HBO Max's 'Wonder Woman 1984' Bet: Wall Street Debates "Grand Experiment"

Wonder Woman 1984
Warner Bros. Entertainment

'Wonder Woman 1984'

"We see this as a smart, albeit expensive, strategic maneuver," says Credit Suisse's Douglas Mitchelson as industry observers weigh in on the strategy.

Wall Street analysts on Thursday started discussing WarnerMedia's hybrid release strategy for Wonder Woman 1984 amid the coronavirus pandemic.

"This is an unprecedented move for a major Hollywood media company, especially for a $200 million film, and a grand experiment that could have long-lasting implications if successful," Credit Suisse analyst Douglas Mitchelson wrote in a report. "Up to now, speculation had been that Wonder Woman 1984 would either be delayed or be released in theaters and then shift over to HBO Max after a short exclusivity period."

The entertainment arm of telecom giant AT&T said late Wednesday though that the follow-up to the 2017 blockbuster that earned $828.1 million at the worldwide box office, which reunites director Patty Jenkins with star Gal Gadot, would bow in whatever U.S. cinemas remain open Dec. 25, as well as on WarnerMedia's streaming service HBO Max for one month before a premium video on demand at a yet-to-be-determined date. In international markets where HBO Max is not available, the film will start rolling out on Dec. 16.

"I find it fascinating that we will be measuring the performance of this movie in an entirely new way," WarnerMedia CEO Jason Kilar said about the release strategy in a blog post. Wall Street will look for data and color on the $200 million tentpole's performance after its launch as the financial fallout will be difficult to gauge given the pandemic-limited box office potential.

One part of the success equation will be how many subscribers HBO Max, which ended September with 28.7 million subscribers with access to the service, including 8.6 million actual "activations," can add, observers said. Activations are an important metric, because consumers can not only get HBO Max directly from WarnerMedia, but also from pay TV providers when they subscribe to HBO. But that requires them to download the HBO Max app on their smart TVs or other devices. The same is true for customers on AT&T's Unlimited wireless and fiber broadband plans.

It it "unlikely it gets much theatrical traction" in the U.S., Wedbush Securities analyst Michael Pachter tells THR about the movie. "I can't imagine it will debut on more than a few hundred screens." He explains: "By Christmas, we will be up to 300,000 [COVID-19] cases a day, and the entire country will be forced to close all indoor spaces to crowds." That will mean "widespread closures" of cinemas.

He expects Kilar to "give us a metric like Netflix uses" along the lines of "20 million watched it the first three days." And Pachter adds that it will be key for HBO Max to secure a major distribution holdout by then. "They had better get Roku working by then if they want to work the numbers," he says.

Mitchelson said the release strategy "clearly shows management, including still fairly new CEO John Stankey and WarnerMedia chief Jason Kilar, making a greater push towards investing in AT&T’s pivot to streaming, one of the company’s key growth initiatives."

He added: "We see this as a smart, albeit expensive, strategic maneuver aimed to drive very substantial subscriber acquisition for HBO Max given how starved audiences are for film content, both in terms of converting existing HBO subs (HBO Max has been off to a slow start with only 8.6 million of the 28.7 million eligible U.S. HBO subs taking the free conversion over to HBO Max so far) and adding new subscribers to HBO Max (the 38.0 million total HBO/HBO Max subs are just under 30 percent of U.S. households)."

Mitchelson said the goal will also be to "show customers, content partners, employees, and investors how seriously the company is pivoting to streaming," and "take advantage of the seasonally strong selling period for streaming (the last two weeks of the year are Netflix’s biggest sales weeks), especially given the unfortunate re-instatement of social distancing measures associated with rising COVID cases."

Mitchelson called Kilar’s mention of the 4 million people who saw the first Wonder Woman on its first day of theatrical release in 2017 a way “to help set the narrative on what the company might consider a success."

The financial math, however, is “complicated,” acknowledged Mitchelson. “The first Wonder Woman grossed $413 million in theaters the U.S. and $409 million overseas for an $822 million global take. Warners likely collected a net $200 million or so in the U.S. and would have expected at least that level pre-COVID, with tens of millions more from PPV and home video. At the same time, marketing costs might be less than normal for this release, there will still be some level of theatrical revenue for WW84 (perhaps with some offset of direct payments to theaters for day-and-date rights), and it is unclear when these pre-COVID box office levels would again be achievable."

His calculation: “On balance, using pre-COVID box office targets this would suggest an approximately $200 million marketing investment in HBO due to this decision. We would not agree with the simple math of subscribers acquired times average revenue per user times life of subscriber given the importance to jump-start HBO Max and the brand benefit to the service, as well as the potential for customers to resubsc

ribe in the future post the first time they churn (a healthy percentage of Netflix gross additions each qtr are from customers returning to the service) and for AT&T to leverage HBO Max marketing with their wireless and pay TV services.”

The Credit Suisse analyst also listed several interesting questions the release strategy creates. Among them: the amount of advertising support the film will receive relative to a normal theatrical release, especially given the likely free marketing given the unusual circumstances; “whether HBO Max implements ‘watch party’ functionality;” whether HBO Max maintains its free seven-day trial period, which “could lead to excess churn of consumers signing up just to watch the movie for free; and whether consumers consider Wonder Woman 1984 “more of an event film given its also being released in theaters versus just the perceived value of a straight-to -streaming release. and whether this value justifies paying theaters in the future for their part in creating it.”