WarnerMedia deploys Lin-Manuel Miranda, Keanu Reeves, and the Suicide Squad to save HBO Max
WArnerMedia’s decision to blow up the decades-old movie model and do everything possible to support its underperforming streaming service was not just a sound boom that reverberated across the industry. It was parent company AT&T’s last big move to make sure its $ 85 billion entertainment gamble paid off.
Warner Bros. Picture Group has announced the release of 17 films slated for 2021, including highly anticipated films like Lin-Manuel Miranda’s In the Heights, Matrix 4, The Suicide Squad and Clint Eastwood crying macho and one Soprano prequel The Many Saints of Newark—simultaneously on its HBO Max streaming service and in theaters. The actions of the cinema have been crushed. Agents and lawyers have deployed their best negotiating tactics to protect their clients’ payments.
“Clearly, Warner Media intends to sacrifice a considerable portion of the profitability of its film studio division, and that of its production partners and filmmakers,” said Adam Aron of AMC Entertainment, the world’s largest cinema chain, whose shares have fallen 15% since the news broke. “We will do everything in our power to ensure that Warner does not do it at our expense. “
In a year that has brought relentless bad news, the shattering of traditional exit windows has caused nothing less than panic in some corners of Hollywood, even as AT&T’s WarnerMedia sought to capture. some of the streaming magic that took The Walt Disney Co. stock to an all-time high.
“This is the first film studio to put the consumer first, rather than existing business models,” said Rich Greenfield, media and technology analyst at LightShed Partners.
Yet, wise as it sounds, the execution of the plan will have to be flawless and, unlike the temporary nature of the movement that Warner executives are pushing, establishes a new, untested reality for the film economy.
“Once the windows change it will be difficult to turn back the clock,” said Craig Moffett, veteran telecommunications analyst, who warns of a heavy financial toll for one of Hollywood’s biggest movie studios. , which has generated an average of $ 1.8 billion over the past five years. office revenue, just behind Walt Disney Co., the world’s largest entertainment company.
The studio is WarnerMedia’s cash cow, making 42% of its revenue, 12% coming directly from box office revenue. The rest of the revenue comes from “windowing” these theatrical releases through home video, premium cable networks like HBO or streaming services like HBO Max, and then TV syndication. Moffett notes that most films do not break even until they have completed their theatrical tours and sent to what is called in the jargon of the industry the “Pay 1 window” of premium cable or streaming. The move not only slashes windows, but is also a vital source of profit, Moffett wrote in an investor memo released this morning. “The Pay Window 1, which is now the HBO Max version, is no longer generating cash; instead, it simply moves content between WarnerMedia segments.
WarnerMedia CEO Jason Kilar called the move a triumph of consumer choice. Moviegoers can decide for themselves whether to watch a movie in the theaters or from the comfort of their own homes, a reality Greenfield suggests is simply to recognize the obvious – that no one knows when moviegoers, many of whom are seniors, turn up. will feel safe enough to return to the cineplex.
Indeed, in statements yesterday, Ann Sarnoff, President and CEO of WarnerMedia Studios, stressed that the move is a temporary response to unprecedented times. “No one wants movies back on the big screen more than us,” she said. “We know that new content is the cornerstone of the theatrical exhibition. But we have to balance that with the reality that most theaters in the United States will likely operate at reduced capacity throughout 2021. ”
In fact, it is recognizing another type of evidence. Wall Street values streaming giant Netflix, now the industry’s most influential force, at $ 221 billion, or more than $ 1,000 for each of its 195 million subscribers. Disney’s best-selling streaming service Disney + has 74 million subscribers and has helped increase Disney shares by 80% since its Covid-induced trophy in March.
HBO Max, which debuted six months later, added around 3.5 million retail subscribers, excluding the millions of pre-existing HBO subscribers who tried HBO Max. Moffett predicts that WarnerMedia will need to rack up an additional 8.4 million HBO Max subscribers to make up for the loss in theatrical revenue, which won’t be easy given that among its many competitors – Netflix, Disney, AppleTV, Amazon’s Prime Video, Comcast’s Peacock – this is the most expensive option after Netflix.
“You can’t make money just moving content from one pocket to another,” he notes.
WarnerMedia used social media to promote same-day premieres as a holiday giveaway for HBOMax subscribers, noting, “I got you something good this year,” though exhibitors clearly saw the news as a piece. coal, one of them even describing her as “a little sinister.
The announcement came the same day AMC filed regulatory documents, saying it hoped to sell more than $ 800 million in shares to stay solvent. Cinemark hinted at the possibility of retaliation by removing films from the studio in what could be a crowded – and much needed – summer season, stating: “In light of the current operating environment, we are making decisions short-term booking on a film-by-film basis.
It also seemed premature to some insiders, as the Covid-19 vaccines could be widely distributed by spring. B. Riley Securities analyst Eric Wold sees exhibitors take over, once moviegoers return to the movies and movie studios release new films.
“A more comprehensive movie release list should reduce any reliance on a single studio (maybe except Disney),” Wold wrote. “And given the significant sunk costs associated with the production and marketing around each film, we may see increasing pressure on Warner Bros. to abandon or significantly change this new strategy.”
Warner Bros. says there are few surprises here – that the studio has been in constant contact with exhibitors since the start of the pandemic, and has done its part to support struggling theater channels, including the release of the big-ticket thriller Christopher Nolan’s budget Principle hit theaters in September, when other studios postponed their theatrical debuts or sold films to streaming services, bypassing exposure entirely.
One studio director described the hybrid release strategy as a “win-win”, which keeps new releases flowing as Space Jam: a new legacy or Dune in theaters in the uncertain year ahead. Releasing those same titles available on HBO Max for a limited time – just 30 days – ensures that when the studio spends millions promoting an upcoming movie, consumers will be able to see it, even if the pandemic forces theaters to close or to operate dramatically. reduced capacity.
Still, the film industry is nothing without its army of independent creators, who rely on the tens of millions of dollars that movie studios shell out for blockbuster films, as well as public relations wins and boosts from films. ego that accompany the domination of the cultural mind as a public. queued up to see their work. The actors, directors, screenwriters and producers behind box office successes often earn millions of dollars on their share of a film’s profits, earnings that will now be calculated by financial models that the studio and creator representatives will negotiate. to fill in the gaps.
“The importance of how this is managed cannot be overstated,” says Moffett. “The mere appearance of self-distribution could be seen as going against the best-in-class culture that has long been Warner’s selling point to world-class talent. “
Everyone who participated in these 17 outings from Millie Bobby Brown to Denzel Washington, will now be faced with the same decisions made by actress Gal Gadot last month, when Warner Bros. announced he would debut Wonder Woman 1984 on Christmas Day this year using the same exit strategy. When she signed on for the role, Gadot took a small initial paycheck of around $ 10 million in exchange for a small percentage of the box office proceeds. When it changed the release strategy, the studio charged a $ 1 billion box office and paid the star an additional $ 5 million and $ 10 million.
“Maybe they’re right. Maybe HBO Max will all of a sudden be a huge hit, and they sound like geniuses, ”said a prominent Hollywood talent agent who requested anonymity for business dealings. “Or they piss everyone off in this town.”