As the long-delayed DC Comics sequel finally debuts — on HBO Max and in theaters — it serves as the litmus test for an unprecedented release strategy. Top studio brass weigh in on whether the “movie" business will ever be the same.
Less than three weeks before WarnerMedia would announce a radical and sweeping new release strategy — one that would alienate much of Hollywood with remarkable speed — its top executives shared a lunch on the Burbank studio lot that few knew would prove so momentous. At the time, the agenda seemed significant but contained: what to do about the studio’s long-delayed tentpole, Wonder Woman 1984.
It had been almost a full year since Warners had launched its marketing campaign for the superhero sequel, with Gal Gadot striding across the stage at a comic convention in São Paulo, Brazil, in front of dozens of Wonder Woman impersonators; the movie was already on its fifth publicly announced release date thanks to the COVID-19 pandemic that had shuttered many of the world’s theaters.
The company’s new CEO, Jason Kilar, was at the lunch, as were Entertainment chair Ann Sarnoff, Picture Group chairman Toby Emmerich, Wonder Woman director Patty Jenkins, star Gal Gadot and producer Charles Roven. The mood was one of shared frustration.
"When we saw the [COVID-19] spike happening in the fall, and the reality of the unpredictability of the virus, it was hard to plan at all," says Sarnoff. "We had already started marketing the movie, and pushing it out much further was not a great option for any of us."
At the same time that the film studio was battling the uncertainty of the pandemic, WarnerMedia’s 6-month-old streaming service, HBO Max, was struggling to lure new subscribers, a problem Kilar was charged with solving. These anxieties within the entertainment divisions were playing out as parent company AT&T was seeking to justify its $85 billion 2018 acquisition of WarnerMedia, which has added to its heavy debt burden and done little to boost AT&T’s stock price, even amid layoffs of more than 1,000 this year.
Over lunch, the Warners brass shared what they were hearing from epidemiologists employed by the studio — that the pandemic would get worse before it got better — and a planned Christmas theatrical release was seeming like a dim prospect, at least in the U.S. "We started to get into this other hypothetical," says Roven. "And the hypothetical turned into a reality."
The reality was a new, hybrid release strategy that will see Wonder Woman 1984 premiere in theaters where they’re open and on HBO Max in the U.S. on Christmas Day, a bold swing that, unbeknownst to that movie’s filmmakers, prefaced an even bolder one. On Dec. 3, in a move that blindsided its business partners and sparked threats of lawsuits, the studio announced that it would apply this hybrid release plan to all 17 films on its 2021 slate, including event movies like The Suicide Squad and Dune. "When we really discussed it with medical experts and looked at it diligently, it became more apparent that there will continue to be a real impact on the business through the entire year," says Emmerich. "So we made the plan to have a reliable, yearlong strategy."
Though Warners’ shift was the most shocking to the Hollywood community, every movie studio made decisions in 2020 that would have seemed unthinkable in a pre-COVID environment, from Universal striking premium VOD deals with theater owners to shrink the once-sacrosanct theatrical window to Disney plunking big-budget films like Mulan and Soul on its streaming service to Sony and Paramount selling would-be theatrical hits like Happiest Season and Coming 2 America to streamers.
The century-old industry, already reeling from the pace of change wrought by the entrance of deep-pocketed tech companies, has been "confronted with a reality it’s been choosing to wish away," as one veteran executive puts it. Collectively, the major entertainment companies have laid off several thousand employees this year in cost-cutting, as company leaders look to offset the $160 billion Ampere Analysis estimates the global entertainment sector will lose over the next five years due to the pandemic.
"Looking around the media landscape, you can see that a few studios are all trying to do a version of the same thing in terms of reorganizing the distribution ecosystem in order to be able to monetize our movies," says Universal Filmed Entertainment Group chairman Donna Langley. "That enables us to continue to be able to greenlight movies and do what we are doing and have a varied portfolio approach. This will evolve beyond COVID, I have no doubt. We are innovating, thinking of our future and protecting our filmmakers."
While studios look to the future, however, the present is dire: The 2020 domestic box office will struggle to hit $2.3 billion, down nearly 80 percent from 2019 and at the lowest level in at least 40 years (and that’s without adjusting for inflation). "The long-term future of theatrical movies depends exclusively on people’s desire to share stories together," filmmaker Christopher Nolan said in a statement to THR. "The medium-term future depends on productive cooperation between exhibition and studios."
