Warner Bros.' Streaming Bet Draws Mixed Reaction From Theater Owners

Warner Bros. Entertainment

Warner Bros.' and Legendary's 'Dune' will now go to HBO Max the same time it hits theaters on Oct. 1, 2021.

Beleaguered exhibitors have had a relatively subdued response so far to the studio's day-and-date plans for 2021 features: "Once competition comes back this summer, theater owners will hold out for better terms."

In normal times, Warner Bros.’ proclamation that its entire 2021 slate of films will be released simultaneously on HBO Max and in U.S. theaters — completely shattering the theatrical window for the first time in history — would prompt a chorus of boycott threats.

Instead, the reaction from the exhibition community — ravaged by the novel coronavirus pandemic and in desperate need of content for likely months to come — was relatively subdued, save for AMC’s outspoken CEO Adam Aron. So far, the National Association of Theatre Owners hasn’t weighed in. But the battle is far from over, and more could sound their own rallying cry once the COVID-19 crisis ends and moviegoing resumes in earnest.

While some in the exhibition community had a sense that a such a major announcement was coming from Warners, most didn’t learn of the drastic move until the statement went out. Sources tell The Hollywood Reporter that the bold initiative, orchestrated by WarnerMedia CEO Jason Kilar, was kept close to the vest on the Burbank lot. Since joining WarnerMedia in May, the former Hulu chief has undertaken a significant restructuring of the AT&T division to prioritize its streaming bet HBO Max and grow its subscriber base.

AMC, the country’s largest theater circuit, said it signed on to the studio's previously unveiled plan to do a day-and-date release for Wonder Woman 1984 on Dec. 25 because of the ongoing COVID-19 crisis and widespread closures. But going forward is another matter.

"Clearly, Warner Media intends to sacrifice a considerable portion of the profitability of its movie studio division, and that of its production partners and filmmakers, to subsidize its HBO Max startup. As for AMC, we will do all in our power to ensure that Warner does not do so at our expense," said Aron. "We will aggressively pursue economic terms that preserve our business." AMC said it is currently engaged in “immediate and urgent dialogue with the leadership of Warner on this subject.”

Insiders say that AMC is receiving 60 percent to 65 percent of Wonder Woman 1984 U.S. ticket sales. Usually, the studio receives around a 60 percent take on tentpoles. (While 2017's Wonder Woman grossed $412 million domestically, expectations are far lower for the sequel's run in theaters given the circumstances.)  

Thursday's proclamation was especially surprising to Hollywood and exhibitors since it encompasses the entirety of Warners' 2021 slate. Many in the film industry believe moviegoing in the U.S. will resume in earnest in the summer, based on promising news about COVID-19 vaccinations. (As of now, HBO Max is only in the U.S., meaning that the 2021 movies will still get international releases in theaters, including Asia, where the box office has rebounded.) Warners — which stressed the day and date initiative is for one year only — believes differently.

“We're excited about the vaccines and the programs that are going to distribute them, but talking to the epidemiologists that have been consulting with us, we think it will be toward the end of the year that it seems like movie theaters and Broadway theaters will return to normalcy. It could be a pretty long time,” Warner Bros. Pictures chief Toby Emmerich told THR on Thursday, adding that the company remains committed to the theatrical experience. “We thought it was better to guarantee as many movies as we could for the year for the global theatrical marketplace, so they would stay open and know they have product coming."

Others were more willing to adopt a wait-and-see attitude. “We get it, for the most part. We are glad they are positioning it as a temporary pandemic model, but it is disturbing that they decided it was going to be all of 2021,” says another top exhibition source who believes the summer will bring a major box office recovery. “Once competition comes back this summer, theater owners will hold out for better terms.”

Cineworld, which operates the nation's second-largest theater chain in Regal, echoed this sentiment in a more subdued Friday morning statement, where the chain touted encouraging news about the COVID-19 vaccinations and Q1 plans to reopen its theaters. "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," read the statement.

After Warners' announcement, the exhibition sector took a further beating on Wall Street on Thursday. AMC, which disclosed it would be selling 200 million shares in the hope of improving its liquidity, saw its stock fall some 16 percent by the close of the market. Cinemark, the third-largest theater chain in the U.S., finished the day down 21 percent, while Imax slid 8 percent.

“They got pummeled after people saw the news that Warner is taking their 2021 slate and doing a simultaneous release,” says Eric Handler of MKM Partners. Cinemark noted in a statement that Warner Bros. has not "provided any details for the hybrid distribution model of their 2021 films," adding: "In light of the current operating environment, we are making near-term booking decisions on a film-by-film basis."

Warners isn't the first studio to test theatrical windows amid the pandemic, but it has gone the furthest. “These companies are trying to achieve scale as fast as possible and they are all taking major steps to drive subscribers, and Warner Bros. is way behind and they needed to do something big to get their sub numbers moving a lot higher,” notes Handler. “Also, there is a lot of box office uncertainty right now.”

After touting the success of the PVOD release of Trolls World Tour in March, Universal was threatened by AMC with a ban that would bar the studio's features from playing the nation's largest theater chain. In July, the studio and exhibitor revealed a landmark partnership that allows Universal's movies to be made available on premium video-on-demand in the U.S. after just 17 days of play in cinemas, with AMC sharing in the PVOD revenue. (A similar deal was later inked with Cinemark and Cineplex in Canada.)

In November, Disney unveiled a restructure that is oriented around servicing Disney+, which now touts some 73 million subscribers. The studio, which as of late commanded a lion's share of Hollywood's total box office revenue — including more than 33 percent of market share domestically in 2019 — has already sent once-theater-bound features like Mulan and Hamilton to streaming, and Pixar's Soul is due to hit the platform over the Christmas holiday. (More Disney+ news is expected at its Dec. 10 Investors Day.)

In 2021, HBO Max subscribers will be delivered spectacle, as they are able to stream The Suicide SquadThe Matrix 4DuneGodzilla vs. Kong and a Space Jam sequel, all considered big-budget tentpoles. Says Shawn Robbins, chief analyst at BoxOffice.com, “At the end of the day, it’s a risk. It’s not just a risk for the theaters but it’s a risk for the intellectual properties that Warner Bros. has, because if the experiment doesn’t pay off, they have now committed some of their biggest potential moneymakers to a platform [HBO Max] that is unproven.”

Handler agrees that a studio could leave hundreds of millions of dollars on the table if it bypasses a traditional release for its bigger tentpoles. But in Hollywood’s new arms race, all bets are off. “Investors want to see big [subscriber] growth numbers and they are willing to accept losses, significant losses, at the moment in exchange for rapid sub growth,” he adds. "But you have AT&T, who has a mountain of debt. They can’t afford major losses for an extended period of time.”

Adds Robbins: "It is surprising that they jumped on this new strategy before seeing how the first experiment goes with Wonder Woman. They are cashing in their chips for next year without seeing those results."

Dec. 4, 9:20 a.m. Updated to include statement from Cineworld.