Warner Bros. Discovery And Disney Turnarounds Don’t Have A Speedy Solution

Summary:

• Warner Bros.’ “The Flash” and Disney’s “Elemental” underperformed at the box office, leading to a variety of questions that have tough answers.
• Both companies are in the midst of pivoting their business models, which are resulting in growing pains for shareholders.
• For WBD, the concern is audiences are aware of the company’s future plans with its DC brand, which harms upcoming projects that are now essentially holdovers and unconnected.
• For Disney, the studio’s revolving door at the top has led to an uncharacteristically disjointed overall approach that has devalued some of its assets.
• The future success of these studios depends on their ability to adapt and balance their theatrical and streaming offerings, while keeping audiences engaged during this transitional period.

Traditionally during the summer when a comic book adaptation and an animated tentpole both release the same weekend the results are usually – super.

That was not so much the case this past weekend as Warner Bros.’ (NASDAQ:WBD) The Flash and Disney’s (NYSE:DIS) Elemental both failed to get audiences fired up enough to race to theaters. While it’s easy to say these movies under-performed due to this or that, the answer is much more over-arching…even if it’s not one most investors want to hear.

First as always, some background.

Ever since COVID, the summer box office has not been the same as it used to be, and even prior to COVID, streaming was beginning to eat into those profits. However, despite the pandemic and the emergence of other viewing options, Hollywood has fought back and the theatrical model is far from being done and dusted.

The difference now though is that audiences have wised up and are no longer game to pay for movies that know they can wait a few months and get for the cost of subscription. That wasn’t always the case, remember the typical life cycle of a movie was around a year pre-COVID.

If a movie opened in the summer, there was a good chance it may hit DVD/Blu-Ray by the holidays and then four-to-six months later makes its way around the premium channel circuit (ie. HBO). Now a movie can be in theaters today and on streaming in three months.

Contrary to popular belief streaming didn’t kill the traditional model, it just exposed a weakness.

If audiences can wait – they will.

So when a super-hero actioner like The Flash and a kid-pic from Pixar like Elemental miss the mark it raises questions – and the savvier investors know to dig deeper than Disney’s became “woke” or Warner Bros. is a mess.

The truth is more that both companies are mid-pivot in business models and approaches which opens the door to growing pains – which to shareholders are especially painful.

Let’s start with Warner Bros. and The Flash.

While the larger WBD picture is the main culprit here, you can’t discount film quality or a number of other factors as well. Despite massive praise from topper David Zaslav and his new regime about how this was “the best superhero movie ever,” critics and audiences didn’t agree (I know, shocking).

And I will say that despite the not so warm reception you do have to give credit to WBD/DC Comics for what they were going for here. Remember this was orchestrated as part of a larger cinematic universe akin to what Marvel does, but again for a variety of reasons it never panned out. Had that not been the case, this stroll down memory lane with Michael Keaton, Michael Shannon and other high-profile appearances from DC movie alum could have worked.

More importantly it would have fixed the continuity problem between DC film eras that had the new Spider-Man films expertly weaved together in its most-recent edition. Audiences are tired of a reset every decade – we know how these super-heroes/villains become who they are… we don’t need another director’s take on it.

But I digress.

The point being audiences were over this collection of movies and with good reason long before The Flash opened – namely because new DC studio head James Gunn and Peter Safran are already hard at work on the next era. “Phase One” is deep in development and we already know The Flash and the upcoming Aquaman sequel were not really part of the plans (at least this in this incarnation) – these were inherited projects.

That doesn’t mean Gunn/Safran didn’t try to pull them into the mix but they didn’t vocalize it enough to say “you need to see these to understand what we are doing.” And that’s okay because they shouldn’t have to – they deserve and are being given the chance to blaze their trail. But they also knew they couldn’t just jettison these movies to Max.

Well, they could… but the company has pulled back enough content in the last few years to fill a whole other streaming service, so it wouldn’t have been the best look when the company has been trying to show stability. Although with the legal problems of lead Ezra Miller, the studio likely would have gotten more of a pass from media.

Still, that aspect certainly didn’t help anything and the studio opted against putting their lead front-and-center with the press. Yet Miller being the lead and the other high-profile (albeit supporting) names busy shooting other projects, it left a big hole in the promotion plan.

Though I’d argue it didn’t have the same impact everyone says because if you are someone going to see The Flash – Ezra Miller on Live With Kelly and Mark or Today is not going to make you buy a ticket… you were already going or not going.

