Relativity Says Netflix Is Putting Successful Reorganization at Risk With Streaming Threat

A judge is asked to stop the streaming giant from jumping the theatrical release of "Masterminds" and "The Disappointments Room"
Relativity film 'Masterminds'

Relativity Media and Netflix are still tussling in court, and now the Ryan Kavanaugh studio is looking to a judge to hold Netflix back from immediately streaming Masterminds, a comedy starring Zach Galifianakis, and The Disappointments Room, a horror film toplined by Kate Beckinsale.

Back in February, Netflix was unable to convince New York bankruptcy judge Michael Wiles that Relativity Media couldn't give adequate assurance it could deliver the minimum numbers of films contractually required. As a result, the judge approved Relativity's reorganization. Two week ago, Netflix withdrew an appeal, but the two companies are not yet on the same page.

On Saturday, Relativity's attorneys told the judge that Netflix was refusing to consent to a "routine date extension" for Masterminds and Disappointments Room that its senior secured lender and completion bond company had already agreed to. According to Relativity, Netflix's defiance flies in the face of the judge's confirmatory finding and is "putting at risk the successful reorganization" of the studio. Relativity now looks to obtain an order that directs Netflix to consent to an extension.

According to prior court papers in this case, Netflix was to take physical delivery of Masterminds on April 17 and The Disappointments Room on April 21. In return Netflix was to pay a $3.7 million minimum guarantee for each film. 

Relativity wants to release Masterminds in September and Disappointments Room in December and says that the restructured film financings contemplated that a theatrical release would happen before "downstream" exploitation, such as streaming on demand. Relativity presents this as all coming before the judge at the time of the approval of the Chapter 11 exit. Plus, Relativity says this is fairly customary in the entertainment industry.  Notwithstanding, Netflix has $7.4 million committed to these two films and it seemingly has decided to now take a hard-line stance.

"Netflix now threatens to release the Subject Films on its streaming platform prior to theatrical release, which action would be value destructive, not only for Relativity but for its stakeholders," states Relativity's papers, adding, "Netflix’s refusal to execute the Date Extension Amendments can only be explained, if at all, as a bad-faith attempt to extract a 'pound of flesh' with respect to this Court’s earlier ruling with respect to the Plan and the assumption of the License Agreement by Relativity."

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