HBO Max Puts “Home Box Office” To The Test

Author

Michael Beach
December 10, 2020

Big news: All Warner Bros movies in 2021 will be available on HBO Max the same day as theaters.

Why this matters: Warner Bros accounts for 42% of WarnerMedia revenue, and MoffettNathanson estimates this could result in $1.2B in lost revenue in 2021 alone.z

Warner Bros is releasing 17 films in 2021, including:

1) In The Heights
2) Matrix 4
3) The Suicide Squad
4) Cry Macho
5) The Many Saints of Newark

Big question #1: How has Hollywood taken the news?

Quick answer: Not well.

Quote from Christopher Nolan – Filmmaker (Tenent, Memento, etc.):

“Some of our industry’s biggest filmmakers and most important movie stars went to bed the night before thinking they were working for the greatest movie studio and woke up to find out they were working for the worst streaming service,”

 

Big question #2: What makes this move smart?

Quick answer: 8.3M+ new HBO Max subscribers.

Quick math for WarnerMedia tradeoff:

1) $1.2B in lost revenue in 2021
2) $12 monthly average revenue per user (ARPU) for HBO Max
3) $144 in annual ARPU
4) $1.2B / $144 = 8.3M

FYI: Wall Street loves recurring revenue.  For example, Netflix is valued at  ≈ 9X annual revenue.  If HBO Max were able to add 8.3M subs @ $144/year, then the value of AT&T could increase by $11B.

Quote from M.G. Siegler – General Partner @ GV (Google Ventures):

“Essentially, Kilar is saying the long-term value of HBO Max subscribers is worth more than the box office revenue of not just one of these movies but all of these movies. And if successful, he’s not wrong! But it’s an insanely risky bet to make right now. It totally upends the business.”

 

Big question #3: Are consumers comfortable going to a theater?

Quick answer: 71% are uncomfortable going in the next month, and only 18% have gone since the pandemic started.

Consumer preference for watching new movies post-COVID-19 according to Deloitte:

1) Theater or home – 23%
2) Probably at home – 22%
3) Probably at a theater – 22%
4) At home – 20%
5) At a theater – 13%

The Status of indoor theaters by state according to the National Association of Theater Owners:

U.S. indoor movie screens according to the National Association of Theater Owners:

1) 2000 – 36K
2) 2005 – 37K
3) 2010 – 39K
4) 2015 – 39K
5) 2020 – 40K

Why this matters #2: Movie ticket sales were already in decline before COVID-19, and the pandemic accelerated existing structural problems.

Quick math on movie theater business between 2000-19:

1) Indoor movie screens – ↑ 13%
2) Ticket sales – ↓ 13%
3) AVG ticket price – ↑ 70%
4) Ticket revenue per indoor screen – ↑ 30%

 

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