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It may be an understatement to say it has been a rough few years for Warner Bros. (NASDAQ:WBD)
From the AT&T ownership debacle to COVID to the under-whelming launch of HBO Max, the company has been battling one fire after another – for investors it has been understandably exhausting.
The hope is 2023 will be better … and it honestly may be.
Yet for that to happen shareholders have to take a birds-eye view and look at the sum of its parts and not buy into the negativity. Not just because its unhealthy, but because some of it just isn’t even true.
So what factors do need investors need to pay attention to? And why are things even more out of whack in the last quarter of the year?
First as always, some background.
I think anybody reading this knows the trials and tribulations of Warner Bros. over the past few years that I referenced above. It’s been a mess at every turn and the Discovery merger just made things murkier. The good news is there is light at the end of the tunnel and it is not coming from a train.
To succeed in 2023 and beyond, WBD needs to finalize its game plan in two key areas – content and streaming. It’s already on its way in both, but there’s still a lot of work to be done.
Let’s start with content because that fuels this company.
What WBD wants is what Disney (NYSE:DIS) has – an empire built around its various IPs. For them that starts with DC Comics. The recent hiring of James Gunn and Peter Safran underscores their dedication to that goal, but not without controversy.
The pair are going to have to make some hard choices to build the type of “Bible” that David Zaslav has asked them to create. This is a long-scale roadmap akin to what Kevin Feige did for Marvel at Disney and a far cry from the patch-work one that was previously in place and was largely dictated by whichever way the wind was blowing on a particular day.
This content is going to power WBD’s film, TV and streaming divisions so they have to get a handle on its creation. That became a little more difficult in the last few weeks as the vocal minority of DC’s fans began stirring things up – and the media did not help things.
The initial news of Gunn/Safran’s hiring was well-received, but the party was short lived as reporters latched onto the perception that WB’s latest big tentpole, Black Adam, under-performed. While that was greenlit and shot long before Zaslav, Gunn and Safran were in place, its success was seen as a building block for the future.
With Dwayne Johnson in the lead role – one of the few big bankable names not in the Marvel realm – and the “reveal” of sorts that the film would lead to the return of Superman (in the form of Henry Cavill) fans thought they were seeing the start of something that could actually work.
The issue was that Black Adam did solid but not spectacular numbers and then the problems got worse.
As the DC Bible was coming together, word leaked about which projects and actors would make the cut- and names like Cavill, Gal Gadot, Jason Momoa and Patty Jenkins seemingly weren’t on the list.
Essentially meaning a full reboot from scratch.
The last thing comic book fans want is another reboot of a classic property – fans or not, odds are good most moviegoers know the backstory of these heroes and villains. What has made Disney so successful with Marvel (and Sony with Spider-Man) is they understand that point.
In actuality I think Gunn and company do as well.
Gunn, in an effort to calm things down, recently looked to dismiss some of the rumors (while confirming others) and asking for patience. As I’ve said prior, this isn’t a quick fix and it will take some time which Gunn’s team is not only entitled to but needs in order to succeed.
We don’t know what was in that Bible that will soon be presented to Zaslav, but we do know the situation isn’t as cut and dry as some fans think. For one, Black Adam may not have set the box office on fire, but it wasn’t a bomb either. Perception didn’t equal reality on this one as Deadline painstakingly laid out.
And that’s the point.
Fans only think they know everything and if they are allowed to be the barometer in these early stages, the rush to please will lead to more failure. What you have in Gunn is a fan- but an educated one with decades of experience in filmmaking.
While his team may have passed on various projects, he didn’t necessarily pass on the actors and creatives behind them. He isn’t so much clearing the board as re-arranging the pieces in a better way to operate.
Case in point Superman.
Gunn, who has been incredibly transparent with fans since taking the reins, confirmed Cavill will ultimately NOT be donning the red cape in the next Superman film. However, he also quickly confirmed that didn’t mean the new one was going to be another origin story film, instead it was just going to take place at a time in Superman’s life when he was younger.
