January 27, 2021

DCTRS

Damascus Center for Theoretical and Civil Rights Studies

What’s the future of Warner Bros. under AT&T?

The decision to release Warner Bros.’ 2021 films simultaneously on HBO Max and in theaters has angered many filmmakers, financiers, agents and theater owners, and deepened a partisan divide between old-school Hollywood types and tech futurists who believe the exhibition business is due for epic disruption.

The bold move also brought into sharp focus growing questions about the future of Warner Bros., the 97-year-old studio behind such cinematic landmarks as “Casablanca,” “Batman” and the Harry Potter films. People close to the studio, including current and former employees, producers and other industry insiders who spoke to The Times, worry that the culture of Warner Bros. and its role within the larger entertainment industry are changing under the ownership of AT&T Inc.

Leaders of AT&T, WarnerMedia and Warner Bros. have spent the last week defending their strategy of putting films on HBO Max at no extra charge for 31 days, arguing that it is a boon for consumers stuck at home due to COVID-19 restrictions. Few expect Americans will be willing to sit shoulder-to-shoulder in a movie theater anytime soon, and much-anticipated movies, including Patty Jenkins’ sequel “Wonder Woman 1984” and Denis Villeneuve’s adaptation of Frank Herbert’s “Dune,” have been in limbo. Besides, this plan is only for the next year, they say.

“Our plan for our 2021 releases is in reaction to the pandemic and how we believe the marketplace will look for the majority of the year, based on our understanding from medical experts about the trajectory of the pandemic,” said Toby Emmerich, chairman of Warner Bros. Pictures Group, in an interview. “This plan is temporary, not our plan for the future. We believe this strategy is what is best for these movies, the fans, the company, the filmmakers and our partners.”

The question, though, is what happens after 2021? Few people believe Warner Bros. will go back to normal after the pandemic and that there could be lasting damage from the simultaneous release strategy.

After 12 months of getting to see potential blockbusters such as the fourth “Matrix” or “Godzilla vs. Kong” on the $15-a-month HBO Max, it will be hard to go back, analysts say. This means Warner Bros. is, in the words of a recent report by New York firm MoffettNathanson, “increasingly becoming a captive studio to HBO Max.” The upside is that HBO Max, now WarnerMedia’s priority, will grow faster. “But at what cost?” the firm’s analysts asked.

“It goes to the heart of what Warner Bros. will be in the future,” Michael Nathanson, an industry analyst at MoffettNathanson, said in an interview. “What’s Warner Bros.’ cash flow going to be long-term if it basically becomes a supplier to HBO Max?”

Since its founding in 1923 by siblings Harry, Albert, Sam and Jack Warner, Warner Bros. built a reputation as an artist-friendly studio, benefiting from relationships with luminaries including Stanley Kubrick, Clint Eastwood and J.K. Rowling. The studio, which released Oscar best picture winners such as “Casablanca,” “Million Dollar Baby” and “The Departed,” has long taken pride that top-tier filmmakers keep coming back to the lot with the famed “WB”-logo water tower.

But the abrupt way WarnerMedia announced its HBO Max plan signaled to many that the industry is now dealing with a different animal.

Creative partners were given little more than an hour’s notice before the news went out through a press release. Some executives at the studio suggested the company should engage more with talent before disclosing the decision publicly, but they were overruled, said people familiar with the matter who were not authorized to comment.

The reaction was intense. Agents were sent scrambling to renegotiate deals with the studio to make sure their actor and filmmaker clients get as much money as they can. Stars and directors often make money on the “backend” — by sharing in profits — if a film is a hit. With their movies going to HBO Max and theaters simultaneously, they’ll likely demand more pay upfront, agents and lawyers said.

Warner Bros. also has financial partners, including Legendary Entertainment, to contend with. Legendary, owned by China’s Dalian Wanda Group, is financing 75% of “Dune” and “Godzilla vs. Kong” with its affiliates, both big-budget movies that need a big box office result to turn a profit. The industry is rife with speculation that the day-and-date decision will spark litigation. Representatives for Legendary declined to comment.

“If the biz model suddenly gets changed, it’s going to take some time to understand the economics behind that,” said entertainment business attorney Jamice A. Oxley of law firm Pryor Cashman LLP’s Century City office.

Movie theater giant AMC Entertainment also blasted the decision, saying WarnerMedia clearly intended to sacrifice studio profits to “subsidize its HBO Max startup.”

