LP Vol. 7 - HBO Max and the Box Office Upside Down
On the theme of 'what will be different after COVID', it's probably not great to be a movie theater owner right now. The quality and convenience of streaming services have been indispensable this year, and the long-held practice of an exclusive theatrical release window has been permanently upended with a number of direct-to-consumer experiments:
Trolls World Tour was re-purposed as a digital release and generated $100m in revenue in under a month
Disney also dipped its toe in the water, debuting Mulan directly on Disney+ as a premium $30 rental
Warner Media (which is owned by AT&T, and owns both the Warner Brothers studio and HBO) has now taken the trend to the limit and announced that all the films they're releasing in 2021 are all going to both theaters and the streaming service HBO Max. This policy kicks off in just over a week this Christmas Day with Wonder Woman 1984 but will include huge movies like Godzilla V Kong, Matrix 4 and Dune over the next year.
Christopher Nolan, one of the higher profile members of the Warner Bros. talent tribe, is not amused:
“Some of our industry’s biggest filmmakers and most important movie stars went to bed the night before thinking they were working for the greatest movie studio and woke up to find out they were working for the worst streaming service,” filmmaker Christopher Nolan, whose relationship with Warners dates back to Insomnia in 2002, said in a statement to The Hollywood Reporter.
There are some, like Nolan, who truly believe in the sanctity of the theatrical experience. But the real issue here comes down to cold hard cash, and the windfalls that materialize with highly successful box office performers.
Last year's "Joker" became the first R-rated film ever to cross $1b in box office and achieved a modicum of cultural salience culminating in 2 Academy Awards. During production, Warner Brothers was so underwhelmed by the project's commercial prospects that they sold off 50% of their ownership to other partners. Director Todd Phillips deferred his multi-million dollar upfront salary to take 10% box office participation instead and ended up with a a $100m payday. What kind of cultural and box office phenomenon would Joker have been had it debuted directly on a streaming service?
It's an impossible question to answer, but it exemplifies the broader challenges Hollywood is reckoning with as direct-to-consumer streaming becomes an increasingly preferred option for consumers and the theater experience continues to stagnate.
In any given year, only 3% of movies released surpass $50m theatrical revenue, but that 3% accounts for 80% of the total revenue. So rough math here is that there are 25-35 movies per year that vie for a fixed amount of box office pie ($10b or so, with the remaining 800-1000 movies made each year taking the remaining $2b). That's in a good year.
The 2021 box office is likely to be highly depressed due to COVID and every studio has a backlog of amazing films ready to go on the shelf (like the new Bond). So, the 2021 pie is going to be both smaller and have a higher number of amazing releases competing for it. That's not a great recipe for outsized box office success for any individual film.
Instead of suffering through a year of uncertain theater safety, consumer demand, and a stuffed pipeline of films from every studio; the galaxy brains at Warner Media (and their corporate overlord AT&T) are trying to make the best of a hard situation. Without a hit show like Queens Gambit or The Mandalorian, Warner Media is making do with the best content they have - a solid line-up of highly desired fully-completed films. They certainly need the help! After a year, HBO Max has a paltry 12.5m subscribers compared to Disney+ (75m, also after barely a year) and Netflix (200m).
It's also possible that a portion of this plan gets held up and/or reversed by lawsuits. Legendary Entertainment co-produced 2 major 2021 movies with Warner Brothers, who apparently blocked a $250m offer from Netflix for Godzilla v Kong earlier this year and is not paying anywhere close to that figure to put it out on HBO Max.
It will be interesting to see what kind of long-term impact this decision has at Warner Brothers and whether other studios follow suit with a direct-to-streaming distribution model. I'm excited to go to the movies again, safely, but for now inject Dune directly into my veins while I sit on my couch please.
I highly recommend these two episodes of The Big Picture podcast if you want to dive deeper:
An Important PSA About Pringles from John Oliver
John Oliver is currently on hiatus, but dropped this video to bring a very important issue to our attention:
Woody