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‘Batgirl’ Flap Signals End of Hollywood Streaming Evangelism




Five years almost to the day after its debut, Hollywood’s gospel fervor for streaming was extinguished this week by the “Batgirl” imbroglio.

The decision by Warner Bros. Discovery to drop the completed DC Comics movie that was intended for HBO Max marks the boldest example of old media economic rigor applied to contemporary content spending.

David Zaslav, CEO of the newly reconfigured media conglomerate, did not even hide his bewilderment at the decision-making process and optimistic earnings projections made by the old WarnerMedia regime. Zaslav and other executives spoke Aug. 4 on WB Discovery’s second-quarter earnings conference call with Wall Street analysts that lasted 95 minutes as executives spoke candidly about the new world order.

Gunnar Wiedenfels, CFO of Zaslav and WB Discovery, has said more than once, with palpable exasperation, that there’s simply no business case to be made for spending $90 million on a DC Comics designed to skip theaters and go straight to HBO Max.

“We looked closely at the direct broadcast activity,” Zaslav said. “And our conclusion is that expensive movies live streaming in terms of consumption on the platform, how often people go to it or buy it or buy a service for it and how it feeds over time is not comparable to what happens when you launch a film in theaters. And so this idea of ​​expensive movies going straight to streaming, we can’t find any economic justification for it. We cannot find an economic value in it.

The focus on how “Batgirl” could – or could not – recoup its costs was the equivalent of a bucket of ice water thrown at the media and entertainment industry. Zaslav has previously sworn he wasn’t trying to “win the spending war” as he made the pre- and post-merger rounds around AT&T’s spinoff deal with Discovery.

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David Zaslav, CEO of Warner Bros. Discovery
Art Streiber for Variety

But the granular financial details and significant shifts in strategy described by Zaslav and Wiedenfels ended a period of irrational exuberance in Hollywood that began on Aug. 8, 2017 — the day former Disney CEO Robert Iger said surprised many of those same Wall Street analysts. by announcing its intention to launch the streaming platforms that have become Disney+ and ESPN+.

“I would call this an extremely important, very, very significant strategic change for us,” Iger said at the time.

It was the cap gun that went off. As of that day, Disney outwitted Comcast by purchasing 20e Century Fox, AT&T went after what was then Time Warner, and Paramount Global President Shari Redstone redoubled its efforts to bring Viacom and CBS together under one roof in a deal struck in December 2019.

The pivot in Disney’s strategy toward a direct-to-consumer business model for most of its content — following the path blazed by Netflix as a platform with global reach — has also crystallized the industry’s focus on content spending measured in double-digit billions. Netflix has been attracting talent like moths with its regular reveals of eye-popping content spending figures. The traditional television industry was already feeling the pressure of Peak TV’s production levels, but Disney’s big move in 2017 gave most of its Hollywood peers a mission to further increase the volume of content production.

Five years later, there’s more content available than ever before, but the path to seeing a return to movies and TV shows that are less than tier hits “Top Gun: Maverick” and “Stranger Things” is murkier than ever. It’s no secret that executives at Netflix, Amazon, Disney+ and others watch the worst-performing shows in their vast streaming libraries. There is a growing realization that there is a financial imperative to consider some form of syndication license for under-watched shows in hopes of seeing some sort of return by selling it to an outside buyer.

Paramount Global CEO Bob Bakish advocated a diverse approach to streaming. He defended the company’s investment in free-to-air, ad-supported TV channels (FAST) on its wholly-owned Pluto TV platform, which is built on a revenue-sharing model with external content providers. , mixed with premium subscription content offered by Paramount+ and the standalone Showtime streaming app.

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Bob Bakish, CEO of Paramount Global
Celeste Sloman/Variety

“We believe our streaming business can achieve TV Media-like margins (20% to 25%) over time,” Bakish said. Variety. “We have only been streaming for a short time. It’s going to take a bit of time and that’s why we say our model has real benefits.

Until now, the major television networks have never had to juggle so much film and television inventory, which comes with a certain level of residual fees due to creative partners. That’s another cold, hard financial reason why it made more sense for WB Discovery to found “Batgirl” and take a big tax deduction on the movie than to spend more money on a property that Zaslav says was no match for the valuable “Batman” franchise.

Wiendenfels acknowledged that WB Discovery’s thinking about content spending for its soon-to-merge streaming platforms — HBO Max and Discovery Plus — has changed in the 16 months since Discovery and AT&T first struck a deal. on the derived transaction that created WB Discovery. These changes were also surely accelerated by the volatility in the stock markets and the fall in WB Discovery’s stock price over the past few months. On Friday, the market capitalization of the company that houses two of Hollywood’s brightest brands – HBO and Warner Bros. – fell to $35.4 billion as the stock price fell 16% following the aftermarket earnings report.

Direct-to-consumer streaming is “a platform within a broader portfolio of assets and across a wider range of distribution points. We’re not going to be religious about driving hard to power a single platform,” Wiedenfels said on the call. “DTC has its space and Warner Bros. Discovery is uniquely positioned with the enormous surface with our customers to serve them and tell great stories for decades to come.”

Zaslav went further, saying that WB Discovery would revert to pursuing international content sales in some cases. Under the previous WarnerMedia regime led by Jason Kilar, the studio made the difficult choice to forgo that third-party revenue in favor of stockpiling titles that could only be found on HBO Max.

“Everything that’s important to us in developing HBO and HBO Max…we’re going to keep that exclusively,” Zaslav said. “What type of content might be non-exclusive and have no impact on us (that’s what) we want to monetize to generate economic value. And then there’s content that we don’t even use right now. moment – massive amounts of TV and movie content that we don’t use.

The steepness of the climb the Zaslav team has ahead of them was underscored by a question from Morgan Stanley media analyst Ben Swinburne, who kindly reminded the new owners that not too long ago, HBO brought in about $2.5 billion in revenue (before interest, taxes, depreciation and amortization). ) per year as a linear cable supply.

But this is also where the dilemma for mainstream media lies. There is no going back to the linear era of big traditional cable profit margins. The explosion of free and lower-cost options has led to a steady decline in paid subscribers to linear MVPD providers such as Comcast, Charter and DirecTV. Customer exodus is around 4-5% per year in the United States. It is carefully tracked quarterly due to the importance of pay-TV to Hollywood revenue.

WB Discovery is considering a FAST channel iteration of HBO Max and Discovery+ to serve as a sort of barker service to attract paying subscribers. The explosive popularity of FAST channels has industry veterans chuckle that consumers can now afford to recreate the traditional cable package, but on much worse economic terms for content providers.

All of this volatility, coupled with the gathering macroeconomic headwinds, is why media stocks have been battered so far this year. Once Netflix’s aura of invincibility wore off with its first-quarter surprise of subscriber losses to come, the gospel of spending at all costs to build platforms and gain market share took hold. lost some of its grip on CEOs and CFOs.

The health of the subscription streaming market will come under significant temperature control next week when Disney releases its fiscal third quarter results on August 10.

Paramount’s Bakish has been delighted to see the strategy he pioneered in 2019 of assembling a mixed portfolio of FAST and pay channels being embraced by Paramount’s biggest rivals. With the road ahead blurrier than ever, Bakish said it’s the kind of business environment that creates its own opportunities, for businesses that aren’t paralyzed by fear and doubt.

“You make your own decisions about what to do and then keep doing it,” Bakish said.




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