Movie Theaters vs Streaming? Warner Bros' HBO Max Plan Is a Complete Paradigm Shift

Warner Bros.’ HBO Max Move May Be ‘Nail in the Coffin’ for Struggling Movie Theaters

WarnerMedia

Movie Theaters vs Streaming? Warner Bros’ HBO Max Plan Is a Complete Paradigm Shift

“The concept of modern-day cinema has been burnt to ashes,” Eric Schiffer of The Patriarch Organization investment firm says

The earthquake that shook Hollywood on Thursday — with WarnerMedia announcing that its entire 2021 motion picture slate will be released in theaters and streamed on HBO Max on the same day — signals a paradigm shift likely to be embraced by audiences and film companies on a permanent basis.

“The concept of modern-day cinema has been burnt to ashes,” said Eric Schiffer, CEO of The Patriarch Organization a private equity and venture capital firm based in Santa Ana. “It’s been hit with its own form of plague and this is the greatest danger to the big cinematic experience.”

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Hollywood insiders and industry analysts reacted with a sense of both uncertainty and inevitability. Uncertainty over if and when other studios would follow WarnerMedia’s lead, and inevitability that the digital transformation of entertainment had arrived in a permanent way not yet fully understood.

Although Warner said that its hybrid release plan was a one-year experiment responding the unique circumstances of the coronavirus pandemic and the uncertain state of the exhibition industry and audience behavior, few think that studios and theater chains will revert to the old models for movie releases and 90-day exclusivity windows. As one major studio executive, who declined to be identified, told TheWrap: “Do you really believe the genie can be put back in the bottle?”

Reps for the the other major studios — including Lionsgate, MGM and Disney — declined requests for comment.

However, insiders viewed WarnerMedia’s decision as a signal of an acceleration in the devaluing of the theater-going experience, for better or for worse. “This to me is a painful reminder of the realities of digital’s dominance and a further lethal blow to theaters and inflection point in the history of cinema,” Schiffer said. “AT&T has made a business decision that the traditional movie experience is less important. And I think it also says that they don’t think people will be going back to theaters soon.”

Schiffer added, “They also took an opportunity to take a leadership role and benefit from far greater subscribers and be on the front end of that battle. “You will see others now follow suit — those theater outlets that thought they could survive or hang on by the tips of their fingernails on a cliff of death have now lost another hand.”

Pivotal Research analyst Jeffrey Wlodarczak took an equally grim view. “Hard to imagine this is not godawful for the theater companies,” he told theWrap. “Most people put up with the theater experience — expensive food and increasingly mediocre seating and service — because of the exclusive window they have on content.  If you can get access to all these movies at home for $12-$15, it is a no-brainer many people will simply avoid theaters.”

Movie theaters were already struggling even before the onset of the pandemic, with the nation’s largest chain, AMC Theatres, mired in mountains of debt. Then the pandemic shut down theaters nationwide for months — with many remaining closed even as others managed to open with limited capacity and a thin slate of new releases. Just hours before Warner’s announcement, the company announced a plan to raise up to $840 million in badly needed cash by selling additional shares.

“That doesn’t mean that theaters are dead,  but it does mean that theaters are going to greatly contract…it remains to be seen if the theaters can survive a 30% haircut,” said Gene Del Vecchio, an entertainment consultant and adjunct professor at the USC Marshall School of Business. “It’s not clear to me that they can. To make it worse, I’ve got to believe all the other studios are just eyeing what WB has done and are saying, me too.”

Scott Kushner, a Stratford, Connecticut-based entertainment industry analyst, said he thinks movie theaters are not going away but may become more rare — and might have to be attached to another attraction, such as a casino, to remain viable. Kushner, 35, worked at a local movie theater to put himself through college from 2003 to 2008, and said he watched the number of workers at the concession stands dwindle during his tenure as the moviegoing audience diminished. “I assume that it’s been a slow progression when we look back on it,” Kushner said. “The pandemic has pushed this over the edge.”

Warner’s move is a clear signal that it sees its future not in traditional distribution paths but in building its six-month-old HBO Max into a worthy rival to Netflix and Disney+.

“This move should also be very helpful in driving HBO Max subscriber growth as it gives them a compelling reason to sign up,” Wlodarczak said. “For theaters they aren’t going to lose their entire audience as some people want the big screen experience. but you can get a 50 inch-plus TV screen for very, very cheap these days.”

Insiders note that the pandemic has merely accelerated a process that had begun before 2020. “What we see happening is, there’s a mega-shift that is moving from the theater business into the streaming world,” Del Vecchio said. “The money is now in streaming.”

Some industry watchers were more focused on what the move meant specifically to Warner Bros. and its place in the Hollywood production and distribution landscape. One producer told TheWrap agreed that Warner Bros.’ parent company AT&T seems to be less concerned with “keeping the theatrical business thriving,” but that it was “inevitable given the lackluster launch of HBO Max.”

The service, which launched in late May, reported a combined 38 million U.S. subscribers between Max and regular HBO at the end of September. That just barely surpassed AT&T’s internal expectations of 37 million.

Another producer said the action might serve to alienate creatives. “Basically, if you’re a producer with any meaningful project whatsoever, why would you go to Warner Bros. going forward, because you can’t trust that they’re going to release it appropriately?” he said, noting that producers and key talent that were expecting backend payouts based on box office targets will now have to settle for some upfront payout. “Contingent compensation will go down for all these players. Why would you show up there again?”

Ryan Webb, an attorney with Greenberg Glusker, observed that AT&T is under pressure to make HBO Max a success in the all-important streaming wars. “Warner Bros. needed to make a big splash to stay competitive, and this is no doubt a big splash,” he said. “It might very well be a long term shift. Consumers are going to be able to adapt quickly to the comfort of their own home, if they haven’t already.”

Webb did not think a move toward streaming would drive down production budgets, however. “The moviegoing audience is accustomed to a certain production value,” he said. “I don’t see studios cutting budgets.  I think that right now what we’ll see is people are going to become accustomed to watching movies in their ow home, and that in itself ids going to be a difficult experience for them to give up all of a sudden.”

Diane Haithman

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