What is certain is that when moviegoers finally feel safe to return to theaters in large numbers, they will be doing it in a dramatically changed industry. "There have been many premature obituaries for the movie business,” says USC cinema professor and editor of The Movie Business Book Jason Squire. "This is the most serious. There will be theater chain bankruptcies. This is the worst threat to moviegoing since the business began."
The seeds of Warners’ historic announcement were planted almost a decade ago, when Kilar, then CEO of Hulu, released a manifesto of sorts that excoriated the very broadcast television giants who’d hired him to run their flashy new streaming venture for their antiquated business models. "History has shown that incumbents tend to fight trends that challenge established ways and, in the process, lose focus on what matters most: customers," he wrote, prompting media observers to question whether he was trying to get fired. (He would, in fact, depart two years later amid a fraying relationship with Hulu’s owners, then 21st Century Fox, Disney and NBCUniversal.) Echoes of that message appeared more recently in Kilar’s December memo explaining that he wanted to "provide choice" to movie fans by releasing all 2021 Warner Bros. titles in theaters and on HBO Max.
A product obsessive who cut his teeth as a top lieutenant of Jeff Bezos during Amazon’s startup days, Kilar was a surprising choice to lead WarnerMedia, home of such media crown jewels as HBO, CNN and Warner Bros. At Hulu — where he was known for dishing out tech-bro catchphrases like "sweat every pixel" — he earned a reputation as a magnetic but exacting leader, one who would stay up late into the evening scrolling through Twitter for feedback from customers. But he didn’t live and breathe the actual programming the same way, says a former Hulu executive who recalls that Kilar "never got very involved — at least not in a way that was helpful — when it came to content."
It’s a trait Kilar — who sold failed video startup Vessel to Verizon in 2016 — seems to have retained in the seven years since he last worked closely with Hollywood creatives. “He’s a fantastic product guy,” says a top agency source. “The tougher part for him is the politics, the personal relationships, building consensus. He’s truly getting an organization to follow him over the ledge. You have to do the things as a leader to get people to understand what’s in it for them, the 'why,' and get broad-based buy-in. It has yet to be demonstrated that he has those leadership skills."
But Kilar’s comfort in the role of industry disrupter also makes him in some sense an ideal person to push Warner Bros., the studio that made Casablanca and the Dark Knight trilogy, through the biggest strategic shift of its nearly 98-year history. AT&T CEO John Stankey had his eye on Kilar, who had been on the telecom giant’s technology advisory council, for a while before convincing him to take over as WarnerMedia’s chief. By 2020, the company needed someone to turn HBO Max into its single most important initiative, one that would stand up against offerings from competitors like Disney+ and motivate AT&T customers to stay in the telecom giant’s ecosystem. "Jason wasn’t brought in to make friends," says LightShed Partners media analyst Rich Greenfield. "His job is to build the company for the future."
Kilar may not have been looking to make friends, but the expletives coming from agents’ phones since the slate announcement suggest he has just made many powerful enemies. "This is sad and immature and from someone who doesn’t really have the history, knowledge or experience of how entertainment works," says the top agency source. "Warner Bros. is now a Shakespearean tragedy."
"We have no problem going where others have not gone before," Kilar told The New York Times’ Kara Swisher on her Dec. 10 podcast. "This is not for the faint of heart, and the good news is we’re crazy enough or unusual enough to feel good about what we’re doing even if we’re the first one that’s putting our foot out."
Rarely has one studio move so quickly incensed the entire industry community. Within days of the announcement, Nolan, Warner Bros.’ premiere director, issued a blistering statement to THR, saying that "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." Other Warners filmmakers, including Jenkins and Denis Villeneuve, publicly expressed their frustration with the studio; the Directors Guild sent a letter to Sarnoff calling the move "unacceptable" and demanding a meeting; CAA president Richard Lovett sent a letter to Kilar calling the deal a violation of "trust and boundary"; and Endeavor executive chairman Patrick Whitesell sent a note to WME agents calling the move "a blatant attempt to self-deal."