Perhaps most worrisome, Christopher Nolan, who directed several of the studio’s film hits (“The Dark Knight,” “Inception” and “Dunkirk”), slammed the Warner Bros. decision as a blow to filmmakers who make their art to be seen on the big screen.

“Warner Bros. had an incredible machine for getting a filmmaker’s work out everywhere, both in theaters and in the home, and they are dismantling it as we speak,” Nolan said Monday in a blistering statement to the Hollywood Reporter.

Emmerich disputed that characterization. However, he acknowledged that the studio will have to compete hard to keep talent happy as other studios try to lure filmmakers.

“Unfortunately, it wasn’t logistically possible to meaningfully engage with everyone prior to this news becoming public,” Emmerich said. “But it’s certainly our job to fully answer anyone’s questions and work with them to explain this plan and treat people fairly. … There’s a lot of history and goodwill between our studio and our filmmaking community, and now is the time to be over-communicating and working as closely as we can, while acknowledging that our business is in uncharted waters.”

Multiple insiders and observers contend the new strategy reflects a culture clash between film business traditions epitomized by Warner Bros. — whose business is based on carefully maintained relationships forged over long lunches, parties and splashy awards campaigns — and the buttoned-down, bottom-line-focused demeanor of AT&T, the Dallas-based telecommunications giant.

The AT&T and WarnerMedia top brass, including WarnerMedia Chief Executive Jason Kilar, have little sentimentality for old ways of doing business in entertainment, people close to the company said. Kilar, a former executive at Hulu and Amazon who took over WarnerMedia’s top post in May, brought a tech leader’s sensibility to management decisions and often describes the company’s mission in “evangelistic” terms in memos and meetings, as one insider put it.

AT&T, which is saddled with nearly $160 billion in debt, searched for cost savings at its entertainment assets, eliminating hundreds of jobs from Warner Bros., including many longtime executives such as former marketing head Blair Rich.

Even before the HBO Max announcement, some people in the industry had started using the nickname “Former Bros.” Old-time Warner people have been “in mourning,” said a former studio executive who spoke anonymously to protect relationships.

Kilar and Ann Sarnoff, the former BBC executive who was tapped to run the studio in June 2019 and is now chair of Warner Bros. Studios and Networks Group, were not available for comment.

Warner’s evolving film distribution strategy also reflects the changing role of film studios in the modern entertainment industry. With movies and multiplexes no longer considered the center of the cultural universe, film studios are upending their longtime practices to serve the streaming ambitions of their parent companies. Some industry sources worry other studios will follow Warner Bros.’ lead.

Walt Disney Co., the most consistent theatrical hitmaker in the years before the pandemic, has already restructured its entertainment businesses to focus on making more content for Disney+. The studio is releasing films including Pixar’s “Soul” on its streaming outlet. Universal Pictures has adopted a different strategy, releasing films in theaters for at least 17 days before making them available as premium rentals for $20. That’s a dramatic shortening of the traditional 90-day “window” between a film’s theatrical release and its home video debut.

Emmerich said the apocalyptic visions for the movie business are exaggerated.

“Other studios will have different strategies and those will be based on their ecosystems and their films,” he said. “In terms of the future, most people think that windows will continue to shorten, and COVID will likely be an accelerant for that, but I don’t believe that windows will be permanently erased.”

If there’s one thing everyone can agree on in the industry, it’s that betting the Warner Bros. film slate — representing 17 movies in 2021 — on HBO Max is a big gamble by AT&T.

HBO Max launched in May as a way for the company to build on its HBO brand — which stands for quality in the industry — and broaden its appeal by adding shows that serve audiences beyond its older, male demographic. The app got off to a slow start because of a high price point, consumer confusion and its initial unavailability through Amazon or Roku. HBO Max has since secured a distribution agreement with Amazon but not Roku.

The service appears to be gaining momentum.

AT&T CEO John Stankey said Tuesday at an investor conference that HBO Max had hit 12.6 million subscribers, up 4 million from its count at the end of September. He credited programming such as “The Undoing” on HBO and “The Flight Attendant,” a Max “original” starring Kaley Cuoco. Having original movies for the next year should give people even more reason to sign up.

“Anytime you’re going to change a model, I know it creates a degree of noise. And this is certainly no exception,” Stankey said at the conference. “But I think ultimately rational parties will step back and look at this and say giving theater owners a predictable release of content over the next several months that they can plan around and start to work their business around is a good thing for them.”

AT&T’s stock closed Thursday at $30.69, down 2.5%.