The New (Old) Rules of Hollywood

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Four things you need to know

• Don’t expect to see any crypto ads during the Super Bowl. But booze is back in
• One of the top executives at Disney’s streaming services is leaving as part of the company’s restructuring. 
• Someone offered Fox $2 billion for its free streaming service Tubi.
• Netflix started cracking down on password sharing in four more countries: Spain, Portugal, Canada and New Zealand.

The New (Old) Rules of Hollywood

Friday lunch at the Polo Lounge in Beverly Hills resembles the dreams of every young assistant or aspiring actor. Moguls, celebrities, producers and fashionistas all sit comfortably in a verdant courtyard, rays of sun peering in through the trees.

A super-agent noshes on fish tacos while talking to a studio chief in one corner, a couple booths down from two legendary actresses catching up over lunch. Every 15 minutes, a mogul or a famous producer strolls in, making the rounds to chitchat with everyone else in their rarified social strata.

And yet, hanging over the $50 salads and the friendly talk, there is a slight current of fear. Pretty much everyone one of these moguls is slashing costs or firing staff. A writers’ strike looms on the horizon. And nobody – and I mean nobody – really knows if they have the winning strategy.

Media companies that spent the last five years trying to copy Netflix are now trying to reverse themselves, only they can’t do a full 180. They need to restore some of their old ways of making money while still prioritizing streaming. They are making up the rules (and the corporate structures) as they go. Considering the tremendous uncertainty in just about every phone call these days, I thought it would be worthwhile to outline what some of these rules are.

Movie theaters are cool again

While the pandemic forced movie studios to experiment with releasing expensive movies at home, just about every major media company is backing away from streaming films. Warner Bros. Discovery and Paramount aren’t going to make big movies for streaming, and it sounds like Disney is backing away from the idea as well.

This doesn’t mean that movies won’t be available on streaming services sooner than they used to be, nor does it mean that these companies won’t make any movies specifically for audiences at home.

But, under pressure to deliver profits, they once again see value in theaters, as well as sales via iTunes and other digital storefronts. The hope is for more movies like which generated almost $300 million in ticket sales and booked millions more in sales at home before appearing on HBO Max.

A theatrical release doesn’t cannibalize the streaming numbers. The majority of the most-watched streaming movies last year were released in theaters first. All the money spent on marketing – plus the buzz from people seeing films in theaters – can lift a movie on streaming. Three of Netflix’s five most-watched movies in the US last year were projects that other studios released in theaters first.

Now, not every genre of movie can work in theaters. And for every , there are at least two adult dramas that bomb. But it turns out that when media companies said their embrace of streaming movies was a reaction to the pandemic and not a permanent shift, they were telling the truth!

The walled gardens are coming down.

When Disney CEO Bob Iger first announced his plans to go big in streaming, he did so by yanking his movies off Netflix. Studios had spent years licensing their biggest projects to the streaming service, offsetting the shriveling sales of DVDs, only to realize their friend was in fact a foe. Netflix used those titles to build up a competitor to cable.

Media companies have spent the last several years buying back the rights to their biggest library titles – like The Office – and slowed their sales of new shows to competitors as well. They began to see their companies as walled gardens akin to Facebook. They needed to keep everything in their streaming service so as not to repeat the original sin with Netflix.

(Not every company gave up on licensing. Universal TV and Warner Bros. TV, to name two studios, did still sell to third parties. But every media company gave up billions of dollars a year — rather than book revenue from third parties.)

That is changing in a big way. While former Warner Media chief Jason Kilar blocked executives at Warner Bros.’ TV studio and animation group from selling many projects to Netflix (and others), Warner Bros. Discovery chief David Zaslav has opened the floodgates. Disney is now more open to selling to third parties and even Amazon is going to sell projects produced by its MGM studio to other services.

One deal to watch is what Paramount does with the streaming rights to its future movies – what’s called a Pay-1 movie deal. These rights are currently split between Paramount+ and Amazon/MGM’s Epix in a deal that pretty much no one likes. That deal is about to expire, and Paramount is already shopping the rights.

