The unfortunate sequel coming to America this summer is the growing threat of CV19 and another round of mask mandates. Whether CV19, the Delta Sequel is more harmful than The Hangover Part III remains to be seen.
For theater owners, Hollywood bowed another unwanted sequel with the announcement that, in 2022, WarnerMedia intends to start making movies for release exclusively on HBO Max. Similar to the announcement of releasing all theatrical movies day-and-date in 2021, at least one of Hollywood’s unknown knowns, is now known.
On its second-quarter earnings call, AT&T surprised the Street with better-than-expected earnings. What wasn’t surprising? Jason Kilar’s announcement that WarnerMedia will make 10 movies exclusively to premiere on HBO Max. In between a carefully-worded phrase of how “The motion-picture format absolutely matters,” Kilar revealed for a second time WM’s intention to directly support HBO Max “with motion pictures.” It appears however, that the “format” is somewhat fungible.
Why The Flip? Or Is That A Flop?
In Hollywood’s quixotic pursuit of a return to pre-Covid life, it seems the present normal is not quite the new normal, but nor is it the old normal. Box office and streaming returns from recently released tentpole titles such as Godzilla vs. Kong, F9, and Black Widow have all shown promise for the motion-picture format (debuting in a theater), and the motion-picture format for day-and-date or straight-to-streaming debut. In fact, it was the strong April 2021 opening of WM’s Godzilla vs. Kong that first brought claims that “the world wants to go back to the movies.” There were, of course, questions as to whether this was “sustainable,” but there was a new hope for the future of exhibitors. An infamous meme stock (see TDG’s “Roaring Kitty“) and solid G v. K results drove AMC stock to record highs in spring 2021.
If It Wasn’t A Flop, Why The Flip?
A mere one week after the G v. K theatrical release, Kilar announced that WarnerMedia planned to return to a “traditional release plan in 2022.” In an interview with Recode, Kilar stated that Warner’s biggest movies would debut first in theaters and eventually head to streaming. This brought a collective sigh of relief to many in Hollywood, who did not believe that WarnerMedia would in fact put the genie back in the bottle and release the motion-picture format first in theaters, before moving into other windows. A deal had already been struck with Cineworld, where WM films would have a 31- or 45-day window, depending on a box-office threshold. AMC was not mentioned at the time.
Release The Wordsmiths
Although meant to seem folksy and authentic, words are chosen very carefully in Hollywood, and are placed into executives’ mouths with extreme precision. In April 2022, Kilar said the following:
“I think it’s very fair to say that a big, you know, let’s say a big DC movie…it’s very fair to say that that would go exclusively to theaters first and then go to somewhere like an HBO Max after it’s in theaters.”
April’s statement dripped with strategic ambiguity, leaving plenty of wiggle room for some future change of heart (aka “flip”). The future arrived last week, when Kilar announced that 10 of WarnerMedia’s 2022 movies will bypass theatrical debut and instead go straight to HBO Max. While technically this is not a flip (the April statement only says “it’s very fair to say”), it also doesn’t feel like heartfelt support of “the motion-picture format,” especially if you’re an exhibitor.
In fact, NATO (the National Association of Theater Owners) fired its own salvo back at Hollywood, placing blame for Black Widow’s 67% week-2 decline on its availability on streaming services. Kilar’s own Space Jam: A New Legacy fell 69% from opening weekend, the culprit yet again streaming availability. The film’s potential was high, aided by the timing for drafting with the NBA finals and even the Olympics, yet the decline was larger than expected.
Hollywood legend Barry Diller reinforced this fear, declaring that, because of streaming, “The movie business is over” and that the number of movie theaters would decline by 90% in the next few years. The most optimistic estimate, he said, is that only 50% of movie theaters will close their doors. That may or not play out, but there is no doubt which direction we’re headed.
