THB #175: Stuck In A Loop

The Zasamaniacs

I sat down to write a column about how there is almost nothing being written about these days aside from Zaslav, Netflix woes, Chapek, and summer box office and the confusions that have ensued. In particular, I thought I would write about how all this writing about Zaslav was really blind guessing, as we really don’t know what the public-facing state of Warner Bros Discovery will be in the months to come.

Then Joe Adalian’s very good Buffering newsletter landed in my inbox, today titled, “HBO Max Is Doing Well — So Of Course Changes Are Coming.”

Indeed… Joe outlines the many things none of us really know about what is coming at “HBO Max.” His outline headers in bold… and my shorter answers…

➽ Will Warner Bros. keep making movies just for Max? 
This is not a real question. It was created by Jason Kilar’s idea of the future, which is no longer the idea of the future at Warner Bros Discovery.

We need a better definition of “movie.”

Thing is, Disney has the right idea. Let the divisions do their work, but add a new stop in the process, where there is a determination of which distribution channel is most effective for the content, creatively, financially, and within the company goals for each distribution model. The problem is not this idea. The problem is that Disney is making bad decisions in answering the question.

Consumers do not give a whit about this process. They are not meant to be in charge of picking and choosing what they want and how they want it. The Kilar mantra of “I did it for the audience” may have been sincere, but it was always a load of manure. Whether you have invested $2 million or $200 million, no sane businessperson is not working with all their might not to just leave the Return On Investment to “the audience.”

So… what are HBO Max’s content needs? What is the theatrical profile that the studio desires? What can the studio make for other distributors on legacy and streaming television?

It’s that simple… and that complex.

Television movies are a 46-year-old concept. Every studio has made them for every broadcast or cable network, their own or others. There was also a big business for a while in made-for DVD movies.

It’s not either/or. It’s a budgeting issue and often, an issue of an extended length being commanded by the underlying content (concept or actual screenplays). $10m - $25m is about the right amount for a “made for streaming” feature.

If someone at Warners spent more than $25 million on an Andy Garcia (wonderful actor)-starring remake of Father of the Bride with Chloe Fineman (also wonderful) in the Marty Short role, they should be fired (give or take some pre-paid backend).

And you know what? If you make that movie for $25 million and it is so good and so appealing that you think it can carry a $25 million domestic marketing budget (meaning, pretty much, that it can gross at least $50 million worldwide in your view… not breakeven, but fitting the value model for a streamer), GREAT! Release it into theaters. If not, it stays a direct-to-HBO Max movie.

It’s no more complex than this (from the macro view). Make 12 a year. Joe reports that the internal guidance is $35 million a movie. Too high, in my opinion. But that’s okay… go with that. That’s a $475 million budget line (with some studio overhead) and you have a new HBO Max Movie every month of the year.

The idea that your theatrical feature division, which makes movies that cost $25m - $50m and movies over $100m pretty much exclusively, has anything to do with your streamer at first release level is madness. It always was. There is no way to get a return on that spend… at least not until there is a solid advertising base on your streamer. New streamers used movies as bait because they didn’t have enough or high-profile enough original streaming content. Time to get past that childish notion.

Next…

➽ Does Discovery take over HBO Max’s unscripted unit?

Yes. Of course it does. If you have some superstars on staff on the HBO Max unit, keep them.

Obviously, you keep the HBO Documentary group operating on its own. It’s solid gold on a budget.

But the answer is always money and/or clear value to the company. The Discovery managers know how to do what they do as well as any group in the business. The current HBO Max group is, I’m sure, very experienced and skilled as well.

I’m not kidding when I say that FBoy Island doesn’t just make itself. That kind of show isn’t what Discovery does. (Naked and Dating aside.) So maybe there is room for some members of both groups.

But the macro answer is… obviously.

Next…

➽ A name change?

Please. How soon can you change the nameplates?

The problem is not the name “HBO Max.” It is that the streamer is not just maximum HBO. It is that and a lot more content, with more to come as Discovery lands on the app.

The brand, HBO, is incredibly valuable. But the brand is being tarnished by this use of its name.

The streamer, with or without Discovery content, is maximum Warners. We can argue amongst ourselves about what it should be called. I lean to Warner Max. I think the “+” is kinda over. But come up with whatever name you like. Just get the weight of this thing off of HBO. It’s a lose-lose name.

This reflects the problem at Disney too. To add “adult” material to the Disney+ branding is a bad idea. But you can’t compete properly with Netflix and others on revenue without adult material (and sports, news, etc).

The Hulu brand is not as sacrosanct. Maybe that should become Star (as in Twinkle, Twinkle, Little) in America as it is for Disney in the rest of the world. Maybe there is some legal reason why it cannot. The line between ABC Sports and ESPN is already blurrier than Mr. Magoo driving in the Indy 500.

