The Stream that Shocked the Industry: Insight from an Industry Expert

The global pandemic has changed how Americans operate on a daily basis, including how they access film releases. With stay-at-home orders and quarantine regulations, going to the movie theater feels like an event of the past. There is seemingly no need to buy tickets and risk exposure when new releases are available at the click of a remote control. Streaming services have evolved to reflect the way viewers receive and enjoy content.

HISTORY OF HBOMAX

In 2018, AT&T, a communications company, expanded its business to the entertainment sector by acquiring Warner Media (née Time Warner Inc.).¹[1]AT&T Completes Acquisition of Time Warner Inc., AT&T (June 15, 2018), https://about.att.com/story/att_completes_acquisition_of_time_warner_inc.html#:~:text=AT%26T%20Inc.,mobile%20and%20broadband%20customer%20relationships. AT&T gained control over Warner Bros., HBO, and Turner, a trio with a combined revenue over $31 billion in 2017.²[2]Id. But even with multiple sources of content, Warner Media lacked a streaming service to compete with industry leaders, such as Netflix, Hulu, Amazon Prime, and Disney+. So, Warner Media joined the competition. In May 2020, HBOMax launched.³[3]Kif Leswing, HBO Max online service just launched in the U.S. – here’s a first look, CNBC (May 27, 2020, 1:09 PM), https://www.cnbc.com/2020/05/27/hbo-max-new-hbo-streaming-video-service-launches.html. As a new division of Warner Media, HBOMax had access to the content libraries of Warner Bros., HBO, and TBS, among others. However, AT&T realized a major release was needed to gain an influx of subscribers, similar to the success Disney+ had with the Hamilton release.⁴[4]Zoom Interview with Marshall Silverman, Former Executive, Warner Bros. Pictures (Feb. 2, 2021). The unprecedented global pandemic occasioned the opportunity to launch HBOMax with an anticipated box office superstar: Wonder Woman 1984 (WW84).

Warner Bros. achieved immense success with the first Wonder Woman movie in 2017, grossing $870 million from the initial theatrical release and more than $1 billion overall.⁵[5]Id. The success of Wonder Woman can be attributed to multiple factors: the popularity of superhero movies, a strong female lead, and an industry first – a female director of a superhero movie. Marshall Silverman, the man who purchased the film rights on behalf of Warner Bros., fought for a female director. Although he faced resistance, being told “no woman director has ever handled a $150 million budget before,” Silverman persisted and the company eventually engaged director Patty Jenkins.⁶[6]Id.

“Wonder Woman is a living, breathing being that people need to feel for and feel with…only a female director could do that for her.”⁷[7]Id.

WW84 was originally slated for a theatrical release in June 2020.⁸[8]Colin Hekimian, Wonder Woman 1984: A Brief History of the Sequel’s MANY Release Delays, CBR.com (Sep. 13, 2020), https://www.cbr.com/wonder-woman-1984-history-release-delays/ The original release date was then pushed to August 2020, then to October 2020, and finally to December 2020.⁹[9]Id. WW84 was a huge investment, with over a $200 million production budget and additional funds allocated to distribution and advertisement.¹⁰[10]Zoom Interview with Marshall Silverman, Former Executive, Warner Bros. Pictures (Feb. 2, 2021) Due to COVID-19, WW84 would struggle financially if only released in theaters, as most theaters were closed or faced severe capacity restrictions. Releasing the movie on the streaming platform, however, failed to balance the books.¹¹[11]Id. WW84 was a subscription success for HBOMax, but financial disaster.¹²[12]Id. Warner Bros. would “be lucky if they recouped the investment.”¹³[13]Id.

