On Thursday, AT&T’s WarnerMedia announced it would release its entire 2021 slate of films directly on HBO Max at the same time they hit theaters. Investors and industry-watchers greeted it as earth-shattering news for the movie theater industry. AMC Entertainment fell 16% on the day. Cinemarkfell 22%.
WarnerMedia CEO Jason Kilar thinks they’re overreacting.
“Everyone should take a breather,” Kilar said in an interview. “Let’s let the next six, eight, ten months play out. And then let’s check back in.”
Kilar blamed the pandemic for his decision, and refused to say whether his decision to kill the decades-old theatrical window next year will last beyond 2021.
“Certainly this is pandemic-related,” Kilar said. “That’s why we’re doing it. We haven’t spent one brain cell on what the world looks like in 2022.”
He added, “I learned long ago not to make statements over a year from now.”
In short Kilar is saying:
the decision is pandemic-related
it will be revisited in “the next six, eight, ten months”, and
WarnerMedia has no insight into what the world will look like in 2022
* Consumers want TV to be more convenient for them. People want programs to start at a time that is convenient for their schedules, not at a time dictated to them. Consumption of original TV episodes will eventually mirror theatrical movie attendance: big opening Friday nights, but more consumption will be in the days and weeks afterward. Consumers also want the freedom to be able to watch TV on whatever screen is most convenient for them, be it a smartphone, a tablet, a PC, or, yes, a TV.
* Consumers are demonstrating that they are the greatest marketing force a good television show or movie could ever have, given the powerful social media tools at consumers’ disposal. Consumers now also have the power to immediately tank a bad series, given how fast and broad consumer sentiment is disseminated. This is nothing short of a game-changer for content creators, owners, and distributors.
The above trends are a reality and we believe the wise move is to find ways to exploit these new trends and leverage them to build great businesses. History has shown that incumbents tend to fight trends that challenge established ways and, in the process, lose focus on what matters most: customers.
Here is what he wrote last week in his memo about the decision to release Wonder Woman 1984 on HBO Max:
We are, of course, in an extraordinary moment. This entails a patchwork of regulations, geographic considerations and, most importantly, fan preferences. With that in mind, we see an opportunity to do something firmly focused on the fans: give them the power to choose between going to their local cinema or opening HBO Max. Super-fans will likely choose both.
And, here is what he wrote last week about the 2021 slate being released on theaters and HBO Max:
As I mentioned in my post from a few weeks ago, we see an opportunity to do something firmly focused on the fans, which is to provide choice. Whether that choice is to enjoy a great new movie out at the cinema, to open up HBO Max, or to do both.
When WarnerMedia CEO Jason Kilar told the marketplace his vision for streaming in 2011, it was best to believe him then, and it is best to believe him now. Which means, when he tells us the decision for theatrical and HBO Max in 2021 was pandemic-driven, they have not thought about the marketplace past 2022, and they will be revisiting the decision over “the next six, eight, ten months”, it is best to believe him now, too.
But, The Economics…
2/2 A long-tail of payments to agents, lawyers, cast, production crew, etc. gets expensive, fast.
So, fat tail will get fat from this move, but lots of unhappiness in the long tail of the Hollywood supply side b/c no one is incentivized to be happy about the outcome
I tweeted this yesterday, and I increasingly believe the main reason we see so much open distrust with Jason Kilar and WarnerMedia’s decisions for its entire 2021 theatrical slate is because few have been incentivized to care.
Or, put another way, none of the existing contracts account for this scenario, as Brooks Barnes and Nicole Sperling of The New York Times report:
The surprise move left agencies on a war footing. Representatives for major Warner Bros. stars like Denzel Washington, Margot Robbie, Will Smith, Keanu Reeves, Hugh Jackman and Angelina Jolie wanted to know why their clients had been treated in a lesser manner than Ms. Gadot. Talk of a Warner Bros. boycott began circulating inside the Directors Guild of America. A partner at one talent agency spent part of the weekend meeting with litigators. Some people started to angrily refer to the studio as Former Bros.
It’s not that all actors and directors are against streaming. Plenty of big names are making movies for Netflix. But last week’s move by Warner Bros. raised fundamental financial questions. If old-line studios are no longer trying to maximize the box office for each film but instead shifting to a hybrid model where success is judged partly by ticket sales and partly by the number of streaming subscriptions sold, what does that mean for talent pay packages?
How studios compensate A-list actors, directors, writers and producers is complicated, with contracts negotiated film by film and person by person. But it boils down to two checks. One is guaranteed (a large upfront fee) and one is a gamble: a portion of ticket sales after the studio has recouped its costs.
The point is, a lot of mouths around the talent get fed by that contractual “gamble”. A blockbuster is less likely to be a “gamble” for talent and the lawyers and agents who work for them. So, these folks are skeptical:
WarnerMedia has called its hybrid movie distribution plan a one-year-only strategy. But most people in Hollywood believe it will prove permanent. Mr. Kilar publicly positioned the move as being all about fans, many of whom have chafed at Hollywood’s traditional rollout of movies (first in theaters for an exclusive period, then online for rental and purchase, then on streaming services and television). He’s just going to take that away in 2022?
Then again, given that Jason Kilar continues to act against the person he showed us he was almost 10 years ago, why won’t they listen to him?