| March 6, 2022
There are only five studios left. Disney, Paramount, Sony, Universal, Warner Bros.
Paramount is as shaky as Don Knotts. Sony is stable, but lacks a clear vision for the future. And now the tie-breaker between the high (Disney and Universal) and the low, Warner Bros is taking itself out of the movie business.
Netflix has a bigger market cap than AT&T… not WarnerMedia… ALL of AT&T. You see, AT&T generates $160 billion a year in revenue… Netflix generates $24 billion. But Netflix is worth more than AT&T…. according to Wall Street.
In 2013, Ted Sarandos said, “”The goal is to become HBO faster than HBO can become us.” Now, the TV-born leaders of Warner Media want to be Netflix.
Never mind than HBO alone has been more profitable than Netflix historically. Never mind that Netflix has been valued as a tech stock from the start and AT&T will never be. Never mind that HBO Max is still stumbling out of the gates and hasn’t shown an ability to convert even their own HBO-subbing customers to the new streaming service for free.
Throwing the entire 2021 schedule (and Wonder Woman 1984 at Christmas) at the HBO Max spend, they have roughly doubled their HBO Max spending for the year overnight, somewhere between $4 billion and $5 billion. Still not at Netflix pace, but a lot more than they intended when this journey started. And much more than they have ever spent on a year of theatrical movies.
HBO had, going into HBO Max, 55 million domestic subscribers and 88 million international subscribers. That’s still about 40 million short of Netflix now. But in range. Disney+, which is operational in only a few countries outside of the U.S. is in the low 60s of millions of subs. Amazon Prime has more than 142 million U.S. members… only a fraction of whom use the movie/TV service. And Peacock will catch up (after a lot of changes) in time.
So the battle has begun in earnest… Whether anyone but Jason Kilar thinks it is a good idea or not.
This is what happens when you put TV people in charge of everything… they think everything can be fixed by TV. They don’t understand the other pieces of the puzzle as well as their value.
One of my favorite writers, Joe Adalian wrote today, “Streaming is the heart and soul of these entertainment giants now, so they really don’t have much choice but to try to make these new services work.“
They are heart and soul… like Tony Stark’s chest plate. It was a jerry-rigged solution made in the middle of desperation by people a lot less brilliant than Iron Man and Tony is stuck with this thing, in the suit or not, until he dies.
Streaming is not going away. It is the future. Part of the future. Television. It is not everything. It may become the “heart and soul,” but Disney, it would become such at a massive loss of annual revenues and the taken-for-granted exhibition world won’t be there to add what will be much-desired and much-needed revenues if they are forced to shut down by the “daring experimentation.”
I believe in theatrical as much, or more, than anyone. But as I have written for decades, there are incremental losses that will collapse windows and once those lucrative windows are collapsed and replaced by flat-rate subscriptions, the majority of theaters will close and the ability of content producers/negotiators to increase profits by doing anything other than lowering spending and raising prices will be gone.
Let’s be clear… Disney doing $4 billion a year domestically is not enough to save theaters. Put aside COVID. Realistically, a strategy like the one WB is rolling out will cut domestic box office in half… at best. A majority of theaters would close and probably two-thirds of all screens. And then, Disney can’t do $4 billion or $3 billion or, most likely, $2 billion. So then they have no choice but to reconfigure their distribution plans because those massive number of seats that are empty all week in theaters is key to the mega-numbers that have become possible for blockbusters.
It’s MAD… Mutual Assured Destruction.
Many have said to me over the years that they would look forward to a film industry with its knees broken, forced into lower budgets and more opportunity. And they could get their wish. Of course, their rose-colored glasses about the wonders that will come with restraint are painted with ignorance of how money really works. They imagine a world of Easy Riders but reality tends to be a rack full of Dolph Lungren movies.
And so it begins. I am really trying to figure out how this plan works for anyone, starting with Warner Bros. It’s a soft content year for the studio, so they aren’t throwing the HUGE money away. But playing games with a unilateral move like this is taking every studio for a ride.
No big deal. right?
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"Netflix, the great disrupter whose algorithms and direct-to-consumer platform have forced powerful media incumbents to rethink their economic models, now seems to need a big strategy change itself. It got me thinking about the simple idea that my film and TV production company Blumhouse is built on: If you give artists a lot of creative freedom and a little money upfront but a big stake in the movie’s or TV show’s commercial success, more often than not the result will be both commercial (the filmmakers are incentivized to make films that will resonate with audiences) and artistically interesting (creative freedom!). This approach has yielded movies as varied as Get Out (made for $4.5 million, with worldwide box office receipts of more than $250 million), Whiplash (made for $3.3 million, winner of three Academy Awards), The Invisible Man (made for $7 million, earned more than $140 million) and Paranormal Activity (made for $15,000, grossed more than $190 million).From the beginning, the most important strategy I used to persuade artists to work with me was to make radically transparent deals: We usually paid the artists (“participants” in Hollywood lingo) the absolute minimum allowable by union contracts upfront, with the promise of healthy bonuses based on actual box office results—instead of the opaque 'percentage points' that artists are usually offered. Anyone can see box office results immediately, so creators don’t quarrel with the payouts. In fact, when it comes time for an artist to collect a bonus based on box office receipts, I email a video clip of myself dropping the check off at FedEx to the recipient."
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