A SHOCKING ANNOUNCEMENT

In early December 2020, three weeks before the release of WW84, the film industry received shocking news from Warner Bros. All Warner Bros. films slated for release in 2021 would be streamed on HBOMax while simultaneously shown in theaters.¹⁴[14]Brooks Barnes, Nicole Sperling, Warner Bros. Says All 2021 Films Will Be Streamed Right Away, The New York Times (Dec. 13, 2020), https://www.nytimes.com/2020/12/03/business/media/warner-brothers-movies-hbo-max.html. While the industry was not shocked that changes were made to adapt to the pandemic, Warner Bros.’s specific plan came as a surprise, nonetheless, because of the core belief that “there’s a difference between watching a movie and experiencing a movie.”¹⁵[15]Zoom Interview with Marshall Silverman, Former Executive, Warner Bros. Pictures (Feb. 2, 2021) Viewers pay premium ticket prices not just to watch a movie, but to experience the communal act of going to a theater, buying snacks, and picking seats in front of a massive screen with surround sound, an experience that cannot be easily duplicated through at-home streaming.

WHY THE INDUSTRY IS CONCERNED

Money. At the end of the day, a movie’s financial value is its most important statistic. The decision to stream releases significantly decreases the value of films. Films are ranked internationally by box office revenues. Some streaming services have attempted to offset this devaluation by incorporating additional fees. For example, Disney+ labeled the live-action Mulan as a ‘Premium Title,’ attaching an additional fee to view within the first three months of its release on the streaming service.¹⁶[16]Adam B. Vary, Rebecca Rubin, With ‘Mulan,’ Disney Tests Out Entirely New Early VOD Model, Variety (Aug. 4, 2020, 2:00 PM), https://variety.com/2020/film/news/mulan-disney-plus-premiere-1234711185/. Consumers, however, dislike the idea of paying an additional charge to actually view the movie on top of paying a monthly subscription fee.

Production and distribution companies are not the only concerned entities with respect to a film’s losses. Talent and creators commonly participate in the revenue generated by distributing the films. For instance, Gal Gadot and Patty Jenkins both expected substantial profits from WW84’s box office, but Warner Bros.’s streaming decision eliminated box office evaluations.¹⁷[17]Tim Adams, Gal Gadot, Patty Jenkins Reportedly Paid $10M Each to Praise HBO Max Deal, CBR.com (Dec. 7, 2020), https://www.cbr.com/gal-gadot-patty-jenkins-10-million-praise-hbo-max-deal/. Instead, Warner Bros. paid bonuses of approximately $10 million to both Gal Gadot and Patty Jenkins.¹⁸[18]Id. These bonuses reflected what the box office revenue would have been had the pandemic not affected theaters.¹⁹[19]Id. Marshall Silverman, however, warns those in the film industry that this practice is unlikely to continue. Silverman cautions, “There’s no big pot of money coming from the theaters. Warner Bros. can’t keep giving money away to keep people happy.”²⁰[20]Zoom Interview with Marshall Silverman, Former Executive, Warner Bros. Pictures (Feb. 2, 2021).

WW84 continued the Wonder Woman storyline, establishing a franchise. But without a substantial box office, will production companies be willing to continue franchises? The answer, most likely, is yes. With respect to television shows, for example, viewers continue watching episodes when they are interested in the storyline. Some shows are even revived after cancellation because passionate fans rally together to pressure studios for more seasons. Although the risk of loss from continuing a franchise may be significant, it is uncertain whether it is high enough to stop production entirely.²¹[21]Id. As long as a movie has a strong fan base, even without monetary success, the franchise will likely continue because streaming services are hungry for content.²²[22]Id.

While a small fraction of the industry is concerned with increased rates of piracy, this likely is not a pressing issue.²³[23]Abigail De Kosnik, 2021 Will Launch the Platinum Age of Piracy, WIRED (Dec. 12, 2020, 9:00 AM), https://www.wired.com/story/2021-platinum-age-piracy-streaming/. Piracy was previously a booming business for copyright infringers. Film pirates would intercept prints being sent to theaters or bribe theater managers to “misplace” prints overnight so unauthorized copies could be manufactured.²⁴[24]Zoom Interview with Marshall Silverman, Former Executive, Warner Bros. Pictures (Feb. 2, 2021). Traditional pirates have been replaced by peer-to-peer file sharing, simplifying widespread and free piracy.²⁵[25]Id. Due to the ever-increasing popularity and accessibility of the Internet, few people still pay for pirated copies of films, thus destroying the business of piracy.²⁶[26]Id. In addition to the Internet, streaming decreased the risk of piracy. Netflix and Hulu both stream original film releases without an increased risk of piracy.²⁷[27]Id. There are ways to ensure limited viewership of new content, such as restricting the number of individual profiles on an account or setting geographical boundaries for accounts.

