Movie Equations — Wonder Woman 1984 is AT&T's painful, but necessary bet 

Streaming will never make up for a $1 billion movie, but WW1984 was never going to be a $1 billion movie

Wonder Woman 1984 exists as a beautiful “what if?” 

It’s a tentpole film, which means studios are used to it winning the short game, but market and world conditions have relegated its purpose to do something a little different — win the long game. 

If you ask AT&T executives, it’s working. CEO John Stankey and CFO John Stephens both reiterated multiple times on the company’s fourth quarter earnings call that they were pleased with HBO Max’s new numbers: 41.5 million combined HBO and HBO Max subscribers in the United States, with 17.2 million accumulated activations. That’s more than double the number of activations in AT&T’s previous quarter, which rang in at 8.6 million.

If we examine the numbers a little more, it’s less clear. AT&T and WarnerMedia break down total HBO Max domestic subscribers into two categories — wholesale and retail. Wholesale customers are people who come in through carriers like AT&T or Charter. Retail customers are people who actually sought out and purchased HBO Max plans directly. They are, in my opinion, the most important as people continue to get rid of their cable packages and cord cut. Between last quarter and this one, HBO Max signed up an additional 5.7 million wholesale customers (roughly), and 3.2 million retail customers. That’s not exactly Netflix or Disney+ adds, but streaming isn’t a short term game, it’s a long term play. 

In that vein, adding 3.2 million retail customers more than tripled the HBO Max retail subscriber gains that the company saw between the second and third quarter when HBO Max launched. So, two things can be true at once — HBO Max still isn’t growing at the speed that Wall Street would like it too, but having big tentpole films like Wonder Woman 1984 on the platform is helping bring in more retail subscribers. Analytical firm Antenna also discovered that HBO Max brought in nearly 25 percent of all domestic net subscriber additions to SVOD platforms in 2020.

A hybrid model is nonetheless worse for immediate film revenue on a title-by-title basis. AT&T executives blamed the “limited-capacity and hybrid HBO Max distribution release of Wonder Woman 1984” as part of the reason WarnerMedia’s quarterly revenue was down $3.2 billion (or just over 21%) year-over-year. Analytical firm MoffettNathanson stated in a note on Wednesday that WarnerMedia’s “strategy of releasing WarnerMedia films directly to HBO Max could cost the company an additional $2 billion for the full year.”

Let’s break those points down a little. Wonder Woman 1984 has only generated $148.4 million worldwide since it debuted in December, in large part because of closed theaters around the world, COVID-19 cases going up, bad word of mouth reviews, and the title also being available on HBO Max. To compare, by the fourth week of Wonder Woman’s release in 2017, the film had grossed more than $350 million domestically — 2.4x as much as Wonder Woman 1984’s total box office gross so far. It’s a little apples and oranges though. Wonder Woman wasn’t facing a pandemic, all theaters were open at full capacity, and the film received much stronger reviews than Wonder Woman 1984 (Wonder Woman touts an “A” CinemaScore compared to Wonder Woman 1984’s “B+”).  

We can’t determine if the hybrid model is better based on one release because we can’t compare December 2020 to December 2019, nor can we likely compare December 2020 to December 2023. There are too many variables that make comparisons mostly futile. What we’re really trying to do is determine whether moving a potential billion-dollar movie to HBO Max makes sense in the long run. The answer is not that simple — and the move to HBO Max was not to suddenly find a billion dollars over 10 weeks. Broken down into $15 subscription prices, and assuming one subscription translates to one ticket sold (it doesn’t, but for the sake of this experiment), HBO Max would need to add 66.7 million subscribers to make $1 billion. Not even Disney or Netflix could hope for those adds in that timeframe. Nor, is this the ultimate goal of HBO Max and Wonder Woman 1984’s move, but more on that in a moment. 

There are too many variations to solve for, but by focusing on two specific regions we can try and play it out a little more. In China, movie theater attendance is back to nearly pre-COVID levels. There’s also no HBO Max for people to stream the film on instead. The only way to watch Wonder Woman 1984 is to go to a theater, operating at near full capacity, and buy a ticket. Since Wonder Woman 1984 was released, the film has generated just $25 million in China. In the film’s second week, box office revenue dropped by 92% to $1.5 million, according to The Hollywood Reporter. In comparison, Soul’s box office revenue jumped nearly 150% in its second week playing in China, amassing $13.8 million compared to $5.5 million the week before.

International is one game, albeit a very important one. But what about domestic, where the bigger play was always HBO Max? Wonder Woman 1984 has only generated $37.7 million, way less than Christopher Nolan’s Tenet, which was released at a specific moment where COVID-19 cases were down compared to months past. It’s not hard to see why: most theaters that are open are operating at 25% or 50% capacity; important markets remain closed; and friends and families are recommending not going to see movies in theaters because of rising case numbers. If there’s an option to watch a movie on a streaming service, everyone from your neighbor to the CDC is asking you to do just that. 

That doesn’t mean movies aren’t still being released in theaters. The Croods: A New Age has amassed $41.9 million in domestic box office revenues, beating out Wonder Woman 1984. While it premiered four weeks before, the film has also seen better incremental increases in box office return week after week compared to Warner Bros.’ superhero movie. People are still venturing out to watch The Croods: A New Age more so than they are Wonder Woman 1984 it was added to more screens later in its run domestically, too. Although its biggest jump came in the film’s second week (149.4%), Croods has seen upticks of more than 27% between its fourth and ninth week. Wonder Woman 1984, on the other hand, has seen weekly declines in percentage of box office sales. 

