WarnerMedia CEO Jason Kilar took some heat for the decision to release all of Warner's 2021 films simultaneously in theaters and on HBO Max. Parent company AT&T says that strategy is working.
Getty ImagesWarnerMedia CEO Jason Kilar’s embrace of the Silicon Valley entrepreneur’s credo — to move fast and break things — appears to be paying dividends for AT&T’s HBO Max streaming service, an early laggard in the race toward entertainment’s future.
In a decisive lurch toward that future, Kilar angered just about everyone in the movie business when the Warner Bros. studio announced in December that it would release all of its 2021 films simultaneously in theaters and on HBO Max.
This morning WarnerMedia parent AT&T said this controversial strategy is paying off, with new movies like Godzilla vs. Kong serving as subscriber catnip for its fledgling streaming service, even as it set pandemic box office records.
HBO and HBO Max together attracted 44.2 million domestic subscribers in the March quarter, up 34% from a year ago. The streaming service alone has added 11.1 million subscribers since its launch last May, including 2.7 million since January. That sets the stage for the launch of an ad-supported service in June, when it also plans to begin its international rollout.
“HBO Max continues to deliver strong subscriber gains due to the success of our day-and-date release strategy and strengthening content slate,” said AT&T CEO John Stankey in a call with investors.
That’s not to say Kilar and Company can relax. HBO Max still has a long way to go to catch Netflix and Amazon, which together account for nearly half the domestic streaming market. Though as recent earnings results demonstrate, Netflix is hardly immune to the competitive threat. The service added 4 million subscribers in its fourth quarter, including an estimated 448,000 in the U.S., well below the 6 million it forecast.
As the U.S. market becomes saturated, the emphasis has shifted from exporting Hollywood movies and TV shows around the world to developing local-language content — a place where rivals like Netflix and Amazon have a head start. HBO Max will debut in June in 39 countries across Latin America, and in 21 European markets by the end of the year.
The controversial decision to bootstrap Warner Bros.’ movie slate to bolster the HBO Max streaming subscriptions, in defiance of traditional movie economics, is at least giving Kilar a fighting chance. Consider the Christmas Day premiere of Wonder Woman 1984, the hotly anticipated sequel to the 2017 blockbuster starring Gal Gadot in the title role, drove more sign-ups on opening weekend than any other release — including Hamilton’s debut on Disney+, according to Antenna research.
Godzilla vs. Kong, a planned 2020 summer event film whose release was delayed because of the pandemic, attracted some 3.6 million households in the first five days of release, according to an analysis from Samba TV, which tracks viewing on smart TVs. In just eight days, Godzilla vs. Kong has become the most viewed piece of content on HBO. It also smashed pandemic-era box office records, bringing in $390 million worldwide, showing that Warner Bros. can apparently have its popcorn and eat it, too. Because of the March 31 release date, those numbers will likely be reflected in the next quarter’s subscriber numbers.
“There’s a pretty compelling case that a rising tide lifts all boats,” Stankey told investors of pandemic-inspired movie strategy.
HBO Max is pricey when compared to rival streaming services, a factor that inhibits its growth. It costs $15 a month, compared with the $8 subscription to Disney+, which surpassed 100 million subscribers in just 16 months. That’s why AT&T is pushing an ad-supported version of the service, to reach customers who are price-sensitive, said Stankey, who declined to provide details about cost or timing.
New films appear to have provided HBO Max with potent subscriber bait, thanks to a succession of high-profile releases such as The Little Things, a crime thriller starring Denzel Washington and Rami Malek, Oscar-nominated Judas and the Black Messiah, Tom & Jerry and the cult-favorite Zack Snyder’s Justice League. Stankey said subscribers who’ve been enticed by a new movie begin exploring HBO Max’s original series or dig into its library of “workhorse” titles. After a couple of weeks of binging, he said, they opt to stick around for the next film drop.
WarnerMedia’s so-called day-and-date movie release strategy, in which movies debut at the same time in theaters and at home, was born out of a unique set of circumstances — the pandemic stalling production and depleting HBO Max of fresh content, while simultaneously shuttering the nation’s movie theaters, postponing film releases.
Releasing new movies on HBO Max, as well as in theaters, roiled the creative community because of how it was executed (big-name talent didn’t get a heads up). Talent agencies threatened lawsuits and filmmaker Christopher Nolan, whose relationship with Warner Bros. dates back to Insomnia in 2002, issued a public broadside, telling one Hollywood trade publication the plan was economically unsupportable.
“Even the most casual Wall Street investor can see the difference between disruption and dysfunction,” Nolan told The Hollywood Reporter.
One key analyst, Wedbush Securities’ Michael Pachter, threw cold water on the value of WarnerMedia’s film release strategy. With half of U.S. adults receiving at least one vaccine, and movie theaters reopened, he says that decision, made late last year, now looks short-sighted.
“Pushing this day and date is ignoring the potential for theatrical,” said Pachter. “With Wonder Woman and, to a lesser extent Kong, they weren't hurting themselves. But they’re going to be doomed in the fall.”
The controversial decision to shatter traditional release “windows” — the industry term for the phased rollout of a film, from theaters to the home — paid off in a way that’s meaningful to AT&T, serving as an accelerant for the growth of HBO Max, which represents its bet on the future of entertainment.
It’s a stopgap measure that’s set to expire at the end of the year. Warner Bros. last month reached an agreement with Regal Cinemas owner Cineworld that the exhibitor would enjoy a 45-day exclusive window to show its new movies, starting in 2022.
