Warner’s Offer to Theaters is This: Nothing
The HBO Max maneuver seems cruel, though not exactly unusual
The year was 2011. Scott Forstall strolls on stage at WWDC and unveils iMessage. This wasn’t just a shot across the bow of the cellular carriers’ cash cow, SMS, it was a shot straight to the head to put it out of its misery. But the best part was what came later, after the keynote. Talking to folks behind-the-scenes, Apple let it be known that remarkably, the carriers found out about iMessage the same time the rest of us did: in the announcement on stage.¹
I found myself thinking about that moment when reading about how Jason Kilar, CEO of WarnerMedia, made the decision to release their entire 2021 theatrical slate on their HBO Max streaming service. Most of the “partners”, it would seem, found out about the move via the press release. Ouch.
Look, on one hand, you have to feel badly for the movie theaters. They have been hit by a pandemic featuring perhaps the worst possible virus for their particular industry — if you were to hear what you should do if you wanted the highest likelihood of getting COVID-19 and then went about creating a business around such criteria, a movie theater might spontaneously form.² They’ve tried to adapt by retrofitting cinemas, renting out entire theaters to individual parties, and narrowing release windows (in exchange for a cut of streaming fees). But it was all only a stopgap measure. The pandemic lingers (and sadly, worsens) and while vaccines finally appear on the horizon, it’s going to be months at best until they’re effective. And even then, is anyone going to want to go back to a movie theater? Some people, sure. Most people? Probably not anytime soon.
With all that in mind, it seems like the Warner move was a bit of a cruel kick to a fallen ally. But at the same time, Warner (and their parent, AT&T) have their own bottom line and shareholders to answer to. They can’t just prop up movie theaters out of charity. Or because that’s the way it has always been. This is especially true in the face of Netflix, and now perhaps more pressingly, Disney+, launched by a rival studio, of course. HBO Max launched to much pomp and confusion about the branding. The offering was decent enough but it was neither Netflix nor Disney+. Nor was it even HBO thanks to the muddying of the branding waters. It was a tough sell in an era of near infinite streaming options.
Enter Jason Kilar. The former Hulu head comes in, looks at all the legacy baggage holding WarnerMedia back and says “fuck it, burn it all down.” At least that’s how it played out in my head.³ But, importantly, that’s seemingly also how the theater chains are thinking this played out.
“Clearly, WarnerMedia 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.”
That’s the quote from Adam Aron, CEO of AMC, famous for his subtle quotes of late, describing the situation. He’s not wrong, but it also just highlights how screwed the theaters are. Warner has decided some real short-term pain (missing box office revenue and profits) is worth it for long-term gain (locked-in HBO Max subscribers). They’re saying this is just a 2021 thing — well, they’re sort of saying this, the quotes in this piece are quite tellingly vague! — with COVID and in-person experiences still up in the air. But this is going to be a very hard genie to put back in the bottle. Probably impossible.⁴
This speaks to a world in which theaters still exist but far fewer of them, and really only to serve tentpole movies (though I’m giving away some other outside-the-box ideas here and here, for free). And given the economics of such a shift, I fully expect the movie studios (including newer ones like Netflix and Amazon and Apple) to step in to buy out some of the chains that are going to fail in this new world.
To be clear: I don’t want movie theaters to fail. I love going to see movies in a massive theater. I always have, I always will. But the large chains, like AMC, have made the experience not only not differentiated from a big screen in a home theater, but decidedly worse in many ways, So it’s hard to feel too badly for them. Theaters will need to compete on experience once again. Some smaller chains like Alamo Drafthouse have excelled at this; this is the way.
There is a world in which the rising tide of studios going direct to consumers lifts all boats — including theaters, in a way. It’s hard to see it now, but again, if they can figure out a way to once again focus on the moviegoing experience, this is possible and perhaps even probable. And Jason Kilar and WarnerMedia just made it essentially the only viable path forward with this move.
Back to the NYT piece:
“Like a lot of businesses, theaters are in a tough spot right now,” Jason Kilar, WarnerMedia’s chief executive, said by phone. “We are all in the middle of a pandemic, and we are all trying to figure our way through it. One of the things we can do to be helpful to them is to provide them with a steady stream of big-budget, well-told stories.” Mr. Kilar said the company had no plans to be flexible; even if the coronavirus threat receded dramatically in the summer, the new distribution model will stand for the year.
Translation: best of luck to us all, gentlemen!⁵
The previous theatrical window — an artifact of days gone by — was already under pressure to close and it seemed like COVID slammed it shut. But that was wrong, COVID merely lowered the window quite a bit. Warner just came in to actually slam it shut, with the theaters’ fingers still in the window pane, no less. Again, ouch.
¹ If memory serves, I actually believe no less than Steve Jobs himself was one of the sources of such information — casually dropping it in a chat after the keynote — though John Gruber can correct me if I’m remembering it incorrectly!
² Perhaps only “bested” by a cruise line!
³ In a well-reported piece by Alex Sherman for CNBC, it would seem that AT&T CEO (formerly WarnerMedia head) John Stankey unsurprisingly started the fire, Kilar just dropped an oil tanker on it.
⁴ One oddity of this new model which Warner is about to try is that the movies will apparently only run on HBO Max for a month, and then will head to PVOD services like iTunes (yes, it’s still called iTunes!) and elsewhere before heading back to HBO Max eventually. This should be nice and confusing!
⁵ And again, I’m fine with this. I’m not sure why it’s the role of the studios to sacrifice their own business to help the theaters. AMC is saying that the two sides need one another to survive, but this move is essentially Warner calling that bluff… If the theaters only true business is the result of a window — an artificial construct — then yes, they’re in trouble.
