WarnerMedia CEO’s Hollywood Movie Gamble Pays Off at Box Office

(Bloomberg) -- WarnerMedia’s film studio is vying for its sixth-straight win at the U.S. box office this weekend, marking a victory lap of sorts for Chief Executive Officer Jason Kilar after a combative first year leading the media giant.

Kilar, now 50, took the helm of WarnerMedia on May 1 of last year -- in the middle of a pandemic -- and embarked on a series of bold and sometimes painful steps. He presided over a reshuffling of the AT&T Inc. division, leading to thousands of job cuts, and put the new HBO Max streaming service at the center of its focus.

His most surprising decision came late last year, when Kilar announced plans to release each movie in the Warner Bros. slate on HBO Max at the same time it hit theaters. The move shattered the so-called theatrical window and outraged many in Hollywood, including famed director and longtime Warner Bros. partner Christopher Nolan. For theater chains, the fear was it would keep venues empty at a time when they most needed to regain the confidence of filmgoers.

But then a funny thing happened: Even though they were available to watch at home, Warner Bros. movies became the hottest ticket in theaters. While movie attendance and revenue is still well below pre-pandemic levels, films such as “Godzilla vs. Kong” and “Mortal Kombat” have shown that the cinema experience isn’t dead.

Kilar has become less of a pariah in the theater industry and something closer to a savior.

“It seems like the industry has come around to, candidly, where we were last fall,” Kilar said in an interview with Bloomberg Television last week. “That’s nice to see.”

Indeed, last month’s “Godzilla vs. Kong” surprised analysts with $32 million in domestic ticket sales in its debut weekend, and last week’s “Mortal Kombat,” an action film based on a 1992 video game, took in $22.5 million, exceeding Boxoffice Pro’s $19 million estimate.

The idea was simple: Make the most of a bad situation and use these movies to boost HBO Max, a relatively late -- and expensive -- comer in the streaming wars.

When AT&T hired Kilar to lead WarnerMedia, it signaled a shift for a company steeped in traditional media organizations like HBO and CNN. Kilar was the founding CEO of the Hulu online-TV platform and a former executive at Amazon.com Inc. With his deep roots in streaming, it was a clear sign that HBO Max would be a priority.

Read more: How WarnerMedia made its bombshell movie-release decision

WarnerMedia tested the hybrid approach -- releasing films in theaters and on streaming at the same time -- with “Wonder Woman 1984,” which debuted on Christmas Day of 2020. That followed an attempt to release another would-be blockbuster, Nolan’s “Tenet,” just in theaters. With the pandemic raging, it struggled to find an audience.

Still, it came as a shock when Kilar chose the hybrid strategy for his entire 2021 movie lineup.

“Change is hard, and we get that,” he said. “We did have conviction in that decision because it was one that had a unique set of circumstances, obviously, with the pandemic.”

And ultimately, it was about satisfying viewers, Kilar said. “It started and ended with the fan,” he said. “So we do feel good about the decision.”

But even with box-office receipts picking up, theaters aren’t in the clear yet. The three largest cinema chains will remain in peril if streaming new movies becomes the norm, S&P Global Ratings said in a report released Thursday.

“All three exhibitors raised expensive debt to get through the pandemic and are now dependent on the world returning close to the way it was,” S&P analyst Scott Zari said. “Studios may have other ideas.”

Tracking the Impact

It’s difficult to measure the effect that the hybrid movie strategy has had on HBO Max subscriptions, but they have been climbing faster than analysts predicted. Last quarter, AT&T added 2.7 million U.S. HBO subscribers -- a figure that combines its HBO cable network and HBO Max users -- for a total of 44.2 million. It aims to have 67 million to 70 million globally by the end of 2021.

And the company now looks to broaden HBO Max’s appeal with an ad-supported version that costs less. The main platform is priced at $15 a month, and the new lower-cost version will reportedly be $10 when it comes out in June.

After “Godzilla vs. Kong” debuted on March 31, HBO Max saw a jump in users launching the app, according to Bloomberg’s analysis of Apptopia data. It also got a boost from the streaming-only March 18 release of “Zack Snyder’s Justice League,” a revamped version of a movie that debuted in theaters in 2017.

Warner Bros.’ “Mortal Kombat” could lead the box office this weekend for a second-straight No. 1 -- but only if it can fend off a surprisingly strong showing from “Demon Slayer: Kimetsu no Yaiba the Movie: Mugen Train,” an animated film from Japan that set records in its home country.

‘Just Enough’

It’s harder to gauge what constitutes a hit movie these days, especially since streaming data isn’t very transparent, said Shawn Robbins, chief analyst for Boxoffice Pro. But it does seem like Warner Bros. films were key to helping beleaguered theaters pull through, he said.

“Some theaters that have been open since last fall may not have had the ‘just-enough-to-survive’ level of business they did were it not for Warner Bros. films,” Robbins said.

WarnerMedia plans to continue the hybrid plan into 2022, but some of its bigger movies will get an exclusive theater run for 45 days. In the past, theaters had exclusive rights to new movies for up to three months.

“This has ultimately been a big experiment,” Robbins said. The 45-day approach provides “some recommitment to the cinematic experience, which has made so many films and franchises worth what they are today.”

This week’s Oscars underscored the challenges facing studios as they try to get their movies back in theaters. Movies that win Oscars usually get a boost after the ceremony, but this year’s honorees were mostly smaller films -- primarily viewed online -- and record-low ratings suggested most viewers weren’t invested in them.

“This is a very long adventure that we’re on, and I think it’s going to be measured in decades, not months,” Kilar said.

©2021 Bloomberg L.P.