Will Wonder Woman Save Old Hollywood?

Wonder Woman is changing with the times. When she squares off against Maxwell Lord and the Cheetah in Wonder Woman 1984 (aka WW84) on December 25, she’ll do so in movie theaters and on streaming service HBO Max. That’s right: streaming services have been promoted to first-run status. Or maybe it’s the other way around: movie studios are crawling to the streaming services.

Welcome to the rise of New Hollywood during the pandemic.

Old Hollywood Is in Trouble

Old Hollywood studios are in a terrible bind. Going into 2020, they’d scheduled their usual slate of big-budget blockbusters for global release in theaters around the world. Those titles included tentpole films such as Warner Brothers’s WW84 and MGM’s No Time to Die, the latest James Bond thriller and the last to star the ever-popular Daniel Craig as Bond. Hopes were high for both: WW84 followed 2017’s lucrative Wonder Woman, and James Bond movies are perennial cash cows. These were also costly undertakings, with $500 million budgets between them.

That strategy depended on saturating movie theaters, the dependable cash-cow distribution system for Old Hollywood. True, going into 2020, movie theaters comprised a distribution system that was showing cracks in the seams, but it was still effective and dominant. Then the COVID-19 pandemic disrupted everything.

During the pandemic, movie theaters have experienced closures and dramatic declines in attendance. They’re struggling to stay alive, thus denying Old Hollywood its essential revenue source. To put things in perspective:

• Cinemark, one of the world’s largest movie chains, reported third-quarter 2020 attendance of 1.9 million patrons — compared to 73.3 million for the third quarter of 2019. Revenue for the same period fell from $821 million to $35 million.
• Rival chain AMC Theatres reported that attendance had dropped from 87.1 million in the third quarter of 2019 to 6.5 million in the third quarter of 2020. Revenue fell from $1.3 billion to $119.5 million.

Meanwhile, the New Hollywood entertainment companies, whose businesses depend on streaming, are flourishing.

New Hollywood Rising

New Hollywood business such as Amazon Video, Hulu, and Netflix were already gaining considerable power by creating their own original content, winning Academy Awards, attracting visionary talent, and gaining subscribers. Some Old Hollywood brands such as Disney and WarnerMedia noticed and acted. Disney took an ownership stake in Hulu and launched its own vaunted streaming service, Disney+, in 2019, two moves that might have saved the company. WarnerMedia, through its ownership of HBO, launched HBO Max in 2020, thus creating a streaming outlet for the movie catalog from Warner Brothers (owned by WarnerMedia).

Disney acted just in time. In 2020, as people got used to staying home more during the pandemic, subscriber totals for streaming services skyrocketed, including an astounding 73 million for Disney+ in less than a year. The jury is still out for HBO Max. The service hit the market late, and it’s hampered by a confusing brand extension problem (to wit: how exactly does HBO Max differ from other HBO offerings available?).

Hard Choices for Old Hollywood

So what’s an Old Hollywood movie studio going to do with its movie inventory?

One option is to take your chances and distribute your films through movie theaters, which means taking the plunge now or postponing your release until audiences feel safe to return to theaters. Warner Brothers adopted the former approach by releasing Christopher Nolan’s latest film, Tenet, in theaters on September 3, and the movie is on pace to lose $50 million to $100 million.

But waiting until audiences feel safe to return to theaters presents a huge question mark: when will that date arrive? No one knows.

Another option, which some studios are choosing, is selling distribution rights of movies to streaming services such as Apple TV+, Amazon Prime Video, and Netflix. Meanwhile, Disney is in the unusual position of being able to release its own movies on a platform with a growing subscribership, Disney+. That’s what Disney did with the release of Mulan in September, which turned out to be a smart strategy, financially speaking. And that’s how Disney will distribute its latest Pixar film, Soul, on December 25.

But for studios without their own streaming service, selling distribution rights isn’t an easy choice — not if you have already sunk millions into film costs and were relying on movie theaters to make a profit. MGM had originally slated No Time to Die for a May 2020 release. But as the pandemic worsened, MGM delayed the release of the movie to November 2020 — and then to April 2021. Meanwhile, as reported in Variety, MGM shopped No Time to Die to streaming platforms such as Apple TV+ and Netflix. But the film has a staggering $301 million budget, and to recoup that cost, MGM offered a price between $600 million and $850 million, which was unacceptably high to Apple and Netflix.

