WarnerMedia's Jason Kilar invokes wrath of Hollywood and cinema owners with move to shift movies to streaming

  • Several Hollywood industry executives and exhibition industry executives said they're furious about Warner's decision to release next year's movie slate to streaming at the same time as they debut in theaters. 
  • Insider say after they've made billions for Warner, their partnership is done in "one dark hour," and described the Warner move as a "Hail Mary" pass to goose HBO Max subscription numbers. 
  • HBO Max is providing a new revenue stream to talent via its license fee, but it's unclear if that will replace box office revenue.
  • Visit Business Insider's homepage for more stories.

Jason Kilar, WarnerMedia's new chief executive, appears to have stepped on a live wire. 

In shifting the company's entire 2021 slate of 17 big movie releases to HBO Max, he has created havoc with Hollywood and the cinema exhibitors.

Several senior Hollywood industry executives and exhibition industry executives told Business Insider on Thursday night they're furious about Warner's decision to release next year's slate to streaming at the same time as they debut in theaters. 

While movies such as Lin Manuel Miranda's "In The Heights," "The Suicide Squad," and "Matrix 4," will still get a theatrical release, they'll also be simultaneously available on the company's struggling streaming property HBO Max. The movies will be free of charge for subscribers of its $14.99-a-month subscription service. (An ad-supported tier is coming next spring.) 

One major Hollywood film insider said that some people had given up three years of their lives to make movies that were now unlikely to pay out because Warner is leaning on the pandemic.

HBO Max is providing a new revenue stream via its license fee, but it's unclear what kind of a trade-off that will be for movie creatives banking on big box office. 

Read more: HBO Max's chief breaks down the seismic decision to stream all 2021 Warner Bros. movies as they hit theaters and responds to speculation about 2022 and beyond

In Hollywood, where information is the hottest currency, big name directors and major film financiers were horrified to read about Warner's seismic movie give-away in the trades. 

The Hollywood insider told Business Insider that he had expected some kind of email follow-up from Warner's 49-year-old techwhiz chief executive, Kilar, but described the lack of follow-up as "unprofessional." WarnerMedia had given a select number of executives a same day heads-up on the news, according to one insider.

Instead, WarnerMedia has been telling talent — actors, producers and directors and writers — that some will receive payments related to what would have been a piece of the box office revenue and others will see their payday cut because of the pandemic. 

"They are deciding to pay some people for films going to HBO Max and other people, they're saying even though you have a contract to be paid a certain amount, they're not paying them anything," said the Hollywood insider. "I would say they have to be very careful or they'll end up in court pretty soon. They have decided to play favorites." 

A WarnerMedia spokesperson declined to comment.

When asked about talent payments Kilar told Vox's Peter Kafka that HBO Max would pay a licensing fee for Warner Bros. content. Intra-company payments — though common — are sometimes viewed negatively by Hollywood talent and their representatives given Hollywood's famous fuzzy math when it comes to sharing profits with those lower down the food chain.

Kilar told Vox: "So, there's absolutely economic consideration for what's going on here. Obviously, none of us can wave a wand and cause non-pandemic box office to suddenly show up in 2021." 

Warner Media's initiative is for the US only and will not affect international theatrical splits, however. On a big tentpole movie, as much as half of all box office revenue could come from overseas. The overseas box office has also been a much bigger part of the picture during the pandemic, with Warner's "Tenet" movie totaling $350 million, including $297 million outside of the domestic market. 

WarnerMedia could take a hit: research

On Friday morning, influential independent equity research company MoffettNathanson wrote a note titled "AT&T, US Theaters: Suicide Squad." 

The report stated that talent would have to forgo back-end payments and residuals because of the shift, "The importance of how this is handled can't be overstated," continuing, "The mere appearance of self-distributing could be seen as running counter to the best-in-class culture that has long been Warner's selling point to world-class talent." 

The company says WarnerMedia would take a big hit to its 2019 $2.4 billion in earnings before interest and taxes at the film division without some major accounting changes.

Theater execs are steaming

Kilar also made enemies among the theatrical partners, which delivered Warner Bros. $1.6 billion in box office revenue in 2019, making it the number two biggest movie maker behind Disney. 

"This is a business that has made the studios a great deal of money for hundred years, and they've been abandoned in one dark hour as they've said they're going to change everything," said one senior exhibition source who was disturbed by the news, adding there was at least some upside in that Warner was at least committing to releasing product.

Still, Kilar, who came from Amazon and launched Hulu, stands accused of some serious bad faith acting. Just weeks ago, Warner negotiated a deal to allow it to put "Wonder Woman 1984," on HBO Max, and then, without warning, added a host of others. 

"It's a lousy move in an ecosystem where everybody needs each other," said the same exhibition source. "It is really hurtful and unnecessary." This person suggested Warner could easily have extended its "Wonder Woman," deal and negotiated for some other releases. Instead it knocked the exhibitors side-ways at a time they're already on the floor, this person said.

AMC, the biggest player in the exhibition category, pulled no punches with its statement. 

"We have already commenced an immediate and urgent dialogue with the leadership of Warner on this subject," said chief executive Adam Aron in a statement. "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 start-up. As for AMC, we will do all in our power to ensure that Warner does not do so at our expense. We will aggressively pursue economic terms that preserve our business." 

A Cinemark representative said in a statement to Business Insider: "In the light of the current operating environment, we are making near-term booking decisions on a film-by-film basis. At this time Warner Brothers has not provided any details for the hybrid distribution model of their 2021 films." 

Warner's move has rumors, speculation flying

One rumor doing the rounds in exhibitor circles is that Warner believed that "Wonder Woman 1984" alone would not be enough to help HBO Max attract a significant number of subscribers. 

"What the hell are they doing?" one senior movie industry source told Business Insider. "HBO Max is a failure so far, it's gotten off to a weak start, they have to throw a Hail Mary to try to do something." 

This person suggested that Warner's owner AT&T was most likely looking to overshadow news that its DirecTV unit won't fetch anywhere near the $67 billion it paid for it. The company is selling a piece of the satellite company and other assets which have an estimated $15 billion valuation, according to CNBC. 

There has also been head-scratching about why Warner Bros. would release all of its 2021 slate to its streamer at a time when the vaccine is here and by early summer will be available to all, potentially enabling theaters to get back on their feet. 

Through the end of September, HBO Max has gotten 8.6 million activations since its May launch, a dismal number compared to other streamers such as Netflix. There are still millions of traditional HBO subscribers who are yet to upgrade to HBO Max. 

One Hollywood veteran believes the whole economic structure of the movie business is under assault, saying: "If every movie goes to streaming, why are they spending $250 million on 'Batman.' Maybe spend less? Maybe it's not worth paying for those talents?" 

This person added that Hollywood has been about luring mass audiences to hugely expensive franchise pictures that only work in the theaters when billions of dollars of tickets are sold. "If that's not the goal anymore, then what's the whole value proposition?" 

As for helping HBO Max, the Hollywood insider believes the decision could actually deliver yet another win for Netflix by ending talent into the arms of the streaming giant.

Substantial backend splits of theatrical box office revenue for talent on big movies was now in doubt, this person said. 

"They're using the work of people to advertise HBO Max and establish their property," this person said. "Netflix has 200 million subscribers; maybe there are 4 to 500 million people watching a Netflix show. How many are watching HBO Max? Maybe 16 million. They're [HBO Max] not going to pay you and they're not coming to you with any respect."

 

 

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