Netflix Is Stealing a Page Out of the iQiyi Playbook

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iQiyi (NASDAQ: IQ) has been called "the Netflix (NASDAQ: NFLX) of China" as that country's most popular streaming service, and it's taken a lot of notes along the way. The push for studio partnerships and premium content has been ripped out of the Netflix blueprint, but now the tables may be turning.

Variety is reporting that Netflix is in negotiations to buy Sid Grauman's iconic Egyptian Theatre in Hollywood. Though Netflix owning an actual movie theater may be an old-school move, it follows iQiyi's push nearly a year ago to open its first on-demand multiplex.

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Pass the popcorn

Netflix's vision with the Egyptian isn't the same as what iQiyi is trying to do. Netflix sees Grauman's original movie palace as a way to validate its original content. It can give folks craving traditional movie experiences a way to enjoy its next Roma or Bird Box in a classic movie house setting. Breathing new life into a theater has had its ups and downs in the past should also help it win some street cred from skeptical studio executives.

There's a different method to the madness at iQiyi. Its Yuke platform consists of several small mini-theaters with as few as two seats. Moviegoers reserve the posh mini-theaters by the hour, requesting content from iQiyi's growing digital catalog. iQiyi wants its theaters to be an intimate experience for dates, families, and groups of no more than 10 in China's expanding middle class to enjoy a home theater experience that they probably can't enjoy at home. Netflix wants you to see the trending movies and shows that everyone's watching on their own in a large crowd.

Both companies will get valuable information that can help their businesses. iQiyi will get a read on what viewers with money to spend on entertainment -- the target audience as it tries to grow its paying subscriber base north of 87 million -- like to watch in a premium setting. Netflix will have the ideal platform for premieres, being able to duplicate the red carpet and paparazzi experience that some stars and studios crave. A classic film house is also a smart place to gauge crowd reactions ahead of upcoming releases.

iQiyi and Netflix have momentum on their side, making it hard to question their push into brick-and-mortar cinemas. Netflix has been one of the market's biggest winners since the Qwikster fiasco. iQiyi had its ups and downs in 2018 after going public at $18, but the shares are trading 61% higher in 2019. The market's rewarding the two companies as they grow their paying audiences. You can teach new media stocks some old media tricks, so let's wake up the projectionist and get things going.

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