Last month, WarnerMedia made the astonishing decision to shift its entire 2021 film release slate onto HBO Max as well as theaters. Given the continued uncertainty brought about by the coronavirus pandemic and the need to boost its multi-billion dollar streaming service, we understood the move from a strategic perspective. Unfortunately, WarnerMedia opted not to inform the creative talent involved in these projects nor the production and distribution partners. Unsurprisingly, all hell broke loose in the aftermath.
Directly after the announcement in December, we questioned how this would impact talent compensation. It should come as no surprise that this was the sticking point for the rest of the industry as well. Now, after drawn out negotiations, WarnerMedia will pay a bundle of money to profit participants in order to get this HBO Max strategy off the ground. On Friday, THR reported that Warner Bros. was nearing a nine-figure deal (likely in excess of $225 million) with Legendary over the hybrid release of Godzilla vs. Kong while Denis Villeneuve’s Dune may revert back to an exclusive theatrical release. This weekend, Bloomberg reported that box office bonuses are being completely restructured to ensure talent compensation for WB movies.
Per the outlet, the studio has adjusted terms of its deal with partners to guarantee payment and to increase the odds of performance-based bonuses. WB will also split a portion of the revenue generated from new HBO Max fees with cast and crews. Though COVID caps the upside of theatrical box office at the moment, WB was already sacrificing short-term revenue throughout 2021 with this strategy. Now, renegotiating talent deals to provide guaranteed payments in addition to significant settlements with Legendary further crunches the bottom line. HBO Max was in desperate need of a jolt after a disappointing launch. But this is turning into quite the expensive streaming campaign.
While the studio emphasizes that its hybrid release model only applies to 2021, many around the industry are skeptical of a full return to business as usual. This also applies to the new payment structure as industry partners become accustomed to more upfront money from the studio. Will Hollywood really be able to go back to the way things were in 12 months? Bloomberg notes that Warner Bros. is reallocating funds from some productions that were forced to shut down over COVID in order to cover the extra cost.
HBO Max was already a roughly $4 billion pivot for WarnerMedia while parent company AT&T manages $160 billion in debt. It all won’t matter much if this strategy brings tens of millions of new subscribers and activations to HBO Max in 2021. The high-profile release of Wonder Woman 1984 seems to have been a solid start. But it’s become clear that WB cost themselves a significant amount of money on the backend by deciding not to negotiate with partners before making its strategy public.
AT&T CEO John Stankey has previously said that WarnerMedia is shooting for a total of at least 70 million to 80 million global subscribers with roughly 50 million domestic subs. To get there, HBO Max needs this film strategy to work.