Entertainment mogul Sumner Redstone, who died August 11 after clinging to life for 97 years, also hung onto the old model of the legacy Hollywood studio. He embraced network TV, two-hour Paramount movies playing in theaters, and cable channels like MTV and Nickelodeon. Those days are gone. In February, newly combined ViacomCBS, now run by Redstone’s daughter Shari, finally announced that it, too, would launch a streaming channel. But Paramount, like many studios today, is a sliver of its former self, partly because Redstone squeezed out every ounce of value from the past rather than looking forward to what would be valued in the future.
As COVID wreaks havoc on the world, studios are exploiting library content for short-term cash, laying off and furloughing staff, and sending theatrical films to VOD. Cash-strapped, Hollywood is forced to change in real time. Last week, I called around town to get a snapshot of where things are heading.
What’s a studio, anyway?
For decades, movie studios led the industry even as their television, home video, and cable divisions churned out profits. That’s no longer the case. Look at the new consolidated WarnerMedia executive chart; Warner Bros. motion picture chairman Toby Emmerich is on par with Casey Bloys (head of HBO, HBO Max, and cable networks); Peter Roth (head of TV studios) and Pam Lifford (head of global brands). Theatrical release is no longer the dominant mode of distribution, and movie content is no longer king.
“The old way is not sustainable, like spending a lot of money on a Helen Mirren and Ian McKellen caper movie that lasted in theaters for three days and might have been an event on HBO Max,” said one studio attorney. “It’s the mystique of Hollywood to spend foolishly. A new relationship is being created between audiences and entertainment providers.”
Hollywood has had moments of foresight. In the late ’90s, Disney motion picture chief Joe Roth became a leader in the tentpole model that drives the movie business today. In the early 2000s, Sony Pictures Entertainment executive Michael Lynton told me that studios would eventually embrace a vertically integrated model.
Even as executives knew that content would move online, they were in no rush to do it. Long-term empire building is expensive and uncertain, and no one likes change. Another uncomfortable fact: The internet builds tech fortunes, but legacy businesses often find themselves replacing paper dollars with digital dimes as profits decline to meet the reduced costs of distribution. Wall Street pressured entertainment companies to keep collecting short-term licensing revenues from HBO, Starz, ABC, or Netflix for as long as they could. The major studios’ sharpest minds did not recognize the Netflix threat — until it was too late.
Netflix is calling the shots
Launched by Reed Hastings in 1998, the Silicon Valley startup initially rented DVDs, then mailed the red envelopes to subscribers, went public in 2002, and in 2007 transitioned to a streaming model. Blockbuster Video, which reached its peak in 2004 with 9,094 stores worldwide, tried to buy Netflix, but filed for bankruptcy in 2010. (Fox, Universal, and Disney launched subscription service Hulu in 2007 with future WarnerMedia CEO Jason Kilar, but never truly supported it.)
In 2013, anticipating that studios would withdraw the library content that fueled Netflix’s growth, the streamer started spending heavily to create original series like “House of Cards” and “Orange is the New Black,” and eventually surpassed the studios not only in the volume produced, but in Emmy and Oscar nominations for popular series like “Ozark” and “The Crown” (where per-episode costs average $6 million) and movies like “Roma” and “Marriage Story.”
In 2018, when Rupert Murdoch figured out that Netflix already claimed the streaming future, he sold the Fox studio to Disney. CEO Robert Iger needed that content to feed Hulu (with 35 million subscribers), which it now controlled, and new streaming platform Disney+, which Disney launched in November 2019.
Thanks to the pandemic, Disney+ got off to a stronger-than-expected start with more than 60 million global subscribers. It doubled down on its streaming future with the long-delayed $200 million live-action “Mulan”: Expected to gross at least $700 million at the global box office, it will finally debut September 24 in North America on Disney+ for $29.99 — for those who also have a $6.99 monthly Disney+ subscription. Whatever “Mulan” makes, Disney keeps. No cumbersome collection of the studio share of the grosses.
Hollywood is betting that Disney+ is Netflix’s biggest competitor, not AT&T. In the wake of the confusing and underwhelming HBO Max launch, AT&T CEO John Stankey hired Hulu co-founder Kilar to run Warner Media and gave him the mandate to trim a cluttered executive suite. It was not lost on AT&T that Disney+ subscriptions soared on Jon Favreau’s brilliant “Star Wars” spinoff “The Mandalorian,” complete with Baby Yoda. HBO Max, despite its wealth of Warner Bros. and HBO titles, offered nothing so instantly iconic.
“We wake up this morning to more structural changes in terms of the organization of what we used to call Warner Bros., that is now AT&T,” CAA partner Bryan Lourd said on a UCLA virtual panel with attorney Ken Ziffren August 12, two days after WarnerMedia announced the restructuring that forced out legacy television content creators Bob Greenblatt and Kevin Reilly. “It is the media division of AT&T, but it is AT&T.”
It took new-media executive Kilar to recast a hidebound studio into something leaner and meaner. All entertainment production for HBO, TBS and HBO Max are now under Warner Bros. chief Ann Sarnoff, the BBC Studios veteran who is credited with launching BritBox while head of BBC Studios Global Production Network. It remains to be seen if AT&T’s media play will deliver better returns than Hollywood outsiders General Electric, Matsushita, Coca Cola, AOL, and Sony.
