Warner Bros guarantees filmmakers a payday for HBO Max films

Warner Bros has come up with a new plan to compensate filmmakers during the pandemic: treat every film like a box-office smash.

After shocking Hollywood with its decision to release all its new films this year on HBO Max, the studio has adjusted terms of its deals with partners to guarantee payment regardless of box-office sales and to increase the odds of performance-based bonuses. Warner Bros will also pay a larger group of cast and crew money based on fees it collects from HBO Max, according to people with knowledge of the studio’s plans.

The company is close to resolving disputes with many parties, said the people, who asked not to be identified because the discussions are private. Details of some accords have already begun to surface, with the Hollywood Reporter saying this week that Warner Bros is close to a deal with Legendary Entertainment over the film Godzilla vs Kong.

The agreements are a sign of the pandemic-troubled times. Most cinemas are closed because of the coronavirus, motivating studios to put their films online. But their payment contracts with partners are usually highly dependent on big-screen success, a system that many in Hollywood want to protect, because it made them rich.

Warner Bros plans to release 17 films in 2021, including Dune, In the Heights, and sequels to The Matrix and Space Jam. The films will appear in cinemas and on HBO Max at the same time, though they'll run exclusively on the big screen in many territories around the world. The films will play on HBO Max for 31 days, but may remain in cinemas long after.

Here’s how it will work, according to the people familiar with the situation: When films come out this year, anyone entitled to a bonus will receive one at half the box-office revenue that would normally be needed to trigger a payout. And if more cinemas close down, the threshold will fall further, a stipulation called the “Covid-19 multiplier.” Those who would normally participate in profits from box-office receipts will continue to do so, as well as benefit from on-demand and online sales.

HBO Max will pay Warner Bros a fee for its 31-day window, and the money from that will be shared with not just profit participants, but cast and crew. Both businesses are part of AT&T Inc’s WarnerMedia, run by streaming veteran Jason Kilar.

"HBO Max is paying a considerable fee for the ability to exhibit these films," Kilar said in an interview in December.

AT&T, which acquired the Warner operations in an $85 billion acquisition in 2018, has a lot riding on the strategy. In addition to helping it cope with the pandemic, the hope is to draw millions of subscribers to HBO Max, which launched last year. The telecom major is counting on the platform to become a full-fledged competitor to Netflix Inc. and Disney+.

Directors’ complaints

What's not clear is whether extra cash is enough to ease tension between the studio and well-known filmmakers and financiers who immediately cried foul over Warner Bros' decision. Tenet director Christopher Nolan slammed the idea of shunting films to HBO Max, which he called "the worst streaming service." Denis Villeneuve, whose film Dune was affected by the move, lambasted Warner Bros and AT&T in a column for the industry trade publication Variety.

“AT&T has hijacked one of the most respectable and important studios in film history,” he said. “There is absolutely no love for cinema, nor for the audience here.”

Talent agencies also have complained, with Endeavor Executive Chairman Patrick Whitesell saying it was an attempt by Warner Bros to self-deal. Richard Lovett, president of the CAA agency, said the move was “entirely unacceptable” to his firm and its clients.

"You unilaterally determined a value for our clients and their work to benefit the long-term prospects of HBO Max and the finances of AT&T, a choice that our clients did not make," he said in a letter to WarnerMedia cited by Variety.

Many of the parties were upset because they felt Warner Bros didn’t give them enough of a heads-up, or because they wanted their films to appear exclusively in cinemas. But the rebuke was also a carefully orchestrated part of a negotiation: Many were worried about the potential impact on pay.

And while releasing films on the internet isn't new, Netflix Inc and Amazon.com Inc put out dozens of features every year, filmmakers often pick traditional studios because they want their films to appear in cinemas first, and because the potential upside of a big theatrical smash far exceeds the money from a streaming hit. On big films like Wonder Woman, this can be tens of millions of dollars. Robert Downey Jr made a reported $75 million for Avengers: Endgame between his salary and share of profits.

Spelling it out

Warner Bros has spent the past few weeks speaking to its partners, like LeBron James’s SpringHill Entertainment and director Jon Chu, to further explain its strategy, and lay out the argument that they will make more money this way. Though Warner Bros believed it had the rights to release its films to HBO Max without the consent of its partners, it has since adjusted their contracts to offer more favourable terms.

The movie industry is always a risky endeavour. Even without a pandemic, most films typically lose money. So guaranteeing at least some kind of payday is novel, even if it’s not what people might make if the cinema business was healthy.

Not all of Warner Bros’ partners are upset with the HBO Max arrangement, but the studio wants to keep its talent happy, especially when it’s time to promote the films coming out this year, and maintain loyalty for future projects.

The extra payouts aren’t permanent. After 2021, the studio plans to go back to the old contract model. That raises another risk, in which partners grow accustomed to higher, guaranteed payments that the studio can’t sustain. To cover the extra costs, Warner is reallocating money from some productions that were shut down this year.

Sharing the HBO Max license fee with crew members and writers is another temporary change. Crew members typically don’t share in box-office receipts, but do get a piece of home-entertainment sales.

"Our orientation in these situations is always to be generous," Kilar said in December's interview.