Can the economics of a megabudget film work for streaming? The reply is sophisticated.
WarnerMedia, the leisure large now owned by AT&T, is betting large on smaller screens. The corporate has dedicated to placing its whole movie slate for 2021 onto its HBO Max service on the identical day these movies are set to debut in theaters. At the very least 4 of these movies are prone to have manufacturing budgets effectively north of $100 million. The technique will get a giant preview on Christmas Day with the discharge of “Surprise Lady 1984” in the identical method. That film—with a reported finances over $200 million—qualifies as the costliest ever to make its preliminary debut on a subscriber-based streaming service.
Can it work? Buyers obsessed with streaming will level to Netflix, which has been producing dearer films not too long ago for its personal service. Two of essentially the most notable had been the Martin Scorsese-helmed gangster flick “The Irishman” and a Michael Bay motion title referred to as “6 Underground.” Each price greater than $150 million every to make and each launched late final yr.
Netflix famously retains a decent lid on exact efficiency information, however the firm mentioned about 26.4 million international accounts watched a minimum of 70% of “The Irishman” throughout its first week of launch final yr. The corporate additionally mentioned throughout its fourth-quarter earnings report in January that greater than 83 million seen “6 Underground” throughout its first month—although it famous in the identical report a change in its methodology that now counts a viewer after solely two minutes into this system.
Netflix added a little bit below 8.8 million subscribers within the fourth quarter of final yr when these films made their debut. That was forward of its personal projections, but in addition slightly below the 8.9 million added in the identical interval the earlier yr. Common income per paying subscriber, although, rose about 9% yr over yr.
Nonetheless, Netflix is a streaming firm, with a enterprise mannequin designed round that function. Established Hollywood studios equivalent to Warner Bros. and Disney which have lengthy primarily based their companies round theatrical exhibition and downstream income from there have to string a distinct needle.
And Warner’s aggressive pivot to streaming was born out of necessity, with the pandemic having closed a lot of the nation’s theater capability. Solely 38% of North American film theaters had been open the weekend of Dec. 11, down from 57% over Labor Day weekend, based on Comscore.
Even when a lot of these reopen in time for subsequent summer season’s film season, WarnerMedia’s determination will show expensive. U.S. theater chains haven’t mentioned but if they are going to even play the corporate’s films subsequent yr since all will likely be obtainable to stream on HBO Max for subscribers.
That locations the corporate’s whole home field workplace for 2021 in danger. Warner Bros. films have averaged a home field workplace gross of $1.8 billion yearly over the past 5 years, estimates Michael Nathanson of MoffettNathanson. So even a pointy drop as a consequence of restricted theater capability in 2021 may nonetheless go away the corporate lacking out on round $1 billion in box-office income.
That would show value it if it helps the corporate to considerably develop its HBO Max subscriber base that presently numbers 12.6 million, based on AT&T Chief Govt John Stankey at a Dec. 8 funding convention sponsored by UBS.
Doug Mitchelson of Credit score Suisse estimates that if HBO Max provides 5 million new subscribers because of the new technique, the extra $700 million in annualized income creates “the potential for a one yr or much less pay again.” However theatrical films additionally generate income from different launch home windows equivalent to dwelling video, which additionally may disappear if a film merely goes to HBO Max.
“For a corporation for which free money circulate is valuable as they wrestle to steadiness their dividend and their bond scores, this can be a excessive worth to pay,” Mr. Nathanson wrote to shoppers of mother or father firm AT&T’s plight.
There may be additionally a possible price to WarnerMedia’s popularity. The transfer has generated appreciable ire in Hollywood, as filmmakers whose films obtained shifted to streaming stand to overlook out on box-office participation. The corporate says it has a plan to compensate for the shift, however it nonetheless might need to put in writing some large checks round Hollywood to place out these fires. In any other case, its effort to gentle a hearth below HBO Max may go away scorch marks.