S. pay-television rights to the studio’s first-run movies, beginning in 2016.

Eric Wold, an analyst at B. Riley & Co. who covers Imax, said the new “Crouching Tiger” movie could mark a successful attempt to narrow the theatrical window.

Cutting down the release time gap has been tried before, mostly with low-budget, low-grossing films, he noted. But the popularity of the original Ang Lee film, which grossed $128 million in the U.S. and Canada and won four Oscars, may bode well for the Netflix and Imax effort.

“Because it’s a well-known property, it should play well in the theaters where it’s shown and provide some useful data points for this experiment, as opposed to some unknown art house film that wouldn’t do much in terms of box office anyway,” Wold said.

Times staff writers Yvonne Villarreal and Saba Hamedy contributed to this report.