WarnerMedia Follows The Money. 2021 Films Will Be On HBO Max Simultaneously – A Blow To Theaters

WarnerMedia just announced that its entire slate of seventeen 2021 films will be made available on HBO Max on the same day that they will be available in U.S. theaters. This includes The Matrix 4, The Suicide Squad, Godzilla vs. Kong and Dune. You can read more about the specifics here. This follows the path that it took with Wonder Woman 1984 which will be available on HBO Max and in theaters on December 25 of this year.

This is good for audiences who are leery of going to the movies due to COVID-19, good for studios who are still reeling from decreased revenue, and might be a final knockout punch to theater chains.

This was a long time coming. COVID-19 simply accelerated the shift.

Studios and streaming companies have long wanted to premiere films simultaneously on all platforms, known as day-and-date release. It’s potentially more profitable because it allows studios to reduce marketing expenses by launching a film only once while gaining more revenue earlier in a film’s life. This is significant because while in the 1930’s about 65% of the Americans visited a theater each week, it is only about 10% today. Targeting all audiences at once, on the platforms they prefer, simply makes economic sense.

Audiences also benefit greatly via greater choice and reduced expense. A family of 4 might pay $80+ for tickets and food at the theater whereas watching it on a streaming service might be free with a low monthly subscription or cost anywhere from $20 (Trolls World Tour) to $30 (Mulan) if offered as a streaming premium.

But a day-and-date release has been thwarted by theater owners who have threatened to boycott studios that tried it. With the emergence of COVID, the power of theater chains has greatly diminished. To survive they have acquiesced, most noticeably to Universal Pictures
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that obtained a 17-day window from theater premiere to streaming.

While executives from WarnerMedia state that its simultaneous theater and streaming launch is a short-term remedy to address COVID, it’s likely to stick.

Because of simple math…and the money.

A good indication is Disney’s recent year-end report. What went largely unnoticed was that its Direct-to-Consumer division revenue hit $16.9 billion in 2020 which eclipsed the Studio’s rosy 2019, pre-COVID results of $11.1 billion. Clearly, the future is streaming and while a theatrical premiere was once the venue of choice, it will now be an add-on and not the driving force of the entertainment business. Studios will be deciding which films are worthy of a theatrical premiere and which are not. I doubt that theater attendance will ever return to 2019 levels (see earlier article).

What does that mean for Warner Bros. and HBO Max. 

At yearend 2019, the total worldwide box office hit $42.5 billion, of which Warner Bros. was $4.4 billion. If we assume that Warner Bros. took a 50/50 split from theaters, its revenue from theatrical was about $2.2 billion. If we assume that its 2021 slate of films would have netted about the same revenue, we can compare it to a streaming option. At a yearly discounted rate of $69.99, HBO Max will need to pick up about 31 million new subscribers who sign up specifically for the 2021 slate to reach the same 2019 box office revenue (not counting third party distributor cuts). That might be tough. But, we can add revenue from those subscribers who stick around for more than one year, in addition to those who see the films in theaters internationally where HBO Max is not available.

Is this at all possible? Yes, now that AT&T
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struck a distribution deal with Amazon’s Fire TV – and hopefully a deal with Roku will come soon – since together they control about 70% of the streaming access.

Theater owners are in great pain, and in part it is their own lack of vision (see earlier article). Just today AMC filed with the SEC to sell up to 200 million more shares in order to raise about $800 million in cash. It’s a Hail Mary pass.

The WarnerMedia announcement is the latest, natural progression toward theaters greatly diminished role. We can expect that other studios will pile on and follow suit. Even though theaters are likely to get a larger percentage of the box office from studios when films are simultaneously streamed, it is doubtful that they can recoup what they lose from a smaller theatrical audience.

WarnerMedia is following the money because there’s not enough money in theaters short-term, and there might not be enough there in the long-term either.