Netflix vs. Cannes: Will the Company's Original Content Succeed Without Hollywood Approval?

Is it wise for an entertainment company to get into a scuffle with the most prestigious film festival on earth?

Netflix (NASDAQ: NFLX) apparently thinks so. The 2018 Cannes Film Festival, now in progress, won't screen any upcoming films bearing the Netflix name. The company pulled its movies over an escalating disagreement with the festival's organizers.

In an industry full of traditions and built on buzz, investors will have to consider whether snubbing Hollywood ends up hurting the company's future film efforts.

The screen goes dark

For those who haven't browsed the Netflix catalog recently, the streaming service has taken a page from Hollywood studios and dived headlong into the production and distribution game. Its name is on titles with big stars like Adam Sandler and Will Smith -- these stream alongside the company's popular TV series like Stranger Things and Lost in Space.

It's important for Hollywood studios to project an air of prestige around their more ambitious projects, and events like Cannes also provide gobs of free publicity. But the tussle between Cannes and Netflix arose from a recent change in the festival's rules. A new regulation mandates that for a film to play in competition, it must have theatrical distribution in France.

That's a tough one for Netflix, as French law stipulates there has to be at least a three-year gap between a film's theatrical run and its debut in home entertainment such as streaming services. Almost needless to say, that's a no-go for a company whose success relies on streaming content.

In reaction to the festival's new rule, Netflix withdrew the five titles it planned to unveil at Cannes. Since then, the two sides have had few positive words for each other.

Living room vs. movie theater

The dispute benefits neither party. It makes the festival look reactionary and old-fashioned in a film and entertainment world that's rapidly changing. And Netflix appears to be playing the role of intolerant Silicon Valley disruptor -- our way is the future, and if you're not on board, forget you.

In its movie-making efforts, Netflix has fewer allies. That's no surprise, given its insistence on debuting its feature films in theaters and on the streaming site simultaneously (its big-budget fantasy action movie Bright was to open in a grand total of two cinemas in the U.S.).

And the company is sinking an awful lot of money into original material. Most recently, it said it would spend over $8 billion on around 700 pieces of content. Although it didn't break down this 700 between film and TV offerings, we can be sure the former has received, and will receive, plenty of capital. An Adam Sandler or Will Smith doesn't come cheap.

There are ways to thread the needle here. Look at Amazon Studios, the movie unit for the giant retailer that eventually feeds content to its growing Prime Video service.

In 2016, the indie drama Manchester by the Sea was screened to good reviews and audience buzz at the Sundance Film Festival. Amazon Studios scooped it up for distribution the traditional way, getting it placed in theaters throughout the country.

That was a smart move, as the movie garnered enough positive reviews and word of mouth to propel it to a pair of Academy Awards. These days, it happily resides on Amazon Prime Video as a branded prestige film easily accessible to subscribers who missed the theatrical run.

Netflix's initial forays into feature films haven't lit the world on fire. The reviews for Bright, period thriller The Outsider, and Sandler's The Week Of, for example, haven't been all that positive. There has been little buzz about any of the three, particularly when matched against the reception for Manchester by the Sea in its day.

Red carpet blues

To its credit, Netflix seems to be realizing that it played too hard a game with Cannes. CEO Reed Hastings appeared to signal that when he said in a recent speech that "[w]e got into a more difficult situation with the Cannes Film Festival than we meant to."

In spite of that apparent realization, Hastings still runs a clever company that isn't being smart about its approach to the movie business.

That would likely change if it put its name on more compelling movies, then built buzz for them the old-fashioned way (i.e. with the festival-to-theater distribution buildup). That would help attract more movie-geek subscribers. Getting into energy-sapping tiffs with prestige film festivals probably won't. Perhaps Hastings' quote indicates a softening of his company's stance on the matter.

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