Who’s Behind the Battle Between Warner Bros. and Hollywood? It’s AT&T

Even a small selection of the Warner Bros. 2021 film shows the studio’s ambitions on screen: a messiah on the desert planet who can kill with one word (“Dune”); a colossal clash between mutated monsters (“Godzilla vs. Kong”); A local hero who whips frantic dance routines over the rooftops of the city center (“In the Heights”).

This type of movie was once watched by families, couples, and teenagers on three-story screens from the comfort of stadium-style seats, with the bass notes of the soundtrack rumbling at their feet. But last week, Warner Bros. broke with tradition and announced that the entire programming of 2021 films on HBO Max – its tricky streaming service – would be released the same day they were due to hit theaters.

Hollywood agents and filmmakers were upset about the move – but they may have forgotten something crucial: Warner Bros. is owned by WarnerMedia, part of AT&T. And AT&T is a telecommunications company whose interests sometimes conflict with those of the old one Entertainment business stand. Though AT&T came to Hollywood in a big way last year when Time Warner bought it for more than $ 80 billion, it might not mind that much if it accelerates the demise of the centuries-old cinema habit.

For AT&T, HBO Max isn’t just a convenient way to bring movies and TV shows to the public. Instead, the platform is an important part of the cellular business. HBO Max is included in bundles for some high-end phone and Internet subscribers and is used in part to strengthen customer loyalty with AT&T.

The Warner Bros. films will also be shown in theaters – but if you watch them this way, a family of four will cost about $ 50 (excluding gas, parking, and concessions). That makes the $ 15 monthly fee for HBO Max a bargain. Or even a breeze. Especially at a time of fear caused by being part of a crowd during the coronavirus pandemic.

The studio’s emphasis on streaming undoubtedly carries the risk of AT&T losing money on its 2021 films. But the box office has already been hollowed out because of the pandemic, and every major studio stuttered its way into different release strategies.

Jason Kilar, the managing director of WarnerMedia who helped shape the strategy, could have opted for a more dispersed patient distribution scheme as coronavirus vaccines could potentially save part of the 2021 box office. Instead, he did something bold, potentially sacrificing billions in cash receipts to improve the streaming platform for $ 15 a month.

Mr. Kilar got into streaming early on, starting out as the executive director of Hulu in 2007. To those who knew him then, his steps at WarnerMedia came as no surprise.

In its early incarnation, Hulu was completely free, with limited commercial interruptions. The content relied on the television award but was better than the television because it was separate from the network plans. Watch what you want, when you want, for free.

But Hulu’s many corporate owners – Comcast, the Walt Disney Company, and Fox – eventually forced Mr. Kilar to charge a subscription fee when they saw the service wasn’t making real money. The monthly subscription costs in addition to the ads already running on the service effectively mimicked the cable and detracted from Hulu’s advantage.

In 2011, Mr. Kilar caught Hollywood’s attention by posting a memo attacking the entertainment industry for not using the internet. He left Hulu to start his own company and eventually found his way back to Hollywood through AT&T. His digital approach impressed John Stankey, who became CEO of the telecommunications giant that summer.

Mr Kilar’s most recent move has turned a powerful group into an uproar: the talent, whose back-end payouts depend on box office earnings. And the fact that WarnerMedia kept its plan a secret until it was revealed didn’t help.

“We’re seeing an opportunity to do something that is firmly centered on the fans, which is to make choices,” Kilar wrote in a blog post announcing the move.

Mr. Stankey, his boss, vigorously defended the change in strategy on Tuesday. “I think if we are really honest there is a win-win-win situation here,” he said at the UBS banking conference.

He added, “We think it’s a great way for us to get into the market faster and faster.”

Director Christopher Nolan, who made Tenet for Warner Bros. and is known as a proponent of feature films, was quick to condemn the studio’s plan to simultaneously release its films in theaters and on HBO Max.

“Your decision makes no business sense, and even the casual Wall Street investor can tell the difference between malfunction and dysfunction,” he said in a statement Monday to The Hollywood Reporter. He called HBO Max “the worst streaming service”.

But a strategy that writers and die-hard cinemas find dysfunctional makes perfect sense for Mr. Kilar and Mr. Stankey. AT & T’s primary focus is cellular service, a $ 71 billion business. WarnerMedia generates half of that.

More importantly, the wireless industry is making significantly more money than the entertainment business – and in a much more efficient way. AT & T’s wireless division generates three times the pre-tax profit generated by WarnerMedia.

Mr. Kilar didn’t make himself popular for the entertainment company during his time at Hulu, and now he seems to have made the content creators that make Hollywood work harder. But the company he works for has very little to do with other entertainment outfits.

For AT&T, in addition to being a way to make money, HBO Max serves as an incentive to discourage phone customers from turning to their competitors. Every 0.01 percent of customers who stay with AT&T are worth about $ 100 million to the company.

A price war between AT&T, Verizon and T-Mobile has cut cell phone bills and slashed profits. Cellular operators are committed to stealing subscribers from one another – a costly practice that includes discounts.

AT&T continues to want HBO Max to be as profitable as possible. But even if the bottom line suffers, the platform can still be valuable in helping the company retain cellular customers.

In the streaming competition that has intensified in recent years, HBO Max is facing some serious heavyweights. Netflix has 201 million customers worldwide, almost 70 million of them in the United States. Disney + grew rapidly to over 73 million. Hulu, also controlled by Disney, has roughly 37 million.

As of this week – six months after its launch – HBO Max had 12.6 million subscribers, or “activations” as the company calls them. These subscribers get virtually free tickets to the 2021 Warner Bros. movies. And it’s not just them – members of their family can watch too, as can anyone else who shares their credentials.

People interested in watching Wonder Woman 1984 or Dune without risking a movie have a strong incentive to save $ 15 for a month of HBO Max. They can see what they want to see and quickly cancel. Or maybe they’ll stay on the 2021 board for all 17 films.

But how will AT&T make up for the inevitable loss of theatrical revenue?

Research firm MoffettNathanson estimates that WarnerMedia’s average box office sales are over $ 1.8 billion per year. The studio has to share this amount with theater chains. That means AT&T will have film sales of around $ 900 million in 2021.

Of course, AT&T will bring in some cash next year. But the pandemic has dampened even the best of marketing plans. When WarnerMedia released Tenet in theaters in September, the $ 200 million project made only about $ 57 million domestically.

It will also make some cash through online rentals and purchases, as well as cable syndication.

Mr Kilar could stay ahead and please the shareholders of Mr Stankey and AT&T while potentially upset much of the Hollywood establishment. All he needs to do is get five million HBO Max customers to make up for the box office losses (or 60 million customers who only pay for a month). That would be on top of the 25 million subscribers that are already on the rise by May.

However, solving the market may not be as simple as it looks. HBO Max is the most expensive streamer at $ 180 a year.

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