Netflix Insists on Right to Jump Theatrical Release for Relativity's Films

The streaming giant has initiated an arbitration proceeding — and argues a bankruptcy judge can't stop it from streaming "Masterminds" and "The Disappointments Room."
'Masterminds'

Netflix is sticking to its guns. The streaming giant says that whether or not Relativity is ready, Netflix has a contractual right to stream the Zach Galifianakis comedy Masterminds on June 17 and the Kate Beckinsale horror film The Disappointments Room on June 30.

The prospect of this has got Relativity in a panic. The Ryan Kavanaugh studio wasn't planning on releasing these films in theaters until much later this year, and has brought an emergency motion aimed toward getting a bankruptcy judge to hold back Netflix. In court papers, Relativity's lawyers say Netflix's refusal to consent to a "routine date extension" is "putting at risk the successful reorganization" of the studio. It's not merely that the availability of these films online threatens to dampen box- office success. Relativity achieved what it calls a "Herculean task" by getting most of its creditors and the judge to go along with a plan that reduced debt by about $630 million. But certain lenders like RKA Film Financing were given replacement notes secured by interest in Masterminds and The Disappointments Room. By jumping the theatrical release, Netflix is upsetting carefully negotiated arrangements.

But Netflix asserts its right to do just that.

Before U.S. Bankruptcy Judge Michael Wiles approved Relativity's reorganization plan, Netflix contested the assumption of a contract that had the streaming service paying Relativity hundreds of millions of dollars for the right to stream its films. Netflix argued that Relativity hadn't provided adequate assurance of meeting the minimum numbers of films contractually required to be delivered each year. The default provisions were weak, however. And so in February, the judge rejected Netflix's move.

Relativity's deal with Netflix was thus still operative, and now Netflix is exacting a bit of revenge.

"After assuming its contracts with Netflix, Relativity has now raised a problem with the express terms of the contracts it chose to assume," wrote Netflix's attorney in court papers Monday. "The Motion is nothing more than an attempt by Relativity to shift responsibility to Netflix for Relativity’s complete failure to address these issues before it assumed relevant contracts and confirmed its Plan."

Netflix is doing more than just asserting that its contract allows streaming for Masterminds and The Disappointments Room beginning next month. The streaming giant also is challenging the bankruptcy's judge's jurisdiction to make any contractual interpretation after letting Relativity move forward with its Chapter 11 exit. 

"As of the filing of the Motion, Netflix had already initiated an arbitration proceeding on these issues, and filed and served Relativity pursuant to the terms of the contracts," writes Netflix. "By the Motion, Relativity is trying to make an end-run around clear arbitral jurisdiction. This cannot be permitted. Federal law is clear that binding arbitration clauses are to be respected whenever possible, unless in direct conflict with bankruptcy law, which is not the case here."

A hearing on this matter is scheduled for Tuesday afternoon, and the judge has indicated he may wish to hear testimony. But Netflix says its key witness is overseas so it's not clear when, where and how this dispute clouding Relativity's comeback gets resolved.

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