So that and the complications from the ongoing writer’s strike really was less of a factor – it was audiences feeling “meh” on the movie and knowing this was essentially a leftover that the studio was trying to warm over.

WBD and DC can get back on track, but honestly it may not be until 2025 when the first Gunn/Serafin collaboration comes to theaters.

And then there’s Disney and Elemental which also had a bad weekend.

The cop out answer here is that Disney is battling allegations of being “woke” and it cost them.

No that didn’t happen.

The answer to every Disney flop is not because they embrace what some seem as controversial views.

Lightyear didn’t fail because there was a same-sex kiss for a brief moment – it failed because it tried to re-invent a character that didn’t need re-invention.

Strange Worlds didn’t fail because one of its characters was gay – it failed because nobody knew what it was about and its summary read like a mirror image of past Disney movies that also failed (looking at you Treasure Planet and Atlantis).

The Little Mermaid didn’t under-perform because – well actually the woke argument could play there. While the movie did okay, you can see a subsection of viewers who normally would turn out and didn’t this time. Yes, that could be for a variety of reasons, but one does stand out more than usual.

Although that’s a story for another day as being “woke” isn’t what hurt Elemental.

Streaming did.

Disney went ALL-IN on streaming under Bob Iger and then that plan went sideways under Bob Chapek and now with Iger back, it has still not been a quick fix. Disney’s over-reliance on streaming did come back to bite it, and it didn’t have to (at least not to this level).

The revolving Bob situation made them take their eye off the ball and it’s going to take time to fix.

Here with Elemental, the issue is how Disney has been utilizing Pixar.

Pixar went from the golden child of Disney to an expendable test subject in the snap of a finger and all because of COVID.

The first movie Disney shifted from theaters to streaming during the start of COVID was Onward and then it continued with Soul, Luca and Turning Red. And to add insult to injury, in each case it was always a “free” release so there wasn’t an up-charge for watching at home verses going to the theater.

Whereas the traditional Disney animated release – Raya and the Last Dragon…upcharge.

And then the next one, Encanto, was an exclusive to theaters release.

Many felt Disney was devaluing Pixar… when really what Disney intended to do was put the studio on a pedestal by showing subscribers that they were getting a marquee first-run movie for no extra cost.

The optics were bad and Pixar’s team felt disheartened.

Even though Soul going to Disney+ allowed the film to not be sitting on the shelf for an extended period of time – and it won the Best Animated Movie Oscar – the decision had long term impacts.

And that was something Pixar head Pete Docter discussed during the press rounds for Elemental.

In the long run, there’s been a bit of a mixed blessing because we’ve trained audiences that these films will be available for you on Disney+. And it’s more expensive for a family of four to go to a theater when they know they can wait and it’ll come out on the platform.

Now, with that said, while Docter is right, streaming also has the ability to give movies a second-life.

Encanto did okay in theaters, especially given the COVID of it all at the time, but it when it moved from theaters to streaming a month later it took off.

Yes, a lot of that has to do with the catchy-nature of its We Don’t Talk About Bruno song, but the movie resonated with audiences and it was an interesting case where Disney could have it both ways. While Elemental is not a musical, I do see a scenario where its second-life is stronger.

But for now we are looking at a box office debut that is the lowest of any Pixar movie to date and that includes The Good Dinosaur, which Disney knew going in was going to have a lot of trouble.

I also think part of the problem here is that Elemental borrows in some ways from other Pixar projects that audiences couldn’t really get a sense of the movie’s identity. On paper it looks like a distant cousin of Inside Out, just sub emotions for elements.

The thing here though is that Disney has made streaming such a big part of its business that this is the situation they now find themselves in and it is a balancing act.

WBD is in the same situation.

These studios are re-calibrating and essentially asking audiences to stay with them during this course-correction. That is a hard ask to make of consumers these days and one that is going to take time.

I’ve long made the argument that WBD’s biggest obstacle was “time,” because the turnaround reset when the company left AT&T. This is a by-product of that and it will continue to be for the foreseeable future.

With Disney, the timetable may be quicker because of the larger number of established IP projects coming down the line that don’t carry the same baggage WBD’s films are facing. The issue there for Disney is more Elemental’s performance re-enforces just how hard it is to create new original content… and that’s always been Disney’s “thing.”

This could also be an anomaly but we won’t know until November when Disney’s Wish hits theaters and even then that’s a Disney title – the next Pixar movie isn’t slated until March 2024.

For now both Disney and WBD will continue to drive two very powerful trains on a track that is being built and re-built while they are in motion.

The problem is, investors are on board and not experiencing a smooth ride.

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