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Trading box office for streaming, but stars still want their money

How studios compensate A-list actors, directors, writers and producers is complicated, with contracts negotiated film by film and person by person. But it boils down to two checks. One is guaranteed (a large upfront fee) and one is a gamble: a portion of ticket sales after the studio has recouped its costs.

By: New York Times | Los Angeles | Updated: December 8, 2020 9:58:17 am
While Wonder Woman 1984's team was given due notice before the film was shifted to streaming, none of the other 17 films moved to HBO Max, including Dune (left) got a significant heads up. (Photo: Warner Bros)

Written by Brooks Barnes and Nicole Sperling

Last month, Warner Bros. quietly approached Hollywood’s two biggest talent agencies, William Morris Endeavor and Creative Artists. The studio wanted to release the much-anticipated Wonder Woman 1984 simultaneously in theaters and on the streaming service HBO Max on Christmas Day. And they wanted to get the film’s star, Gal Gadot, and director, Patty Jenkins, on board with the plan.

WME, which counts Gadot as a client, and CAA, which represents Jenkins, had a lot of questions, but the biggest involved money: How are you going to pay them?

With Wonder Woman 1984, agents argued that Gadot, Jenkins and producer Charles Roven (among others) needed to be paid what they most likely would have received had the sequel been released in a traditional manner (an exclusive run in theaters before arriving online) and not during the height of a pandemic. After all, that was what they signed up for, and Warner Bros. and HBO Max, its corporate sibling, wanted their help in promoting the film, did they not?

After a tense negotiation, Warner Bros., which is owned by AT&T, agreed that Gadot and Jenkins would each get more than $10 million, according to two people with knowledge of the deals, who spoke on the condition of anonymity to discuss private agreements.

The upshot: Warner Bros. kept crucial talent and their powerful representatives on its side.

Wonder Woman 1984 Wonder Woman 1984 will start streaming on HBO Max on the same day as it arrives in theatres. (Clay Enos/Warner Bros Pictures via AP)

Last week, when Jason Kilar, WarnerMedia’s chief executive, announced that 17 more Warner Bros. movies would each roll out on HBO Max and in theaters à la Wonder Woman 1984, talent was handled in a very different manner. To prevent the news of the 17-movie shift from leaking (and to make the move speedily rather than get mired in the expected blowback), WarnerMedia kept the major agencies and talent management companies in the dark until roughly 90 minutes before issuing a news release. Even some Warner Bros. executives had little warning.

The surprise move left agencies on a war footing. Representatives for major Warner Bros. stars like Denzel Washington, Margot Robbie, Will Smith, Keanu Reeves, Hugh Jackman and Angelina Jolie wanted to know why their clients had been treated in a lesser manner than Gadot. Talk of a Warner Bros. boycott began circulating inside the Directors Guild of America. A partner at one talent agency spent part of the weekend meeting with litigators. Some people started to angrily refer to the studio as Former Bros.

“For the longest time, Warner Bros. has been known as the best home for talent, and that has been a significant competitive advantage,” said Michael Nathanson, a founder of the MoffettNathanson media research firm. “With this move, they alienated the very talent they have worked so hard to attract. These aren’t engineers you can just replace.”

The company cited the pandemic as the primary reason for moving the entire 2021 Warner Bros. slate to a hybrid release model, although some films — notably the big-budget Dune and Matrix 4 — are not scheduled to arrive until the fourth quarter, long after vaccines are expected to be deployed.

“Our content is extremely valuable, unless it’s sitting on a shelf not being seen by anyone,” Kilar said in the news release. “We believe this approach serves our fans, supports exhibitors and filmmakers, and enhances the HBO Max experience, creating value for all.”

Dune release Denis Villeneuve’s Dune is one of the 17 films that has been moved to the streaming service. (Chia Bella James/Warner Bros. Entertainment via AP)

The 97-year-old studio, the ancestral home of Humphrey Bogart (Casablanca) and Bette Davis (Now, Voyager), suddenly finds itself at the uncomfortable center of a Hollywood that is changing at light speed. Even before the pandemic, streaming services like Netflix, Apple TV+ and Amazon Prime Video were upending how movies get seen and their creators are compensated. Now, with theaters struggling and the public largely stuck at home, even traditional film companies are being forced to evolve.

It’s not that all actors and directors are against streaming. Plenty of big names are making movies for Netflix. But last week’s move by Warner Bros. raised fundamental financial questions. If old-line studios are no longer trying to maximize the box office for each film but instead shifting to a hybrid model where success is judged partly by ticket sales and partly by the number of streaming subscriptions sold, what does that mean for talent pay packages?