Now, The Croods: A New Age doesn’t have a simultaneous release on a major streaming platform. But even taking into account the additional 3.2 million retail customers, and assuming that each new signup accounts for at least two movie goers , that’s potentially an additional $96 million at the box office. On top of the $37.7 million amassed in theaters so far, Wonder Woman 1984 could be sitting at $133.7 million domestically. Still a far cry from the domestic $346.2 million Wonder Woman saw in its first five weeks in 2017, but not as abysmal as $37.7 million.

The issue, however, is we don’t know how many people who signed up for HBO Max would have actually ventured out to see the film. As Stankey told analysts, “no one went to see movies in 2020 — because there was a pandemic.” And on the other side, we don’t know how many people who watched Wonder Woman 1984 more than once on HBO Max would have paid to see it twice in theaters. Now that Wonder Woman 1984 is entering an exclusive theatrical run, we’ll see if there’s any uptick (I doubt it). The bigger question will become how Wonder Woman 1984 performs through traditional PVOD routes after it leaves theaters and before it likely lands on HBO Max again. But by that point, arguably, people who wanted to watch Wonder Woman 1984 would have watched it.

We haven’t yet addressed the obvious caveat: why not just delay Wonder Woman 1984 to late 2021 or even 2022 like other studios are doing? Sony, MGM, 20th Century, Paramount, and others have delayed some of their bigger films to the latter half of the year. If Wonder Woman 1984 is a potential billion dollar blockbuster, why not give it the same treatment as No Time To Die or, likely, Black Widow and F9?

The simplest answer that I can think of is Wonder Woman 1984 became a loss for Warner Bros. in the name of potentially helping an AT&T product in the long run.

“We're going to see a very crowded slate in late 2021, early 2022, and we don't think just because there are more movies that magically means it's going to increase the number of people going to watch movies,” Stankey told analysts. “We told you that when the team decided to make this move, it was appropriate for this moment in time. It was done with a bold and an aggressive swing.”

In November alone, each week is dominated by a potential $1 billion film. Marvel’s The Eternals hits on November 5th, followed by Ghostbusters: Afterlife on the 11th and Mission Impossible: 7 on the 19th. October is the same, and December is also jam packed. It’s harder for a film to have two or three weeks to find its biggest audience, especially domestically. Add in a barrage of negative reviews and still uncertain COVID numbers impacting theater capacity, there’s no perfect time for a guaranteed ROI on Wonder Woman 1984. Deciding to continuously delay films also becomes a problem. That’s even more true if it’s a film like Wonder Woman 1984 or Black Widow, where there are other movies within the universe that tie-in and also need to be released. 

Stankey added that executives at WarnerMedia and AT&T believed they had “spoiling content” and could use the films to “build out our platform.” Or, as he more directly puts it, “make lemonade out of lemons.” All of which brings us to the conclusion about HBO Max and Wonder Woman 1984 — the HBO Max bet makes the most sense. Wonder Woman 1984 wasn’t going to be a billion dollar movie in 2021, and likely wouldn’t be in 2022. There’s too much competition with other major blockbusters that might receive better reviews and gain more traction through word of mouth. That’s if theaters open at capacity and consumer behavior goes back to pre-COVID levels, which still wasn’t great for theaters overall. Remember:

  1. Per capita theatrical attendance is at the lowest it’s been in nearly 100 years. In 2019, people on average visited a movie theater less than three and a half times, according to Bloomberg

  2. Less people are going to theaters, but the top 25 films, which make up roughly 50% of box office grosses, are all major franchise blockbusters so therefore

  3. If studios aren’t likely going to see the ROI they need at the box office, moving films to streaming platforms that help boost subscribers and generate recurring revenue through direct-to-consumer pathways is the best option.

Wonder Woman 1984 was unlikely going to perform as well as the first film, and WarnerMedia made a bet: can we use this to boost HBO Max subscribers while people are stuck at home, and keep them there, while riding out a bad theatrical year?

Earlier, I wrote that making the equivalent to $1 billion at the box office on HBO Max in 10 weeks wasn’t the ultimate goal of Wonder Woman 1984’s move. The ultimate goal was signing up as many new subscribers as possible and, most importantly, keeping them. If HBO Max saw 3.2 million net retail additions, that’s $48 million. If HBO Max keeps those customers, while adding more every quarter because of new series, big films, and its library, then WarnerMedia’s recurring revenue continues to build and grow. 

But, there’s still an elephant in the room. These things take time. Netflix is only just about to become cash flow positive this year, and that’s with more than 200 million customers around the world; Disney+ isn’t likely to be profitable for Disney until 2024 and hundreds of millions of consistent customers. Streaming services are expensive to keep up and, as MoffettNathanson points out, “If AT&T had the luxury of a strong balance sheet, investing for long term growth would be an easier call. They don’t.”

Wonder Woman 1984 was a desperation play. It just so happens to be the one that makes the most sense with runway running out. 

This does not mean moving every film to HBO Max makes sense, and I doubt that’s going to happen. A new Batman or a big Flash movie is likely to make $1 billion in an economy where vaccines are distributed and consumer behavior might return to pre-COVID norms. WarnerMedia isn’t going to move that to HBO Max, nor is WarnerMedia going to lose out on big Pay 1 licensing windows like the company did this year. Warner Bros. took on additional licensing fees from HBO Max with the Wonder Woman 1984 move. You don’t want to repeat that.

We won’t know for sure if the HBO Max bet paid off until 2022 when there’s a clearer picture of overall HBO Max subscriber growth and, more importantly, churn. But if Wonder Woman 1984 was the kickstart needed to bring people to HBO Max and keep them, with new splashy HBO series and films like Godzilla vs Kong, The Matrix 4, and Dune helping to do the same for WarnerMedia’s big service — and AT&T’s massive bet — then I’d argue Wonder Woman 1984 did what it needed to do in 2020. Even if that’s completely different from what it would have needed to do in 2019.