Along Came A Spider
Adding a potential tsunami to the sea change in Hollywood was the announcement that Scarlett Johansson was suing Disney over the release of Black Widow on the Disney+ streaming service. ScarJo alleges Black Widow had been guaranteed a wide theatrical release and that Disney had “tortiously” interfered with that deal for its own advantage by (1) using the film and the actress to promote its subscription service, and (2) reducing box office receipts and a larger bonus that would have been paid to Ms. Johansson.
The summer of 2021 leaves no doubt that the wave of streaming overtaking Hollywood indeed has both benefactors and antagonists.
Flipping back to Warner and analyzing the box office returns of The Suicide Squad, the consensus takeaway was one of underperformance. The resurgence of CV-19 (the Delta variant), the simultaneous release on HBO Max, and other “moving parts” all contributed to this result.
On the heels of these results was AMC’s announcement that WarnerMedia will release its films in AMC theaters with a 45-day window in 2022, reportedly the same terms as given to Cineworld. AMC CEO Adam Aron announced that “We’re seeing the consensus that exclusive theatrical window is a good way to build major motion picture franchises.” Given the fact that Warner had just announced the straight-to-HBO-Max deal, this seems a premature statement on the stalemate between the studios and the exhibitors. It is simply too early to claim “we (studios and exhibitors) are making the right decisions to bring the solution to an end.”
The Tribes Of Hollywood
In 2017, TDG predicted a new wave of media tribalism, citing in particular Disney’s decision to let its distribution deal with Netflix lapse at year-end 2018. Why? To reclaim its content for use in its pending DTC app, Disney+.
- Comcast pulled its shows from HBO and to populate its DTC app, Peacock. This will not take place until 2022 but will include such profitable sequels as Jurassic Park and the latest Minions franchise.
- Comcast’s Universal has an even-shorter windowing deal with exhibitors: 17 days for films with box-office gross under $50 million, and a 31-day window from those with gross revenue over that amount. This is a far cry from the 3-4 months common before the pandemic. As well, Universal has announced that some of its new movies would bypass theaters and go straight to streaming.
- Amazon’s purchase of the MGM catalog means it unlikely these films will be available anywhere but on Prime.
As we noted four years ago, “going DTC” required (1) repatriating licensed content, and (2) privileging new releases for app-first distribution. Keep in mind this was already taking place before the pandemic, with stay-at-home quickening the pace of disruption. Put another way, where it would have been 4-5 years before theater owners felt the full brunt of the shift to streaming, the pandemic collapsed this timeline to less than a year.
One of the more uncomfortable images of the War on Terror was Colin Powell testifying to the presence of WMDs (i.e., weapons of mass destruction) in Iraq. In hindsight, it does appear General Powell was set-up as a fall guy for the justification of the invasion.
Similarly, Kilar was reportedly “out of the loop” for the Warner-Discovery talks, leaving us to wonder whether he is being set-up to take the fall. As for Kilar, he has only committed to staying focused on the present business plan and has not thought about his future “post-merger.”
At the studio that had once stood as “the citadel of Hollywood,” it is difficult to understand who is pushing the strategic and tactical buttons. AT&T, which was talking up its respect for WB’s success and traditions, promptly proceeded to change everything and failed in spectacular fashion.
Nobody Knows Anything
With a view to all of the change in the market, one is reminded of a Hollywood expression: “nobody knows anything.” Given moviegoing’s uncertain future, and the future of the media industry in general, it would be wise to remember that future strategies will need to be flexible and shift as market dynamics demand.
WarnerMedia is no different than its competitors in this area, and will continue to experiment. Release strategies, partnerships, windows—it is all white space for both the creative and business community in Hollywood, a trend that will continue in the near future.
In such a turbulent environment, one thing is crystal clear: despite the rhetoric of respect for the traditional motion-picture format, studios will continue to prioritize their own DTC services to the detriment of theatrical chains. Time will tell if the WarnerMedia’s strategy will be successful, and whether Kilar was truly “misunderestimated.”
Stick with TDG to Stay in front of the Curve.