Gunn expressed high regard for the work Cavill did in the role and it sounds like the pair will look to work together in the future … but in this new film (which Gunn is also personally writing), he’s going in a different direction. And it’s a direction that may find Cavill’s Justice League co-star Ben Affleck returning to the fold, but not as Batman.
Affleck is reportedly being considered to direct the movie (or a movie in that realm) – again, same pieces, new role.
We’ve also heard similar reports that while Aquaman’s Jason Momoa may not be returning to the sea after the next (already shot) sequel, he may stay in the DC Universe in a new role.
I’d also personally be interested in hearing what Gunn says about Johnson’s involvement in the new DC. Adam was personal to Johnson and he was making a case for the character and film to be the next focal point of the universe. He used the Adam tour to tease all the possibilities about what was to come with sequels, spin-offs, etc. And if Gunn and team hadn’t come in, there’s a real chance those would have happened.
And for the record while many are trying, you can’t blame Johnson for his approach because the man knows how to build a franchise – you shape the narrative and you hype it when given the opportunity. It’s what made Dwayne Johnson become Dwayne Johnson verses just “The Rock.”
The whole thing is a delicate balancing act that you have to give Gunn and team credit for because while they are changing future plans, they are going to great lengths to honor the past.
Dismissing history is a mistake MANY who have come before them have failed to do.
That type of balance is the same position Zaslav finds himself in with the second key area – streaming.
HBO Max and Discovery+ don’t need a reboot … they just need to find a way to inter-mingle as one without diluting either brand.
Again, easier said than done.
The result will be one joint service reportedly to be called “Max,” which as you’d expect with this company, wasn’t exactly a hit with analysts and armchair experts. In this case I do happen to agree – “Max” is less a moniker for a dominant streaming platform and more a reminder of Cinemax, a lower-tier cable channel that hasn’t been relevant in years.
Yes, it’s hard to find a name that speaks to both brands, but “Max” doesn’t really clarify much.
The name is also only half the problem.
WBD has is cutting and pulling content left and right to get costs down that it is watering down its own product in the process. Shows like The Nevers and Westworld are now being taken off the service and shopped to other parties that reportedly include “free” channels.
Granted streaming is a mess right now as Netflix, Disney/Hulu and HBO Max are all jockeying for position in an “ad tier” realm not without controversy.
The addition of “ads” means content will now be seen in a way it was not meant to be as conceived initially. This is different than watching a movie like Avatar on your laptop than on IMAX because while not as visually impressive the story is still continuous and you don’t have dedicated “breaks” every so often for commercials that ruin the flow.
Furthermore there is the question of who gets a cut of those ad dollars … which is something that kept HBO Max off Roku for a long period of time and currently something that is keeping Disney+ off the same platform.
Zaslav has actually opened a new door in this controversy by questioning how rival Netflix does its division of dollars … specifically with producers. Keep in mind, the Netflix/WBD partnership has been lucrative for both sides as well as being well-received by subscribers.
For example, while FOX ran Lucifer and NBC had Manifest, WB was behind both shows and direct profit recipients when Netflix saved them. While HBO Max also could have swooped into make a deal, it didn’t make financial sense to do so, opening the door for Netflix. The pair also work together on The Sandman series, but this new “argument” could limit future projects.
What that means is more important for the bigger picture as it re-enforces how hands-on of a boss Zaslav is and how that type of micro-managing could be a long-term hazard.
The growing pains at WBD are real and coming from both internal and external parties, but between House of the Dragon, Succession, Hacks and The Peacemaker we’ve also seen some big wins that have resonated with investors. On top of that, while HBO Max got off to a terrible start it has morphed into a power player and HBO proper still is a dominant force in entertainment … that should continue into 2023.
Let that be the gold star that investors follow as an indication that the rest will work itself out, but also be aware this is not going to be resolved in a matter of months – and with the controversial Flash movie still on for next year it may get worse before it gets better.
The difference is that this incarnation of WBD seems more willing to be open about the process and just because some may not like what they are hearing – not hearing anything was a far worse option.
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