Crypto News: Bw Reads: Warner Bros. movie heads burn cash

Welcome to Bw Reads, our weekend newsletter featuring one great magazine story from Bloomberg Businessweek. It's a big weekend for the movies as Hollywood celebrates its achievements at the Academy Awards. Thomas Buckley wrote last week about a studio that's not just hunting for Oscars but also box-office rewards. You can find the whole story online here. If you want to read more about the business of entertainment, you can also subscribe to the Screentime newsletter.

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Shortly after Joker: Folie à Deux opened in October, Warner Bros. Discovery Inc. Chief Executive Officer David Zaslav summoned the co-leads of his movie studio to company headquarters in New York. The sequel to the 2019 smash hit Joker had been a critical and commercial disaster, grossing just $208 million, about one-fifth what the original took in—despite costing nearly four times as much to make.

In a closed-door meeting, Zaslav railed against the performance of the film, which studio heads Michael De Luca and Pamela Abdy had supervised from start to finish after joining Warner Bros. in 2022. Zaslav also decried the mounting costs of the studio's upcoming releases, according to people familiar with the matter who weren't authorized to speak publicly. A spokesperson for Warner Bros. disputed this characterization, calling the meeting "a straightforward Joker 2 postmortem and a constructive conversation on the slate."

De Luca and Abdy—or Mike and Pam, as they're known in Hollywood—are about to release a 2025 lineup that leans on more expensive films with uncertain box-office prospects, starting with Mickey 17, from award-winning filmmaker Bong Joon-ho, on March 7. Box Office Pro forecasts the movie, a science fiction comedy that cost more than $100 million to produce, will deliver an opening weekend of no more than $20 million in the US and Canada, suggesting it will have a hard time making enough to earn a profit. De Luca's and Abdy's contracts, which pay them more than $10 million a year each including bonuses, are due to expire in 2026, according to several people at the company as well as people who conduct major business with the film group.

Abdy and De Luca at the Will Rogers Motion Picture Pioneers Foundation's Pioneer of the Year dinner honoring Greta Gerwig in September. Photographer: Amy Sussman/Getty Images North America

The movie studio's struggles have been a drag on earnings at parent company Warner Bros. Discovery, which has lost more than half its market value since Discovery and WarnerMedia merged in a $43 billion deal in 2022. On a quarterly conference call in November, Zaslav conceded that "even in an industry of hits and misses, we must acknowledge that our studio's business must deliver more consistency." Profit at the division that includes the motion picture group is expected to be down by about a third when the company reports its annual results on Feb. 27, according to analyst estimates compiled by Bloomberg.

"Clearly the focus needs to be on the returns and how the film studio is going to make more money going forward," says Robert Fishman, an analyst at MoffettNathanson, a media and entertainment investment research firm. Shareholders are eager to see better performance from the motion picture group, which will help stabilize earnings and pay down debt the company took on to merge and create Warner Bros. Discovery, Fishman says.

When Zaslav hired De Luca and Abdy to turn around Warner Bros., formerly one of the most stable and profitable studios in Hollywood, the division was lagging behind Walt Disney Co., Comcast Corp.'s Universal and other rivals. Its recent movies based on DC Comics had struggled to compete with the more successful titles from Disney's Marvel Studios. Warner Bros. had also just lost marquee filmmaker Christopher Nolan, the director of Oppenheimer, who effectively ended a 20-year relationship with the studio in 2021 when it decided to simultaneously release its pictures in theaters and on its nascent streaming app.

By bringing in De Luca and Abdy, who most recently ran Metro-Goldwyn-Mayer, the James Bond studio, Zaslav hoped to leverage their excellent relationships with talent to make blockbusters. True to form, the pair has signed production and development deals with megastars including Tom Cruise, Timothée Chalamet and Margot Robbie, as well as horror director M. Night Shyamalan. In addition to deep relationships with talent, the co-executives brought a history of award-show wins to the studio: Abdy previously worked at the independent producer New Regency when it won Oscars for 12 Years a Slave and The Revenant, while De Luca's producer work has been nominated for best picture three times, for The Social Network, Moneyball and Captain Phillips.

Movie buffs—including Zaslav, a 65-year-old former cable television executive enamored with Hollywood who says Moneyball is one of his favorite pictures—love award-winning dramas by auteur directors. But today's most successful studios overwhelmingly rely on films based on existing intellectual property that can produce sequels, consumer products, spinoff TV series and video games. The 10 highest-grossing movies released domestically in 2024 were all in some way tied to previous films or popular brands. Greta Gerwig's Barbie, green-lit years before De Luca and Abdy joined the studio, became the highest-grossing picture in Warner Bros. history after its release in 2023.

At Warner Bros., De Luca and Abdy have continued to put a lot of faith and money in acclaimed directors making original—if not obviously commercial—projects. Following a bidding war, they spent at least $130 million on One Battle After Another, a movie directed by Paul Thomas Anderson, known for Boogie Nights and Phantom Thread. They justified the budget because of the casting of Leonardo DiCaprio, forecasting it could gross $180 million in the US and Canada alone, according to people familiar with the matter. The director's highest-grossing film to date, There Will Be Blood, was made on a budget of $25 million and generated global ticket sales of $76 million upon its release in 2007. To secure an original idea from Black Panther director Ryan Coogler, De Luca and Abdy committed $75 million and agreed to give the rights back to Coogler after 25 years. The budget has since eclipsed $90 million. On some projects, they agreed to pay directors an immediate share of cinema ticket sales before a film made a profit.