Your cinema expertise has died out


The theater window is not broken, but full of cracks.

Like so many other digital trends accelerated by Covid-19, the way we see cinema releases has changed a lot over the course of 2020. Major Change: On Thursday AT & T's WarnerMedia announced that all Warner Bros. theatrical releases for 2021 will debut simultaneously on HBO Max for US subscribers at no additional cost.

That said, if you're already a HBO Max subscriber, you can watch blockbusters like "Dune", "The Matrix 4" and "The Suicide Squad" from your living room couch instead of risking a theater visit next year. (WarnerMedia previously announced that "Wonder Woman 1984" will debut on HBO Max on Christmas Day.)

Everyone saw this coming. With the advent of streaming video, the interest in going to the theater and spending all that time and money on a two-hour movie, except for the biggest blockbusters, decreased. The brightest thinkers in the media saw a not too distant future where setting up outside of a theater for a film release would become a niche event for only the most dedicated cinephiles. And then came Covid, the theaters had to close and the studios had to come up with innovative ways to bring eyeballs to their 2020 releases.

There was a lot of experimentation in different studios throughout the year. For example, at the beginning of the pandemic, Disney released its Pixar animated film "Onward" directly through its Disney + streaming service. And several films, such as Universal "Trolls: World Tour" and "King of Staten Island", have been released directly to on-demand platforms.

However, when it became clear that theaters would stay closed for months or reopen with tight capacity constraints, studios had to get even more creative as the blockbuster films of 2020 saw lag after lag.

To recap:

After several delays, Disney released its $ 200 million movie "Mulan" on Disney + for a one-time fee of $ 30. Disney has not yet reported any earnings for "Mulan," but executives promised further details on its strategy for its theatrical release on the company's Investor Day on December 10th. It will be interesting to see how Disney's plans for 2021 compare to WarnerMedia's bold move this week. NBCUniversal has negotiated a smaller cinema window with major theater chains like AMC and Cineplex so that movies can be viewed directly on-demand within a month or less. Platforms can be transferred instead of the normal 90 day window.

Remember that the studios are careful to ensure that these moves are temporary and that they want to maintain their relationships with the theaters once the pandemic is over and it is safe to go back to the cinema.

"Everyone should take a breather," said Jason Kilar, CEO of WarnerMedia, in an interview with CNBC's Alex Sherman on Thursday. "Let's play for the next six, eight, ten months. And then let's check in again."

But Kilar also left room to maintain the disruptive model announced on Thursday.

"This is certainly related to a pandemic," said Kilar. "That's why we're doing this. We haven't spent a brain cell on what the world will look like in 2022." He also refused to predict where things will be in a year.

And the market sees the reality of the situation. AMC shares rose 16% on Thursday following WarnerMedia's announcement. This is a sign that investors are believing that home release movies is a trend that other studios will jump on and that consumers will prefer.

"WarnerMedia clearly intends to sacrifice a significant portion of the profitability of its film studio division and that of its production partners and filmmakers to subsidize the HBO Max start-up," said Adam Aron, CEO of AMC, in a statement Thursday. "As for AMC, we will do everything in our power to ensure Warner does this at our expense. We will aggressively pursue economic conditions that will keep our business going."

On the other hand, there is a risk for the studios. Is it worth spending $ 100 million or more on a blockbuster to be given direct to customers in their homes at no additional cost if they are subscribers to a particular streaming service? Even if we tend towards a mostly streamed future for films, studios in theaters make a lot of money, especially in international markets. The economy just doesn't work.

"When you push your best content into a subscription window, the real mega-hits that make up all of the bottom line get positive reviews," Moffett Nathanson analysts wrote in a note Friday when responding to WarnerMedia's announcement. "And moving to HBO Max will no doubt have a downstream impact on home video revenue streams and rental income as well."

"Assuming these factors result in a $ 1.2 billion loss of revenue, the average annual subscriber base of HBO Max would have to be 8.4 million higher than the status quo to restore revenue to current levels," the analysts said .

In other words, WarnerMedia has to hope to see millions more sign up for HBO Max next year if it is to catch up on the expensive production costs of its upcoming films. And if WarnerMedia continues on its way, it will have to borrow more to produce films for HBO Max in the hopes that AT&T investors will believe they will build the next Netflix. That would be a tough sell for AT&T executives, considering the company is already burdened with a lot of debt from the Time Warner acquisition.

In the meantime, we will continue to see many experiments in the studios as the pandemic rages on. It can be a hybrid model where you pay a one-time fee to watch a movie through a specific streaming service. (The Disney model "Mulan".) Or go straight to the on-demand services after a shorter than normal cinema window. (The NBCUniversal model.) Or, just redistribute the movies for free in the hopes of convincing more people to subscribe to a streaming service. (The WarnerMedia model.)

But the signs are clear that we are in the early stages of theater windows that are finally disappearing.

"We find it hard to believe that this is only a temporary plan for 2021, even if it might be the current plan today," wrote Moffett Nathanson analysts. "Once the windows change it will be difficult to go back."

Discolsure: NBCUniversal is the parent company of CNBC.


Katherine Clark