Now MGM is like a homeowner who sinks a fortune into improving the house only to find no buyers on the market. And James Bond is left cooling his heels unless MGM lowers its sale price or some sort of miracle happens in 2021 to convince people to go to theaters again. It should be noted that the stock for AMC and Cinemark rose after Pfizer announced a vaccine breakthrough — a glimmer of hope.

The WW84 Saga

Warner Brothers faced a similar dilemma with WW84. Warner Brothers originally planned to release WW84 as a summer tentpole movie in 2020. There was talk of a potential $1 billion gross in ticket sales. As the pandemic worsened, Warner Brothers moved the release date to Christmas Day. Deadline reported that Warner Brothers would postpone the movie release again until 2021. But Warner Brothers had already moved the release date five times going back to 2019, raising the question of whether further delays might cause audiences to lose interest completely. As Variety reported:

[T]he studio couldn’t delay the release of “Wonder Woman 1984” indefinitely. The movie was filmed and completed in 2018, which seems like an eternity ago given everything that’s happened in the last few months. There was a sense that sequel would get stale if they waited until summer or next fall — four years after “Wonder Woman” premiered. Even with several promising vaccines, there’s no guarantee that the world will return to some kind of normal in a matter of months.

Instead, Warner Brothers pulled the trigger with a hybrid approach for Christmas Day. The film will debut theatrically in international markets that do not have HBO Max on December 16, 2020. Instead of banking on WW84 raking in $1 billion, Warner Brothers is counting on the movie to drive sign-ups for HBO Max, whose 8.6 million current subscribers pales in comparison to rivals such as Netflix (196 million subscribers), Amazon Prime (150 million), and Disney+ (73 million as noted). HBO Max also counts a potential 28.7 million HBO pay TV customers who are eligible to subscribe to HBO Max but have not activated their membership. Perhaps the movie will inspire them in addition to attracting more.

As for movie theater distribution, Warner Brothers will need to bank on international sales with half of all U.S. movie theaters closed — and who knows how many more will by December 25 as the pandemic worsens? As a sign of how desperate theaters are, AMC Theatres CEO and President Adam Aron said he supports WW84’s hybrid strategy, which normally would have been a slap in the face to theaters depending on the revenue from a first-run:

For many months, AMC has been in active and deep dialogue with Warner Brothers to figure out how best this cinematic blockbuster could be seen at AMC Theatres in these unprecedented times . . . Given that atypical circumstances call for atypical economic relationships between studios and theatres, and atypical windows and releasing strategies, AMC is fully onboard for Warner Brothers’ announcement today.

Indeed, earlier in 2020, in the early days of the pandemic, AMC Theatres refused to play any of Universal’s films when Universal opened Trolls World Tour via video on demand and in theaters simultaneously. Universal made the right move, though: amid widespread closures of movie theaters, the video rental revenue saved the movie financially.

Now movie theaters are not only onboard with the studios — they’re also forging new relationships with them. Universal has struck deals with both AMC Theatres and Cinemark to shorten the theatrical windows of Universal releases to 17 days, with Universal sharing video-on-demand sales with the theaters. These agreements are highly unusual. But desperate times call for new thinking.

What’s Next?

Movie theaters were already in decline before the pandemic hit. In 2019, ticket sales in North America totaled $11.4 billion, down 4 percent from 2018. As Brooks Barnes and Nicole Sperling of The New York Times reported in March,

Looking at the last 20 years of attendance figures, the number of tickets sold in North America peaked in 2002, when cinemas sold about 1.6 billion. In 2019, attendance totaled roughly 1.2 billion, a 25 percent drop — even as the population of the United States increased roughly 15 percent. Cinemas have kept ticket revenue high by raising prices, but studio executives say there is limited room for continued escalation. Offerings in theaters may also grow more constrained. Even before the pandemic, major studios were starting to route smaller dramas and comedies toward streaming services instead of theaters.

Now theaters might be dead. The questions for Warner Brothers and WW84 now are: is there enough life left in movie theaters, and will WW84 deliver a breakthrough for the fledgling HBO Max? The answers will shape the future of the film industry.