3 Reasons Why Netflix Is Going to the Movies

By Markets Fool.com

Image source: Netflix.

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Chilling withNetflix(NASDAQ: NFLX)may soon be available at a theater near you -- as long as you're in New York City or Los Angeles. Netflix has struck a deal with high-end movie house operator iPic Entertainment, paving the way to screen its original movies on the same day that they become available on its flagship streaming service.

The deal will cover 10 original movies that Netflix will be debuting in the coming year. There's an option for iPic to follow suit at its 13 other locations. We don't know how the two will be splitting the revenue, but it wouldn't be a surprise if it's all going to iPic. Convincing people to pay up for a movie available on Netflix -- for what is roughly the single-ticket price of an entire month of Netflix -- is going to be a hard sell. Even under the highly unlikely scenario where Netflix was taking the lion's share of the split, it probably wouldn't move the needle.

On the surface this seems like a silly idea. It's the kind of stuff that may be parodied on late-night television shows if not Netflix's Chelsea itself. Will Netflix really go out of its way to promote a theatrical event that's taking place at just two movie theaters? Will people go out of their way to see these movies when they are legally available from the comfort of home?

This can still work. Let's dive into the method behind Netflix's madness to explore why this is a smarter move than you think.

1. Let's increase the perceived value of a Netflix original movie

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Netflix may be best known for its original shows, but the success of the critically acclaimedBeasts of No Nation and a couple of heavily watched Adam Sandler flicks are putting it on the map when it comes to full-length movies. The iPic tie-in positions Netflix-bankrolled feature films as worthy of theatrical release, and that should make them more valuable in the eyes of consumers.

Folks are paying $9.99 a month for access to Netflix's perpetually widening digital catalog of content. If moviegoers are paying more than that just to see one of those movies at the local multiplex, Netflix will be able to break through into double-digit monthly pricing sooner rather than later.

2. Tinseltown still loves theatrical debuts

Netflix is pretty good about hyping new releases, but studios still relish traditional premiere experiences. No one will be rolling out red carpets at iPic for star-studded experiences, but at least studios and actors in Los Angeles and New York know that they can still take in a more conventional experience to check out their Netflix-tethered movies.

Netflix is throwing a lot of financial muscle into full-length features. The films may as well behave like movies do.

3. Movies could improve sluggish domestic subscriber growth

Analyst has been posting ho-hum stateside subscriber growth lately. That's OK. Netflix is growing a lot faster overseas. However, it obviously would alleviate investor concerns if domestic growth began to accelerate again.

Availability of Netflix movies at movie theaters is a stealth marketing move. Existing subscribers will be drawn to check them out on the site, and new subscribers may be impressed to see the fresh content. Churn and gross subscriber additions are critical for Netflix, and this should help on both fronts.

The iPic deal may not be a direct financial contributor right away, but it should be a winning move over time.

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Rick Munarriz owns shares of Netflix. The Motley Fool owns shares of and recommends Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.