Deeper Dive—How Disney+ and HBO Max differ on theaters versus direct-to-consumer

Disney's "Mulan" skipped theaters in the U.S. and went straight to Disney+ at a premium price. (Walt Disney Company)

Disney and Warner Bros. are two of the biggest studios that also happen to run major streaming services. Their paths diverge when it comes to theatrical versus direct-to-consumer releases.

Major theater chains like AMC, Regal and Cinemark began gradually reopening for business in August. Recent research from Comscore suggests that the vast majority of U.S. moviegoers are reacting positively to being back in theaters. However, Disney CFO Christine McCarthy said this week that only about 68% of theaters are now open and missing in that 68% are some big markets like San Francisco, Los Angeles and New York.

Disney took that information into account along with some demographics insights when it decided to release its new live-action feature “Mulan” on Disney+ (for $30 on top of the standard $6.99/month rate) instead of in theaters.

“In general, if you look at that research, you'll see that older people are less likely; probably younger people, the same people who are doing things that we see on the news shows that they shouldn't be doing and crowding and partying, they're probably more likely to go to a theater,” said McCarthy, according to a Seeking Alpha transcript from a recent investor event. “But would a family with young kids go? Probably not. Would older people or people who have more responsibilities at this point in their lives? Those are the numbers. But in aggregate, you're looking at, at best about 40%.”

Disney hasn’t revealed yet how “Mulan” did in its opening weekend on premium VOD but Sensor Tower data suggests that Disney+ saw its mobile installs rise 68% and consumer spending grow by 193%, both compared with the week prior.

On top of the additional revenue that Disney+ pulled in thanks to “Mulan,” there is also the possibility of attracting new Disney+ subscribers, which McCarthy described as a “collateral benefit.” It’s unclear what impact “Mulan” will have on Disney+ subscriber growth but its release is another piece of a streaming strategy – which includes shorter windows for films like “Frozen 2” and a straight-to-streaming release for “Hamilton” – that’s helped with rapid growth. In August, Disney+ had 60.5 million subscribers, already surpassing the low end of the subscriber guidance Disney set for 2024.

At the same time, WarnerMedia went ahead with a theatrical release for “Tenet,” its new Christopher Nolan tentpole film. The studio said “Tenet” took in $20.2 million in its first North American weekend. According to some adjusted math from Indiewire, the total could be closer to $10 million. Either way, it’s not ideal for a film with a budget in the $200 million range like “Mulan.”

AT&T CFO John Stephens, speaking this week at an investor conference, said his company understands the distribution model is going to evolve and it's going to change. He pointed toward AT&T’s decision to skip the theatrical release for “Scoob!” and deliver it to HBO Max shortly thereafter.

“So, we're going to continue to look at everything, but in no way do I want to imply that we're not going to continue to work with those theater owners. And for a tentpole movie like ‘Tenet,’ which I saw in the theater it is really impressive. And I couldn't imagine being able to see that and enjoy that the same way I do in my home,” he said, according to a Seeking Alpha transcript. “But it's a tremendous experience. So, we'll continue to work with the theater's owners on that.”

Lightshed analyst Rich Greenfield offered a differing opinion. In a recent research note, he said putting “Tenet” directly on HBO Max could have generated excitement and put pressure on Amazon and Roku, both of which still don’t have app distribution agreements with HBO Max. He also argued that AT&T needs to focus all its original programming efforts on HBO Max, to stop offering standalone HBO apps, and to get out of channel stores like Amazon and Roku so HBO Max can “build a true direct-to-consumer streaming business as Netflix and Disney are doing. Everything we just said will be painful financially, but it’s time to rip the Band-aid off and go all-in, especially given the breadth and depth of the content across WarnerMedia that HBO Max can utilize.”

While HBO Max and Disney+ can hardly be compared apples to apples, AT&T has to be a little bit jealous of how fast Disney+ is amassing subscribers.

AT&T said that it ended the second quarter with 36.3 million HBO and HBO Max subscribers, up from 34.6 million HBO subscribers at the end of 2019. One month after launch, HBO Max had approximately 3 million retail subscribers and 4.1 million HBO subscribers had activated their HBO Max accounts. Of those, more than 1 million were wholesale subscribers through AT&T.

AT&T CEO John Stankey said his company is seeing more rapid HBO Max activation among subscribers who are already active users of the HBO digital platforms. “But we still have work to do to educate and motivate the exclusively linear subscriber base and we’ll continue to work with our wholesale partners to drive these activation rates.”

Sending a big movie like “Tenet” or the upcoming “Wonder Woman 1984” directly to HBO Max would absolutely create buzz and heighten engagement for the platform. However, it would undoubtedly create a big short-term revenue decline for Warner Bros., and the same demographics logic that Disney used may suggest that films like “Tenet” can still attract lots of moviegoers even during a pandemic.

With no real end in sight for the pandemic, studios will continue having to make difficult decisions on where to release their movies. ViacomCBS/Paramount has already decided to release its upcoming “Spongebob Squarepants” movie directly to the rebranded and revamped CBS All Access that’s launching in 2021. Warner Bros. is reportedly moving the release date again for “Wonder Woman 1984” and that could push “Dune” to 2021. Disney may be rethinking what to do about “Black Widow,” its upcoming Marvel movie scheduled for a Nov. 6 theatrical release in the U.S.

The current environment is already resulting in some surprising changes to theatrical windows and it’s likely that we’ll see continuing shifts in how different studios balance theatrical and streaming strategies.