As Netflix snaps up costly talent like Shonda Rhimes and Ryan Murphy to exclusive deals, the studios struggle to compete. This is especially true on the movie side, which is hampered by the limitations and costs of the theatrical-release model. Paramount couldn’t afford to produce, market, and release Martin Scorsese’s $159-million period gangster flick “The Irishman,” but Netflix could.
Now deep-pocketed Apple TV+ is the new kid on the block, willing to overspend for “The Morning Show” stars Jennifer Aniston, Reese Witherspoon, and Steve Carell, as well as Scorsese’s $200-million 1920s western “Killers of the Flower Moon,” starring Leonardo DiCaprio and Robert De Niro. But Hollywood insiders lack respect for Apple’s content team, which has yet to outline a coherent strategy. Lately, it’s been acquiring high-profile projects like Sony’s Tom Hanks vehicle “Greyhound.”
“Apple won’t ever get there,” said one agency partner. “It’s run by people who don’t understand it at all. Moments of pure emotion and humor and wonder, that’s our business. That’s what people crave and want. They want magic, to get away from the humdrum lives they lead, whether it’s starting a fire or doing a cave painting or crazy religious rituals.”
At Amazon Studios, richest-man-in-the-world Jeff Bezos can afford whatever it takes to compete in the streaming wars. It cost $250 million to acquire “The Lord of the Rings,” and will likely cost that much again to produce the first two episodes that will serve as the series’ pilot. It’s starting production in New Zealand under showrunners JD Payne and Patrick McKay (“Star Trek Beyond”) and director J.A. Bayona (“Jurassic World: Fallen Kingdom”) and while Bezos made the deal, Studios chief Jennifer Salke has to deliver the goods.
Now challenging Netflix and rival Amazon Prime is NBCUniversal’s free, ad-supported Peacock. Rookie streamers have a mountain to climb: by the start of 2020, Netflix boasted 167 million subscribers (67 percent overseas) in 190 countries. In the first two quarters of 2020, boosted by the pandemic, Netflix gained 26 million new subscribers, promoted content chief Ted Sarandos to co-CEO with Hastings, and budgeted $19 billion for content production and acquisition.
In the 2019 “Roma” vs. “Green Book” Oscar race, many in Hollywood vilified disruptor Netflix as looking to kill the theatrical business. Today, the streamer now emerges from the pandemic as the industry’s bedrock employer. People see Sarandos as an eminence grise; he was the studio chief invited to participate in California Gov. Gavin Newsom’srestarting Hollywood Zoom panel. And Netflix has nailed down production facilities and key crew around the world as it begins resuming production while in robust financial shape.
The new normal
If studios emerge from the pandemic weaker than streamers, coming in far behind are the brick-and-mortar theaters. Their business models have not changed, although five years ago they came close to a PVOD-revenue-sharing, shorter-window deal — similar to the one Universal just forged with AMC. Other exhibitors have yet to sign their own studio deals.
Meanwhile, theaters are in ragged financial shape. The world’s largest exhibitor, AMC, enjoyed a theater-buying spree when Chinese owner Wanda was still spending money. Now, the debt-challenged chain was forced to capitulate with Universal and will likely shed theaters, along with overstretched UK-based Cineworld (which owns Regal). Cinepolis and Cinemark are better positioned to survive the pandemic.
“We don’t need 40,000 domestic theaters,” said one studio distributor. “If we lost 25 percent that would be huge, but 30,000 is still a big footprint. If the contraction of screens and theaters is in conjunction with reduced content, that creates a void in the marketplace. But once a vacuum is created, it gets filled.”
When the major theater chains insisted on hanging onto the 90-day window paradigm as they tried to shore up stock prices, they lost the chance to share data and marketing strategies with the studios and figure out the sweet spot for playing movies in theaters before moving onto VOD. For theaters to survive and thrive, innovating and playing ball with distributors is key. They cannot afford to hang on to their old antagonism.
“Studios and theater owners must figure out creative ways to help each other out,” said producer Todd Garner. “There’s nothing wrong with big, huge movies in theaters and smaller movies going to streamers, which don’t have the marketing spend. At Disney+, HBO Max or Netflix, you can purely advertise on your own platform.”
Next year, we will see fewer theaters worldwide as the chains consolidate. As the studios shrink, and pare back expectations for their film divisions, the Marvel, DC, and franchise tentpoles will still go to theaters (although perhaps with smaller budgets); so will the highest-quality, Oscar-worthy festival titles with theatrical legs. The rest will get quickie three-week breaks, maybe single theaters in 50 cities, before hitting VOD.
We’ll see how studios and chains navigate more flexible windows, but here’s what we might expect: Some chains will need to accept movies that are going to VOD. Some movies will hang on for a while. Others won’t. Fewer movies may be released. Filmmakers will aim for the best theatrical option — but sometimes, that option won’t exist.
“‘Sleepless in Seattle’ is a streaming movie now,” said its producer, Lynda Obst. “Original movies that are not tentpoles are streaming. Pixar family movies are event movies. Families want to get out of the house.”
Studios will make more content to feed multiple platforms, which means mostly television series and made-for-TV movies like Seth Rogen’s HBO Max entry “An American Pickle.” Even with modest budgets, studio leaders could make some exciting choices from their stacks of lockdown spec scripts and dealmakers fashion more flexible contracts.
No matter what, content creators are in a strong position. How consumers will watch their work is out of the filmmakers’ hands.
Article written by Anne Thompson for Indie Wire via Yahoo! Entertainment.
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