How studios compensate A-list actors, directors, writers and producers is complicated, with contracts negotiated film by film and person by person. But it boils down to two checks. One is guaranteed (a large upfront fee) and one is a gamble: a portion of ticket sales after the studio has recouped its costs.

If a film flops, the second payday never comes. If a film is a hit, as is often the case with superheroes and other fantasy stories, the “back end” pay can add up to wheelbarrows of cash. That money trickles through Hollywood’s financial ecosystem to agents, lawyers and managers — funding Pacific Palisades mansions, new Porsches and $1,000-per-person Urasawa dinners.

But are the days of the jackpot back-end payoffs now coming to a close?

“Precedent is being set over the value of talent and what kind of transparency is essential to creating equitable partnerships,” Bryan Lourd, a co-chairman of Creative Artists, said in an email. “We will do everything necessary to make sure artists are fairly compensated for the value they are creating, and that their creative and artistic work and rights are protected.”

William Morris Endeavor declined to comment for this article.

It is unclear whether Warner Bros. has a legal requirement to renegotiate back-end arrangements for the 17 movies, as it did with “Wonder Woman 1984” heavyweights. Kilar said in a phone interview Friday that, while these changes might be jarring to those who expected one thing for their movie and were now getting something very different, the end goal was to honor talent relationships as the studio had done in the past.

“The most important statement to make is we endeavor to be generous,” he said. “It has served us well for 97 years, and I think it will serve us well going forward.”

WarnerMedia has called its hybrid movie distribution plan a one-year-only strategy. But most people in Hollywood believe it will prove permanent. Kilar publicly positioned the move as being all about fans, many of whom have chafed at Hollywood’s traditional rollout of movies (first in theaters for an exclusive period, then online for rental and purchase, then on streaming services and television). He’s just going to take that away in 2022?

Each movie Warner Bros. releases next year will appear on HBO Max for only one month before leaving the service. At that point, films will cycle through the usual release “windows,” leaving theaters when interest has run out and heading to iTunes, DVD and points beyond.

Under the WarnerMedia plan, HBO Max will pay Warner Bros. a licensing fee for the 31-day concurrent rights. The fee will be equal to the studio’s portion of ticket sales in the United States. (Ticket sales are generally split 50-50 between studios and theaters.)

Other factors could influence the fee, including the percentage of theaters that are operating. HBO Max and Warner Bros. also agreed to a floor for these fees: $10 million or 25% of the film’s net production cost, whichever is greater.

godzilla vs kong Legendary was in talks with Netflix for Godzilla vs Kong but Warner Bros blocked that sale. The film will now be streaming on HBO Max. (Photo: Warner Bros)

In the eyes of some agents, this is unfair self-dealing. They believe that WarnerMedia had an obligation to maximize value for the profit participants — to make a good-faith effort to see what prices other companies might have paid for the Warner Bros. movies before selling them to itself. The licensing fee does not appear to be connected to the value each movie will create for HBO Max in the form of subscriptions or engagement.

Litigation over self-dealing has been relatively common in Hollywood since the 1990s, when industry consolidation led to media superconglomerates.

WarnerMedia’s aggrieved partners include Legendary Entertainment, two people with knowledge of the matter said. Owned by China’s Dalian Wanda Group, Legendary produced the upcoming Dune and Godzilla vs. Kong under a deal that required Legendary (and its affiliates) to ultimately shoulder 75% of the production costs, with Warner Bros. paying for the balance. Denis Villeneuve’s Dune, a science-fiction epic starring Timothée Chalamet and an array of other big names (Zendaya, Jason Mamoa), cost an estimated $165 million. Godzilla vs. Kong cost about $155 million.

Not only did Warner Bros. blindside Legendary about the distribution shake-up, but HBO Max immediately began advertising itself using footage from Dune and other movies. Stars involved with the much-anticipated project were stunned: Some had agreed to lower their upfront fees (to reduce production costs) in return for expected back-end paydays. In success, Dune could spawn multiple sequels.

Legendary was already upset with Warner. In recent months, Netflix had offered the partners a huge sum — at least $250 million — to buy Godzilla vs. Kong. Legendary was in favor of the deal, which seemed to optimize the film’s value. But Warner had blocked the Netflix sale.

Legendary declined to comment, as did Warner Bros.

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