Emmerich says he is cognizant of the anger, and the studio’s need to make its case to talent. "We’re not saying this is our strategy going forward; this is our strategy for 2021," he says. "We’re going to learn a lot as we go along, as the business rebounds and evolves in a post- COVID world."
Sarnoff says the studio announced the 2021 strategy before talking with its partners because they feared the news would leak. "I wish we could have had more time to speak to our partners and talent," she says. "We are very conscious of paying a fair price for the HBO Max 31-day distribution of the movie, and we think they’ll be happy to see how much effort we will put behind successfully launching these movies."
Some analysts say Hollywood talent worried about losing their backend profits as a result of the strategy are living in a fantasy world. "Talent acts like every movie makes money, versus every movie loses money with a few random ones that make a ton of money," says Greenfield. "Hollywood is creating a system where you can actually invest in a lot more pieces of content because you’re not worried about losing money on each title. I don’t think the people complaining truly understand the power of subscription economics. This will be good for creators, for studios, for agencies. It’ll just be different."
Warners’ partners remain skeptical. Around town, there’s a growing concern that the prioritization of streaming, in which more movies get made but the financial successes are smaller, will make it harder for studios to justify spending $200 million-plus on a film, resulting in fewer Wonder Woman 1984-size tentpoles. With the Wonder Woman team, Warner negotiated payouts of more than $10 million each for Jenkins and Gadot; deals for the studio’s 2021 films are still being negotiated, but there’s little reason to believe they would match the size of one of its most profitable franchises.
Mega theater circuits including AMC Theatres and Cinemark Theatres, meanwhile, have issued terse statements saying they will be forced to consider carrying Warners movies on a title-by-title basis. Insiders say some exhibitors are considering slashing individual ticket prices as low as $3 to $5 for any Warners title and would want to keep 75 percent to 80 percent of the revenue, meaning that the studio would get almost nothing back. In a Dec. 11 filing with the SEC, AMC placed partial blame on Warners’ decision in a warning that it could run out of money by the end of January 2021.
Just how much Warner Bros. is giving up in potential box office for this 2021 strategy shift is a matter of speculation — a MoffettNathanson report estimates $1.2 billion, though rival studio executives and financiers put that number far higher. Within days of Warners announcing its strategy, the FDA approved a Pfizer vaccine for COVID-19, and millions of doses began shipping around the country, though it will likely be summer before average Americans have access to it. "Most people think exhibition will be doing very well in the latter half of 2021," says John Fithian, president of the National Association of Theatre Owners. "Maybe they won’t be doing record numbers, but they will probably be back to profitable business operations."
Imax CEO Rich Gelfond says such a blanket policy may not have been the best approach. "Warners tried to come up with a plan to make content available for the pandemic, but the way they designed the plan is not optimal because they declared the pandemic wasn’t going to end until the end of next year," he says, adding that the plan could also dramatically dampen international box office returns for the 2021 Warner Bros. films because putting a movie straight on a streamer often results in a pristine copy being made available to pirates. That can hurt ticket sales, particularly in Asia, including China, where the box office has made a dramatic recovery.
WarnerMedia may justify box office losses if this gambit attracts scores of new subscribers to HBO Max. Wall Street has shown with Netflix and Disney, after all, that it’s willing to get behind a compelling streaming story, even if it means years of billion-dollar costs. Though HBO Max, which launched in May at a price of $15 per month, was available as an upgrade at no additional cost to around 26 million existing HBO subscribers, it only had 8.6 million active accounts after its first four months.
"AT&T and Stankey want HBO Max to work so badly that the decision came from people who do not understand the motion picture business," says one veteran financier, noting that Wall Street was seemingly unmoved by the Dec. 3 announcement. AT&T stock rose less than 1 percent to close at $29.23, a stark contrast to the nearly 14 percent surge in Disney stock price after the company unfurled its own 2021 streaming content plan Dec. 10.
