The Batgirl flap spells the end of streaming evangelism in Hollywood

Five years later, almost to the day after it began, Hollywood’s evangelistic fervor for broadcast was extinguished this week “Batgirl” confusion..

Warner Bros. DiscoveryThe decision to cancel a completed DC Comics movie planned for HBO Max is the boldest example yet of Old Media’s economic rigor applied to modern content spending.

Davyd Zaslav, CEO of the newly reconfigured media conglomerate, didn’t even hide his surprise at the decision-making process and optimistic profit forecasts made by the previous WarnerMedia regime. Zaslau and other executives spoke on Aug. 4 during WB Discovery’s second-quarter earnings conference call with Wall Street analysts, which lasted 95 minutes, during which executives talked openly about a new world order.

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

“We carefully considered the business of live broadcasting,” said Zaslav. “And our conclusion is that the value of live streaming movies in terms of how people watch them on the platform, how often people go there, buy or buy services, and how they’re sustained over time, doesn’t compare to what’s happening, when you run a movie in theaters. Therefore, we cannot find any economic justification for this idea that expensive films will be broadcast directly. We cannot find any economic value in this.”

Emphasis on how “Batgirl” could – or could not – possibly recoup its costs, was the equivalent of a bucket of ice water dumped on the media and entertainment sector. Zaslau had already vowed he wasn’t trying to “win the wasteful wars” when he made the pre- and post-merger rounds around AT&T’s Discovery deal.

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

But the detailed financial details and significant changes in strategy outlined by Zaslav and Wiedenfels brought the curtain down on a period of irrational wealth in Hollywood that began on August 8, 2017 – the day former Disney CEO Robert Iger surprised many of the same Wall Street analysts. – street. announcing plans to launch streaming platforms that became Disney+ and ESPN+.

“I would describe it as an extremely important, very, very significant strategic shift for us,” Iger said at the time.

It was a handgun. As of that date, Disney has surpassed Comcast buy 20thousand Century Fox, AT&T left after then-Time Warner and Paramount Global Chairman Shari Redstone redoubled their efforts to reunite Viacom and CBS under one roof in a deal finalized in December 2019.

Disney’s strategy of focusing on a direct-to-consumer business model for much of its content — following the path blazed by Netflix as a platform with global reach — has also crystallized the industry’s emphasis on content spending in the double-digit billions. Netflix has attracted talent like butterflies to the fire with its regular showings of staggering content spending numbers. The traditional TV industry was already feeling the strain from peak TV production levels, but Disney’s big move in 2017 challenged its Hollywood counterparts to further increase content production.

Five years later, there’s more content available than ever before, but the path to returning movies and TV shows less than Best Shot: Maverick and Stranger Things is sadder than ever. It’s no secret that the heads of Netflix, Amazon, Disney+ and others are eyeing the most underperforming shows in their vast streaming libraries. There is a growing understanding that there is a financial imperative to consider some form of syndication licensing for low-rated shows in hopes of getting some kind of return on selling them to a third-party buyer.

Paramount Global CEO Bob Bakish has been a proponent of a diversified approach to broadcasting. He supported the company’s investment in free-to-air ad-supported television (FAST) channels on its wholly-owned platform Pluto TV, which is built on a revenue-sharing model with third-party content providers combined with premium subscription content offered by Paramount+ and a standalone Streaming App Showtime.

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Paramount Global CEO Bob Bakish
Celeste Sloman / Variety

“We believe that over time our streaming business can achieve profitability similar to TV Media (20%-25%),” Bakish said. Diversity. “We were in streaming for a short time. It’s going to take some time, and that’s why we’re saying our model has some real advantages.”

Until now, major television networks have never had to struggle with juggling so many movies and television inventory — all accompanied by some level of residual fees due to creative partners. It’s another cold, hard financial reason why it made more sense for WB Discovery to shelve Batgirl and collect big taxes on the film than spend more money on properties that Zaslav made it clear that the valuable “Batman” franchise is not up to par.

Windenfels acknowledged that WB Discovery’s thinking on content spending for its soon-to-be-merged streaming platforms — HBO Max and Discovery Plus — has changed in the 16 months since Discovery and AT&T first reached the spinoff transaction that created WB Discovery. These changes were also accelerated by the volatility in the equity markets and the sharp decline in WB Discovery’s share price over the past few months. On Friday, the market capitalization of the company, which is home to two of the most glossy brands in Hollywood — HBO and Warner Bros. — fell to $35.4 billion as the stock fell 16% after reporting after-market earnings.

Live-to-consumer streaming is “one platform in a larger portfolio of assets and in a larger line of retail outlets. We’re not going to be religious about straining to fuel just one platform,” Wiedenfels said on the call. “DTC has its space, and Warner Bros. Discovery is uniquely positioned to have a tremendous footprint with our customers to serve them and tell great stories for decades to come.”

Zaslau went further to say that WB Discovery will return to international content sales in some cases. Under WarnerMedia’s previous regime, led by Jason Killar, the studio made the difficult choice to forgo outside revenue in favor of stockpiling titles that could only be found on HBO Max.

“Anything that’s important to us for the growth of HBO and HBO Max … we’ll keep exclusively that,” Zaslau said. “Whatever content might be non-exclusive and have no impact on us (that’s what) we want to monetize to increase economic value. And then there’s content that we’re not even using right now – a huge amount of TV and film content that we’re not using.”

The steepness of the climb expected by Zaslav’s team was underscored by a question from Morgan Stanley media analyst Ben Swinburne, who gently reminded the new owners that HBO recently generated about $2.5 billion in earnings (before interest, taxes, depreciation and amortization). ) year as a linear cable offering.

But therein also lies the dilemma for Big Media. There is no going back to the high profit linear era of traditional cable. The rise of free and low-cost options has led to a steady decline in high-paying subscribers to linear MVPD providers such as Comcast, Charter and DirecTV. Customer churn is calculated every quarter because of the importance of pay TV to Hollywood’s revenue.

WB Discovery is considering a FAST iteration of HBO Max and Discovery+ that will serve as a service of sorts to attract paying subscribers. The rise in popularity of FAST channels has industry veterans cackling that consumers now have the means to recreate a traditional cable package, but on economic terms that are far worse for content providers.

All this volatility, combined with mounting macroeconomic headwinds, explains why media stocks have taken a big tumble this year. After Netflix’s aura of invincibility collapsed due to an unexpected loss of subscribers in the first quarter, the gospel of spending at any cost to build platforms and gain market share lost some of its influence among CEOs and CFOs.

The state of the subscription streaming market will be an important test next week when Disney reports Q3 earnings on August 10.

Paramount’s Bakish was pleased to see the strategy he embarked on in 2019 to assemble a mixed portfolio of FAST and pay channels being adopted by Paramount’s larger rivals. With the path ahead more unclear than ever, Bakish said it’s a business environment that creates its own opportunities for companies that aren’t paralyzed by fear and uncertainty.

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

The Batgirl flap spells the end of streaming evangelism in Hollywood

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