As people who cover all of this, we act as though all these branding traps are permanently cemented in. They aren’t.

Every streaming company needs to find ONE idea and then offer variations to those who don’t want the full plate of food. That idea may be being everything to everyone. That is a SINGLE idea, however huge.

Netflix isn’t interested in playing in the Live TV or Live News or Live Sports categories. Okay. That doesn’t spell doom. It’s a choice. It may well be their best possible choice.

When Mr. Zaslav is ready to tell us what the big vision for Warner Bros Discovery Streaming is going to be be, the center of all content on the personal screen, he will tell us. And everything will change. No idea how much. But adding Discovery content means the mix will certainly be something it has not been.

Once the internal decisions are made and officially announced, the WBD marketers at every level will sell that thing. How dominant will HBO be? How important will CNN be? What will the theatrical expectations be? How will the Discovery content be integrated?

If it doesn’t take, it will face changes within a couple of years. But if it does take, it will be what we see this company as being for at least 5 years… when it is old enough to need another coat of big picture paint.

Next…

The Chapek Situation

In Puck, the enormously reliable Dylan Byers and the usually reliable William D. Cohen almost split their pants bending to deliver on their headline, “In the aftermath of the Peter Rice drama at Disney, Dylan Byers and William D. Cohan discuss why Wall Street is so bullish on Bob Chapek, the odds of a Dana Walden succession, and why the pressure is on for David Zaslav.”

They are pretty right on Walden succeeding Chapek… non-issue in the next year. And the pressure on Zaslav (everyone is a Zaslav expert!) is the same pressure we have been chewing on for a year. Moving on to Disney…

Cohan acknowledges that the Disney stock price is down, which doesn’t suggest “so bullish”: “Chapek is not exactly lighting the place on fire and the Disney stock is down 60 percent year-to-date.”

But even more so, Disney’s stock is down $12.68 or 12% since Rice’s exit went public on June 9.

Cohen further explains: “30 or so research analysts who cover Disney, 20 of them have a “buy” rating on the stock, with an average stock price target some 50 percent higher than where the stock is trading now.”

Firstly… those 30 research analysts are wrong. Often. Most of them were pushing growth in Netflix stock right up until the last quarterly report.

Secondly, Disney stock was 50% lower than it is now in February. And it’s drop has not been a result of corporate troubles. The entire streaming business has taken a big hit as part of the Netflix landslide. But unlike Netflix, a big part of Disney’s revenue and profit comes from Parks, which are only getting stronger and stronger. The legacy television division is also going strong, albeit not as strong as years past. Streaming is years from generating profit, which is not new information.

My point is, liking Disney at 94 bucks, projecting that the stock will recover, is not necessarily a big vote of confidence in Bob Chapek. For a few, it may be. But Disney at this price, run by The Barefoot Executive, is a pretty good bet to go back up in the next year.

I’m not saying Chapek is out or even suggesting that he should be. I’m just saying that there was a lot of support for Jason Kilar when he was kicked to the curb. And, for that matter, Peter Rice.

Next..

Netflixed

The 300 people who were laid off by Netflix this week are suffering. May they find quick comfort.

But Netflix employs - aside from people working on specific content - over 11,000 people. 4% have taken the hit since the bottom dropped out of the stock.

Tesla is looking at 10%. Coinbase laid off 18%. Peleton laid off 20% of its corporate workforce.

I expect more cuts at Netflix. But this is still a very strong company. Wall Street’s insane spending on the stock in recent years was like a steroid that the corporate muscle could not avoid. Momentum won the day. That is over… for now. Layoffs need to be reported. But perspective… always perspective…

Next..

Summer Box Office

I hope this will change with strong legs from Elvis and The Black Phone after this weekend, but this weekend, the media is aching to report that Top Gun Maverick returns to #1. Might happen. Might not.

But the story of the successes this summer is not that mega-movies are back and that is now the business. The story is that audiences are going back to the movies and they don’t have enough options for the revenues to come anywhere close to the pre-COVID norm.

Hopefully Elvis will play to an audience that doesn’t usually track well and even more so, build on strong word of mouth next week.

What I fear is that media will just keep obsessing on Tom Cruise and suggest that nothing else can be profitable in theatrical… giving Bob Chapek, who may actually be the most important player in terms of the exhibition business thriving sooner than later, the wrong idea.

July projects as a strong month, more so than June, which turned out pretty well, did. But unlike your mama told you, exhibition needs you to fill up on side dishes. And when the expensive meat is served, eat that too. But rebuilding the ecosystem is everything at this point.

As I told you at the top… more questions… not so many answers.

Until tomorrow…