POTENTIAL LEGAL ACTION

Following the streaming announcement from Warner Bros., Legendary Entertainment (Legendary) threatened to take legal action.²⁸[28]Rebecca Rubin, Brent Lang, ‘Dune’ Producer Legendary Entertainment May Sue Warner Bros. Over HBO Max Deal, Variety (Dec. 7, 2020, 9:50 AM), https://variety.com/2020/film/news/legendary-entertainment-warner-bros-hbo-max-deal-dune-godzilla-1234847605/. Legendary is a production company that co-financed two films slated for Warner Bros.’s 2021 streaming release: Dune and Godzilla v. Kong. Legendary provided approximately $335 million in production budgets for those two films.²⁹[29]Id. Legendary was largely unaware of the decision to stream the films before the public was notified.³⁰[30]Id. As a result, Legendary expressed frustration with Warner Bros., – alleging: (1) Legendary was not given a say in the release method of the films, (2) Warner Bros. was not being transparent, and (3) the streaming decision would substantially devalue the two movies, which were previously valued at over $250 million each by other streaming services.³¹[31]Id.

Instead of pursuing legal action, Legendary is in negotiation with Warner Bros. to modify its streaming decision. Although the parties have yet to reach a compromise, it is likely that Godzilla v. Kong, set for release in May 2021, will have a theatrical release and be streamed on HBOMax, while Dune, set for release in October 2021, may solely have a theatrical release depending on the COVID-19 vaccine rollout.³²[32]Anthony D’Alessandro, ‘Godzilla Vs. Kong’ Bound to Stick With Theatrical & HBO Max Release as Warner Bros & Legendary Near Settlement, Deadline (Jan. 8, 2021, 1:35 PM), https://deadline.com/2021/01/godzilla-vs-kong-hbo-max-warner-bros-legendary-settlement-1234667654/.

THE FUTURE OF FILM

Did Warner Bros. need to make this streaming decision? The pandemic is truly unprecedented. Silverman comments, “It’s COVID; everyone understands, but not everyone is happy.”³³[33]Zoom Interview with Marshall Silverman, Former Executive, Warner Bros. Pictures (Feb. 2, 2021). Of course, executives and creators would prefer to wait until the end of the pandemic to capitalize on the larger profits that accompany theatrical releases, but the production and distribution companies are unable to halt business indefinitely given the uncertainty of when regular business will resume.

Back in the 1950s, people believed theatrical releases would cease to exist after the introduction of televisions into homes.³⁴[34]Id. Despite such concerns, viewers continued to frequent the theaters. Other, more convenient, forms of watching movies on home screens, such as DVDs and Video-on-Demand, did not end the theatrical business either and, likewise, neither will streaming.³⁵[35]Id. Viewers want the irreplaceable experience of watching a film in a theater. Will the film industry return to what it was pre-pandemic? Maybe. Silverman remarks, “There may be innovations, and [the industry] will go back, but it may not be exactly the same as what it was before.”³⁶[36]Id.

**Marshall Silverman is a Brooklyn Law School alumnus and Adjunct Professor of Entertainment Law. Silverman worked in-house at Warner Bros. Pictures for 23 years where, among other roles, he served as Vice President and Senior Motion Picture Production Counsel. He was instrumental in the development and production of over 40 feature films, and was associated with the creation of major film franchises, including Wonder Woman, Harry Potter, Batman, Lethal Weapon, and Ocean’s Eleven.**

Written by: Bernadette N. Schneider
Bernadette is a 2022 J.D. Candidate at Brooklyn Law School