DGA Tells WarnerMedia That Deal To Release 2021 Warner Bros Movie Slate On HBO Max Is “Unacceptable” – Read The Full Letter

EXCLUSIVE: The DGA has told WarnerMedia’s that its decision to release Warner Bros full 2021 movie slate on HBO Max at the same time the films will be released in theaters is “unacceptable” and “is contrary to both the long-standing relationship between the DGA and Warner Bros. and explicit representations made by senior executives to the DGA on this very issue.” Warner Bros. and HBO Max are both subsidiaries of WarnerMedia, the giant media conglomerate.

“We intend to take appropriate actions to protect the rights and interests of our members and request an immediate meeting to discuss this matter,” DGA national executive director Russell Hollander said in a letter, obtained by Deadline, sent Dec. 8 to Ann Sarnoff, chair and CEO of WarnerMedia Studios and Network Group.

See the full text of his letter below.

Warner Bros., he noted, “has made a proposal on how it intends to impute a license fee for the HBO Max simultaneous release for the purposes of determining profit participations. That proposal would result in an unacceptable and inadequate valuation for the license fee. While the conversations with our members’ agents and representatives may focus on profit participation and similar issues, we want to be clear that the proposal, as we understand it, is inadequate as it relates to residuals payments, and is unacceptable to the DGA.”

Earlier this year, shortly before the DGA began negotiations for a new film and TV contract with the major studios and networks, DGA Negotiations Committee co-chairs Jon Avnet and Todd Holland told the guild’s members that “We are in the midst of a complicated, rapidly changing and evolving industry with studios continuing to consolidate and become increasingly vertically integrated, and new streaming services like Disney+, Apple TV+, HBO Max and Peacock coming online. With this new landscape are complex issues to confront – and so it should come as no surprise that going through our process has been a lengthier undertaking than in previous years.”

Here’s the full text of Hollander’s letter to Sarnoff:

Dear Ann:

This letter is written in response to WarnerMedia’s recent decision to release its entire 2021 slate of Warner Bros. theatrical motion pictures day-and-date on the HBO Max streaming service. The DGA first learned of WarnerMedia’s decision through press accounts starting on December 3. It is an understatement to say the Guild was taken aback by the lack of transparency exhibited by WarnerMedia regarding this significant decision, which is contrary to both the long-standing relationship between the DGA and Warner Bros. and explicit representations made by senior executives to the DGA on this very issue.

The DGA and Warner Bros. have enjoyed a long-standing and productive relationship that goes back many decades. Our ability to work together for the good of the industry was also a significant factor in many industry negotiations, including the successfully concluded negotiations regarding the first set of terms and conditions governing productions made for new media in 2008 and the recently concluded Return to Work Agreement.

The unilateral decision to release the entire 2021 slate day-and-date on HBO Max, without any prior discussion or even basic information provided in advance to the Guild, is inconsistent with our dealings over the years. While we certainly realize the industry is not immune to the effects of the COVID-19 pandemic, changing release patterns in the way WarnerMedia has announced will deeply impact our members.

WarnerMedia’s recent action directly contradicts specific representations made to the DGA by senior executives, including Robert Greenblatt and Kevin Reilly, at a November 2019 meeting prior to DGA negotiations. At that meeting, the Guild was assured that WarnerMedia was committed to traditional theatrical release patterns and would not seek to build HBO Max at the expense of the Warner Bros. feature film slate. With respect to sales of Warner Bros. feature films and television programs, we were told HBO Max would be bidding against third parties, and that any agreed upon license to exhibit such films on HBO Max would be the result of a bidding process and arm’s length negotiations. The fact that this method of providing content to entities under the same corporate umbrella has now changed – in and of itself – should have warranted an advance call to the Guild.

WarnerMedia’s reversal on theatrical release patterns, not only restricts our members’ ability to have their films seen in the manner in which they were intended, it also affects their income. With respect to the latter, the DGA’s residuals formula for feature films are based upon a percentage of gross receipts paid to the Director, in some instances members of the directorial team, and our pension plan. The Guild is concerned about the manner in which the rights to the feature films were provided to HBO Max, the valuation methodology, and the implications of such transfer pricing to the long term valuation of the asset. Accordingly the DGA must take steps to protect its members.

The Guild has discussed the issues raised by the day-and-date releases with the agents and representatives of the affected Directors. We are aware Warner Bros. has made a proposal on how it intends to impute a license fee for the HBO Max simultaneous release for the purposes of determining profit participations. That proposal would result in an unacceptable and inadequate valuation for the license fee. While the conversations with our members’ agents and representatives may focus on profit participation and similar issues, we want to be clear that the proposal, as we understand it, is inadequate as it relates to residuals payments, and is unacceptable to the DGA.

It is difficult to overstate the importance of these issues, including the impact on the theatrical experience and the potential loss of income due to reduced revenue streams to DGA members. We intend to take appropriate actions to protect the rights and interests of our members and request an immediate meeting to discuss this matter.

I look forward to your response.

Sincerely,

Russell Hollander, National Executive Director