Sources: Directors Guild Rebukes Warner Bros. in Sharply Worded Letter Criticizing Streaming Plan

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The letter is said to express the guild's concerns about how the films will be valued.

Days after WarnerMedia’s Dec. 3 reveal that it would premiere its entire 2021 slate of 17 films — including tentpoles like Godzilla vs. Kong, Dune and The Matrix 4 — on HBO Max the same day the features hit theaters, the Directors Guild of America has sent a sharply worded letter to Warner Bros. CEO Ann Sarnoff demanding a meeting to address its issues with the plan, sources tell The Hollywood Reporter.

The letter, signed by DGA national executive director Russell Hollander, was sent to Sarnoff on the evening of Dec. 8, sources say. It does not explicitly threaten any action but expresses the guild's concerns about how films will be valued. The DGA declined to comment.

The 18,000-member guild, led by president Thomas Schlamme, is said to have cited in the letter a prior meeting with Robert Greenblatt, then chairman of WarnerMedia Entertainment and direct-to-consumer, and Kevin Reilly, then chief content officer of HBO Max, in which Warners had communicated its intention that theatrical films moved to the streaming platform would be valued according to the prices they would command on the open market.

A source says the meeting took place Nov. 17, 2019, shortly after Sarnoff was hired. It was a "wide-ranging" meeting in the early days of formulating the HBO Max business strategy, says this source. Another person involved says, "The spirit of it was to get a fair, free-market value. What they've done is a departure from anything discussed in that meeting."

WarnerMedia CEO Jason Kilar pushed out both Greenblatt and Reilly in an August shake-up. Warners, which announced its streaming plans for the 2021 slate without any consultation with the Hollywood community, did not provide an opportunity for discussions on valuation but has offered a formula that has been poorly received by talent representatives. Industry observers have anticipated that the studio might face legal challenges asserting self-dealing.

It is rare for the DGA to take such aggressive action. The guild is the first of Hollywood's unions to weigh in on WarnerMedia's move; it is unclear whether others will follow its lead. Warners' Tenet director Christopher Nolan has already made his views known, telling THR the plan "makes no economic sense, and even the most casual Wall Street investor can see the difference between disruption and dysfunction."

Major theater chains have also expressed their displeasure. Adam Aron, the CEO of AMC Theatres, which operates 1,000 theaters globally, said Dec. 3 that the move will "sacrifice a considerable portion of the profitability of its movie studio division" in order to "subsidize its HBO Max startup." Cineworld, the owner of the Regal Cinemas chain, issued a more cautious reply a day later, stating that, "We believe that at such a time WB will look to reach an agreement about the proper window and terms that will work for both sides."

But AT&T CEO John Stankey talked up the deal at an investor conference Tuesday. The executive described the move by the firm's WarnerMedia division as a "win-win-win" for its partners, the company and consumers. That echoed Kilar, who wrote in a public Dec. 3 memo that the plan was "an opportunity to do something firmly focused on the fans, which is to provide choice," regarding seeing a film in theaters or on streaming. HBO Max, which launched May 27, has about 12.6 million “activated” subscribers. Warners 2021 slate will arrive day-and-date on the service and be made available for free for their first month.

Some on Wall Street think the streaming move could be a prologue to further talks with partners. Since "Warner Bros. made this announcement unilaterally, without having negotiated with its exhibitor partners, we do not think it will play out as advertised," read a Dec. 4 note by analysts at financial services firm Wedbush. "We think the exhibitors will aggressively negotiate for far fewer films to be released day-and-date on HBO Max."

Other observers noted that the timing of the plan — weeks after WarnerMedia revealed that Wonder Woman 1984 would arrive on HBO the same day it debuted in theaters on Dec. 25 — was puzzling. B. Riley analyst Eric Wold asked in a Dec. 4 research note: "The biggest initial question is why Warner Bros. would announce this new distribution plan for all of the planned 2021 films before seeing the results from WW84 later this month under the same strategy?"

Analysts at research firm MoffettNathanson wrote even more bluntly in a Dec. 4 note: "this decision will be a very costly one for everyone involved: AT&T, participants/rights holders, and theatrical exhibitors. It is hard to find any winners here."