The company can keep all the rights for Paramount+, or it can shop them on the open market. Studios have historically licensed these movies to companies like Netflix and HBO for hundreds of millions of dollars. But, in keeping with the walled-garden approach, some media companies stopped selling these rights because they viewed the movies as crucial to attracting and retaining viewers for their streaming services.

Paramount may ape what Universal did by splitting the rights between Paramount+ and other services. You make hundreds of millions of dollars licensing the rights to a Netflix or Amazon, while keeping some for your own service. Ask yourself this: How much would Netflix offer for some streaming rightsMission: Impossible 9

Once again, Netflix is a big exception here. It remains adamant that it won’t sell to third parties. (Apple won’t either.) But there is one thing Netflix will do…

Go FAST.

Netflix says it is exploring a free, advertising-supported streaming service. This is one case where it will be very late to the party. Paramount already bought Pluto, Comcast bought Xumo, Fox bought Tubi and Amazon bought IMDbTV (now Freevee). Do you use these? Maybe not, but a lot of people like free stuff

That’s why Warner Bros Discovery is building a new free streaming service called WBTV.  

Selling to these so-called fast services is one way that media companies believe they can profit off their library. A small number of library titles (like ) make up almost all of the viewing on streaming services. So don’t expect Warner Bros. to let its biggest hits leave HBO Max. But if it can find someone to pay them for library titles that aren’t even popular on HBO Max, it will take some extra money.

And if no one wants to pay them, it will put the titles on its own service and make some nickels from advertising.

Flat is new up

Here’s some good news about the “year of efficiency”: Entertainment companies aren’t cutting back on spending by as much as you think. Compare the programming budgets for 2023 to five years ago and you will see that spending is still way up.

Netflix spent about $8 billion on programming in 2018. It’s now settled around $17 billion. That budget isn’t going up by $3 billion a year anymore. But it isn’t going down.

Iger can cut $2.5 billion and Disney’s budget will still be billions ahead of where it used to be. — Lucas Shaw

The best of Screentime (and other stuff)

• Hollywood Braces for a Possible Writers Strike
• Is Celebrity ‘Queer Baiting’ Really Such a Crime?
• Gina Prince-Bythewood on The Woman King Oscar snub
• Phone Companies Are Overstating Their Coverage Areas

Movie theaters increase their prices

AMC Theaters did the unthinkable this past week: it started charging different prices for different seats in a movie theater.

Film industry executives have been calling on theaters to experiment with pricing for years. It has never made sense that tickets for a new release on Saturday night cost the same as ticket for a Tuesday showing of a project that’s been out for a month.

But this isn’t charging more (or less) based on demand for the title or day of the week. You pay more for the best seats in the theaters and less for the worst seats, kind of like at a sporting event or concert. You can only access the more expensive and less expensive tickets if you join AMC’s membership program, Stubs.

What do you think of this? Actor Eiljah Wood criticized the move.

A K-Pop boardroom brawl 

Keep your eye on a fight for control of one of South Korea’s leading music companies. Hybe, which manages BTS, is making a hostile bid for shares of SM Entertainment, one of the original big three Korean pop companies.

Hybe is moving in lockstep with Lee Soo-man, the founder of SM and its largest shareholder. But the management of SM wants to sell a big stake to Kakao, the operator of South Korea’s most popular messaging app. That deal would make Kakao SM’s second-largest shareholder and dilute Lee’s control.

Lee is credited with building SM into one of the largest K-pop companies and developing acts like Girls’ Generation. But Lee has also been criticized for a contract between SM and his own consulting company that paid him more than $100 million over the last decade,.

(In an unrelated move, Hybe also bought QC, the Atlanta-based music company that works with Migos and Lil Yachty.)

Deals, deals, deals

• Hollywood news magnate Jay Penske bought a 20% stake in Vox, confirming that one day he will own every outlet that isn’t the New York Times.
• ValueAct has amassed a stake in Spotify Technology SA and is calling for more cost cuts
• Nelson Peltz has made about $150 million from his investment in Disney so far.
• Warner Music reported an 8% drop in sales and 34% drop in profit, due to the shaky advertising business and a weak release slate.

Weekly playlist

Check out the new album from British singer-songwriter Raye. Also, have I talked about how much I love Poker Face? Peacock is alive!

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