"We have not done a good enough job of telling our story externally, because we’ve been very happy with the results," says HBO Max head Andy Forssell of the streamer’s early performance. But he acknowledges that the platform’s launch was a far cry from Disney+’s, with its 29 million paid subscribers in less than three months (and nearly 87 million just 13 months in). “We knew that there were some terms with distributors that were not realistic that we were not going to agree to and were going to be patient about that,” he says, referring to the fact that HBO Max was not available on Amazon Fire or Roku platforms at the time of its launch, cutting it off from 70 percent of the connected-TV market in the U.S. The company struck a deal with Amazon in November and remains in negotiations with Roku, which is said to be looking for a cut of advertising revenue from HBO Max’s forthcoming ad-supported plan. Forssell declines to comment on the talks but is confident the companies will "figure it out."
HBO Max has started to see a recent uptick, adding another 4 million active accounts since the end of September on the strength of its new release calendar, including original miniseries The Flight Attendant, starring Kaley Cuoco. Though the service’s original film slate has been light, Robert Zemeckis’ remake of The Witches starring Anne Hathaway quickly became the No. 1 feature on the platform after its Oct. 22 release.
Infusing HBO Max with 17 marquee Warner Bros. films has the potential to supercharge the service even further on the path to a 2025 goal of between 75 million and 90 million combined HBO and HBO Max subscribers. It’s for that reason that Kilar is willing to rankle more than a few Hollywood creatives in the short term. "Rapid change is really hard," concedes Forssell, who is well versed in his new boss’ leadership style, having worked alongside him at Hulu for more than five years. "This feels very dramatic right now, but I think five years from now, when you look back, it won’t feel nearly so dramatic."
Despite industry fears that Disney would follow Warners’ lead and propose day-and-date releases for its tentpoles, such as Black Widow, sources say that was never imminent. Instead, the company used its four-hour-plus investor event to announce a deluge of new series headed straight for Disney+, as well as news that some midrange films originally meant for the big screen will now go straight to the streamer. But at the end of the presentation, Walt Disney CEO Bob Chapek said franchises, the lifeblood of Disney in non-pandemic times, need an exclusive run in theaters. All of the company’s 2021 event pics, including Black Widow and Jungle Cruise, are sticking to a traditional release. "We did $13 billion back in 2019 at the box office,” Chapek said. “So for us it’s about balance — it’s about following the consumer as they make that transition."
Universal struck its own custom tailored deal with the major exhibitors, announcing its 17-day PVOD window in late July. Sony and Paramount have pivoted by moving release dates and selling films to streamers. When Paramount sold Coming 2 America, its anticipated sequel to the 1988 Eddie Murphy comedy, to Amazon for $125 million in November, it was "with enormous difficulty," says Paramount chairman Jim Gianopulos. "We were beautifully positioned during the holiday season," he says of the film, which was scheduled to open Dec. 18. “It was counterprogramming to some of the other films that would have been on the schedule. There was a lot of heat on it. But we were faced with a reality, which is we had two full years of movies that were going to get crammed into probably a half a year of releases, the second half of ’21. And so we had to make choices."
On Happiest Season, Sony was confronted with how to release a holiday movie at a time when New York and Los Angeles theaters were closed, so the studio sold the U.S. rights to Hulu while keeping the theatrical rights elsewhere. "In difficult circumstances, it’s hard to use the word 'successful,' " says chairman of Sony Pictures Motion Picture Group Tom Rothman. "But we’ve been quite successful so far in adjusting. That movie had to be out when the lights were on the trees. We are focused on doing what’s best for each film."
In other words, Warners finds itself standing on its own — at least for now — a precarious position once the COVID-19 crisis eases and moviegoing resumes in earnest.
Meanwhile, Hollywood’s increasing willingness to experiment leaves an opening for the tech giants that first ushered in streaming. Since March, Netflix has acquired global rights to five studio films, including awards contender The Trial of the Chicago 7. Amazon followed up its acquisition of Coming 2 America with another Paramount title, Tom Clancy thriller Without Remorse, starring Michael B. Jordan. “We hope that theatrical remains a thriving business, but at the same time, if the studios decide they’re going to pivot and they want to have a movie go straight to streaming, I want to be the first person in line," says Amazon Studios head Jennifer Salke.
Like other studio chiefs, Salke is holding a door open to stars and creators feeling burned. "A lot of talent are looking for a place to call home and a relationship they can trust with creative partners at a studio or a streamer," she says. "I’m happy to have any of those conversations."
This story first appeared in the Dec. 16 issue of The Hollywood Reporter magazine. Click here to subscribe.