The HBO Max bombshell, December 2020

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Reply 1, the writer · 2020-12-05

Here you go…..

How many of you know that on November 8, 1972 HBO was launched not as HBO, but as Home Box Office, and they were the first of its kind? They ran movies distributed by Satellite to the few cable companies that existed at the time (also a first) and as you know, over the years they have morphed into HBO and became the Gold Standard for in house created premium TV content. But with their announcement yesterday, although it’s been hailed (in WB’s own words, of course) as a new chapter in Feature Film Distribution, all they did was widen their Premium TV footprint by turning the Warner Brothers Theatrical slate into a bunch of TV movies. So here’s my take on what might happen going forward.

Let’s start with some base ideas, why have windows continued to exist and allowed the theatrical sector x amount of days before the content moves to other platforms? First (and most important), the Exhibitors still hold all the power here. Whenever Studios have come to them and said ”we want to alter the windows”, the exhibitors have just said “no thank you, we’ll pass”. Why can they do that? They understand that the revenue per viewer (RPV) is anywhere between a small multiple of another distribution tier (such as PVOD) to a massive multiple of the RPV you would get from tiers such as the subscription services. The exhibitors understand that their considerably higher price per view can’t compete with the bargain basement prices (per view) charged by other tiers. But on the flip side, why would any reasonable distributor not want to get the most revenue for each person watching the movie? And where have we seen any data that said that by getting rid of standard distribution tiers, are you just driving the RPV down to a point that the number of viewers can’t make up the difference. And that’s not counting the number of viewers that will consume the content on several platforms, so under the normal theatrical window track you’re getting multiple RPV’s from the same consumer. This is one of the things that always bothered me about collapsing windows, why don’t we let the higher RPV windows breathe and then move one at a time to the lower RPV tiers?

So let’s talk a little about what is happening with WB, Wonder Woman 1984 and the rest of their 2021 TV movies. Because of the well documented issues with exhibition and the government mandated closings during the Covid era, pretty much all parties involved have been using ‘covid rules’ to try new methods of distribution. What that means is ‘we’ll do whatever it takes to get through this, but this isn’t a precedent’. It all seemed fair, until now. Exhibition was always wary of agreeing to a trial of something new with a distributor, and then the distributor would say ‘well you did it here so let’s do it all the time’. I’ve used this before, but it reminds me of the old joke:

Person #1 - Hey, would you have sex with me for $1 million? Person #2 - Sure Person #1 - So would you have sex with me for $1? Person #2 - What kind of person do you think I am? Person #1 - We already know what kind of person you are, we’re just negotiating a price.

What we’re seeing this week with WB is exactly what exhibition was scared of. WB faced a really difficult situation with WW84; they had a top shelf date on Christmas Day for a sequel to a movie that did $400 million in the US, and could really have dominated the theatrical sector for several weeks. However, with the 2nd wave of Covid hitting and so many important markets were closed down, it wasn’t really an option to stay on the date. But the compromise was they would go day and date with AOL TV HBO Max, and at least the theaters that were open would have some product. But once the exhibitors signaled they would play WW84 (because of Covid rules) WB decided to put all of 2021 on free TV, and it all started going sideways. As far as the free TV thing, HBO Max is free right now for anyone who has HBO, and since HBO is just another tier on your cable/sat package (i.e. ESPN), it might as well be free TV. So essentially WW84 (and the rest of the 2021 slate) was going to be on free TV day and date with theaters, and exactly who is going to go see this in a theater when it’s on free TV? So what the exhibitors wanted (needed) was a film that in a normal world would open to $80 to $100 million, and what they’ll probably get is a film that opens (in theaters) to low single digits over one of the best weekends of the year. Sure they might play it now (remember it’s Covid rules) but what happens to the rest of the slate a couple of months down the road?

Now that WB moved the line with the whole slate, I would expect exhibition to basically start at ’you need us more than we need you’, and ‘I’ll play this but we will not pay you any film rental’, and then go from there. Because the only thing separating WW84 from all those sad little VOD movies you see on your cable/sat guide (the ones that even though you’re in the business, you’ve never heard of) that scream ‘currently in theaters!’ but they’re really not, is the major circuits playing this. The negotiations between WB and exhibitors might sound something like this:

Exhibitor - We’ll play the film but we’re not paying any film rental Studio - What kind of studio do you think we are? Exhibitor - We know what kind of studio you are, you make TV movies, we’re just negotiating a price.

And there are other films at Xmas (that aren’t playing on free TV at the same time) that will more than likely out gross WW84, so it’s not like this was the only hope for exhibitors at Xmas, it was before WB went TV, but now it’s kind of a nuisance. But let’s say the major exhibitors and WB come to some sort of an agreement and this gets played at xmas, what about the rest of the slate? If something as substantial an IP as WW84 only does a couple of million dollars over Xmas weekend, what does Mortal Kombat do, $1 million, if that? And what happens when we begin to get the at risk population vaccinated by the end of January or February (or even a month later) and hospital capacity is no longer a concern, don’t things start opening up pretty quickly? The problem for the rest of the WB slate is that there are a TON of movies for 2021, because anything worth a damn waited for 2021 and retail ’shelf space’ will be at a premium once things get open. I’m not talking about ‘normal’ I’m talking about open, and very quickly anything outside the house will be on fire. Exactly how is the (well respected) WB Distribution team supposed to get theaters for films that are playing simultaneously on free TV and are opening to $1 and $2 million (maybe), and the exhibitors have other product (that’s not on free TV) to play? It’s an easy ‘we’ll pass’ from the exhibitors, and because 21 films for next year become a ‘pass’, all the other studios get better placement, screens and playtime, especially Disney. In fact, it seems like Disney, as well as a couple of other studios that have big movies next year, are the big winners in this. I wouldn’t be surprised if there was damage done to the Team Disney building on the Disney lot yesterday because those 7 dwarfs that hold it up were dancing around doing the ‘raise the roof’ thing……

Of course, the ‘but we’re trying to drive subscriptions to HBO Max’ is a factor as well, and we’ll have to see what happens there. But if memory serves, I’ve seen a couple of studies where the venn diagram for HBO Subscribers and Moviegoers just looked like one circle, so I’m not so sure this will accomplish much, at least with movies. Both Disney + and Netflix tipped to a higher level based on TV Series, so using movies to make a sub service tip seems weird. However, there could always be a 2nd shoe dropping soon where Warner Media says ‘starting Jan 1, 2021, you will no longer get free access to HBO Max’, and that could be interesting as well.

So with the accuracy of the McKenzie MBA’s that probably hatched this crazy plan, here’s my thoughts on a couple of films this weekend.

The Croods: A New Age - The drop from last Friday (Black Friday) looks about the same as a Thanksgiving family film from the non covid period.

Half Brothers - This low star power comedy from Focus had a pretty skinny campaign and opened today in about 1400 theaters. As with most of the covid era films, it’s just okay and should wander into the high 6 figures.

All My Life - This romance film from Universal also had a pretty skinny campaign and opened in a little less than 1000 theaters. The screen average looks just a little behind Half Brothers so figuer it’s about the same % in gross as number of theaters.

Godfather Coda: The Death of Michael Corleone - Went about 120 runs and it’s consistent with other catalogue titles we’ve seen in the Covid era, so nothing special here.