It wasn’t exactly head-turning news from Netflix (NASDAQ:NFLX). The streaming giant just hired Spencer Klein as its director of theatrical distribution of its movies. Indeed, it’s unlikely that most owners of NFLX stock know or care about it. Like so many announcements, this one looked and felt boilerplate, serving more as a courtesy or maybe even required disclosure.
Some experts even commented that Klein’s arrival changes nothing about the company’s current business model. Essentially, he’s only filling a position left open by the untimely death of his predecessor, Andy Guenberg.
Some substance might exist from this news though. And if there is, not only will an ongoing debate heat up, it could mean Netflix has ambitions that don’t include your television or tablet.
Who’s Spencer Klein?
Klein’s pedigree is at least curious. Displaced by the Walt Disney (NYSE:DIS) acquisition of Fox, Klein nevertheless has serious executive experience. He’s worked for New Line Cinema, Loews (NYSE:L), The Weinstein Co and The Film Group. These are organizations on both sides of the movie business. And on the surface, this experience benefits Netflix stock.
Inasmuch as he’s replacing Guenberg rather than assuming a newly created position, it would be easy to assume Netflix’s interest in releasing films in actual theaters remains seemingly modest. The optics suggest that the company is merely angling for industry awards.
Klein wasn’t the only new hire that bolsters this aspect of the company’s operation, however. Former Warner Bros distribution chief Dan Fellman, who consulted with Netflix on the theatrical release of Roma, is still around doing other similar work. The streaming firm also brought in Lions Gate Entertainment (NYSE:LGF.A, NYSE:LGF.B) distribution expert Lori Bandazian.
It’s an awful lot of veteran firepower for just seeking enough theatrical exposure to qualify for Oscars.
Netflix Stock Runs Up Against a Complicated Aristocracy
The moves set the stage for another chapter of what has become something of a saga within the film world.
The short version of a long story: to qualify for an Academy Award of any sort, tradition dictates that a film must play for seven consecutive days in a theater located in Los Angeles. But tradition also holds that a movie theater won’t play a movie unless the film studio guarantees distribution exclusivity. In other words, a studio cannot show the film in another format for at least 90 days. Most theater chains are still holding fast to this norm.
It’s a framework that leaves NFLX stock in a proverbial no-man’s land. It doesn’t want to offer three-month exclusivity (most Netflix films, while quality flicks, aren’t exactly high-volume draws). But it does want the credibility that winning Oscars delivers.
The rules have been bent, to be clear, if not outright broken. Roma was exclusively in theaters for three weeks before Netflix’s streaming customers could view it. Though it did win some awards, it was ineligible for the “Best Picture” award due to surprisingly technical rules.
Solution? Buy a theater to release your own films in, circumventing Hollywood’s securely closed logistical gates.
Amazon.com (NASDAQ:AMZN) is reportedly mulling the idea, eyeing Landmark Theatres, which owns roughly 250 screens spanning 27 markets. Rumors indicate that Netflix is adopting the same game plan. Industry insiders suggest that NFLX is targeting the Egyptian Theatre in Los Angeles.
Almost needless to say, some of Hollywood’s elite traditionalists — like Steven Spielberg – have voiced their strong opposition. Though this maneuvering may not violate law, it certainly violates the intent of the industry’s norms.
Looking Ahead for NFLX Stock
That’s where Klein (and Fellman, Bandazian, and others) come back into the picture. They can potentially navigate Hollywood’s tricky waters to help push Netflix-branded films to satisfy archaic requirements for award considerations. As such, these execs provide another angle for the bull case for Netflix stock.
On the other hand, management may want to transition Netflix into a more traditional movie studio role. Such a move could jumpstart its films that would find this platform conducive. It would also fundamentally change NFLX stock: the theatres would become the profit center rather than subscriptions to digitally delivered streaming content.
Or another scenario exists: perhaps the growing crew of theatrical-release experts are developing a strategy that obliterates long-standing norms for award eligibility. This too would change the dynamics for Netflix stock.
Whatever’s in the cards, the contentious matter clearly isn’t going away. It’s going to come to an explosive head one way or another. For that reason alone, it’s a matter current and prospective owners of NFLX stock may want to keep tabs on.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can learn more about James at his site, jamesbrumley.com, or follow him on Twitter, at @jbrumley.
