WarnerMedia CEO: DTC Business to Deliver Revenue ‘Unlike Anything’ the Company Has Ever Seen
WarnerMedia’s direct-to-consumer (DTC) streaming business will continue to keep soaring, Jason Kilar, its CEO, predicted during a “fireside chat” with Aaron Levie, Box CEO and co-founder, at BoxWorks 2021 on Oct. 6.
The company’s DTC businesses over Internet protocol like HBO Max and CNN Plus are “going to generate record revenues unlike anything this company has ever seen,” he predicted.
Meanwhile, despite the growing shift to movie streaming, “I believe you’re going to see larger theatrical box office per individual title going forward,” he also predicted. But, “obviously, that’s post-COVID,” he said. “That’s not necessarily right now. But I do see that being the future.”
However, “there is no doubt that the theatrical business is changing and will change, just like the rest of our businesses [are] changing and will change,” he said. “Anyone who thinks that things will go back to 2015 clearly isn’t studying the history of media.”
The Impact of COVID-19
There are “few industries that have had to both respond to the pandemic in as significant of a way but also reshape really the future of business models and work as much as the film industry,” Levie observed at the start of the on-demand chat.
The COVID-19 pandemic has been “obviously cataclysmic on so many levels in terms of society and in terms of the loss of human life,” Kilar said. “From a business perspective, it’s obviously caused us all to have to completely rethink our day to day.”
The pandemic has also, “accelerated, I would argue, consumer behavior changes that were already afoot before the pandemic,” Kilar noted. “For a company like WarnerMedia, which ultimately tells stories… it’s accelerated that sense of urgency about going direct to consumers and going global over Internet protocol,” he explained.
“That’s in addition to our businesses like television channels and theatrical exhibition and a host of things that we do in sports…. But it’s really been an acceleration in terms of work that needed to be done and clearly we’re leaning very aggressively over the last year and a half plus” into this, he said.
The Two Forces That Drove Change
Levie asked what had to happen internally at WarnerMedia to accelerate its response to going more direct and going more digital.
“I’d say it’s like two forces, one coming at the other,” Kilar replied. One is the consumers’ behavior. Literally, they vote every day with how they choose to spend their precious time. And so if you’re a company that wants to like customers, you have to listen. And not only do you have to listen. You have to lead the parade in many ways. So that’s on one side, one force.
“The other, candidly, was great leadership from 30,000 people at the company to proudly lean into the future. And, for a company that was 98 years old, and for most of those 98 years WarnerMedia has been a wholesaler, that was a dramatic change.”
WarnerMedia was already starting to focus more on digital before the pandemic. But COVID forced WarnerMedia and the other Hollywood studios to shift their film distribution focus more significantly.
“The theatrical business for us and for others in our industry pretty much went to zero or close to zero,” Kilar pointed out. “It was [a] north of 85 percent reduction in theaters at the height of the pandemic. That’s a pretty material change for a business, to put it mildly. And, on the other side, one of the biggest opportunities that I have ever seen in the history of storytelling is the Internet.”
Whether you’re talking about the shows Mare of Easttown or The White Lotus or any other specific new titles that WarnerMedia has produced and delivered during the pandemic, “I think it does represent the greatest growth opportunity in the history of storytelling. And, of course, we’re leaning into it and very, very excited to do so,” Kilar said.
The Digital Opportunity
WarnerMedia’s “opportunity digitally is far, far bigger than it ever has been historically” now, he told Levie.
“We had about a $28 billion revenue year last year, and I suspect that just one of our digital businesses, which is HBO Max, is going to exceed that revenue in just a matter of years,” he said.
He didn’t specify how many years. “But just know that our planning cycle absolutely anticipates that HBO Max, on a global basis… because it is going global, will exceed – just that one business – the totality of WarnerMedia’s 2020 revenue,” he said.
“I think the reality is that we’re living in a world where, as you go digital, your opportunity gets so much larger” because of the fact that the company is “going global” and also because “you tend to be far more accessible the minute you go digital than in an analog world,” he said.
There is a challenge to coming to a company that has been successful 98 years and say we need to move into the future with digital, he conceded.
However, “it is incumbent on us, as leaders of this incredible business, to set this company up for the next 98 years,” he said. “And so I take that very seriously. Everybody else here does too.”
WarnerMedia is “still in the early days” of the digitization of its business, he noted. “We’re in 40 countries out of what will be over 190 with HBO Max” and it plans to launch CNN Plus in the first quarter of 2022, he said.
Its digitization on the production side is still in its “very early days” but, for the first time, the company has a virtual production stage, he noted.
The company’s game group, meanwhile, is “clearly on a path to being global and being at scale,” he said.
Going digital would have been much more difficult for the company a couple of decades ago. “It would have been extraordinarily scary 20 years ago” to release a move day-and-date on theatrical screens and HBO Max, Kilar said.
Also, “if we don’t have the ability to protect our intellectual property, we don’t have a business,” he said, explaining: “We can’t confidently invest over $18 billion a year in storytelling, unless we know that we’re going to be able to have reasonable protections so that we can have a business…. Technology, thankfully, has not only kept up but in some way has led the charge in terms of what’s possible for a company like Warner.”
The chat also included virtual reality (VR), which Kilar seemed to rule out for films for the near future. VR goggles, for at least next five years, will be comparable to video game consoles when it comes to installed base – and that is a relatively small base, he said. While VR has become increasingly popular in interactive games, mobile gaming is driving that sector, not game consoles, he added.