In a bold move that obviously represents more doom and gloom for theater owners during the pandemic, WarnerMedia announced this week that its full 2021 slate of films, including tent-poles such as "Dune" and "Matrix 4," will premiere simultaneously on HBO Max and in theaters. HBO Max subs will get access to those films for one month following their release.

Here's the sizzle reel Warner Bros released as it moves ahead with a hybrid distribution plan that will start this Christmas with "Wonder Woman 1984," and continue on into 2021:

Jason Kilar, WarnerMedia's recently named CEO, told Vox that the decision for the 2021 slate was in the works in the latter half of this year as the pandemic wore on, reasoning that the hybrid model still gives theaters a steady flow of movies but also considers the needs of fans, talent, directors, actors and storytellers.

"With that in mind, where we netted out is that giving a steady stream of big-budget, great movies to movie theaters over the next 12 months can be very, very helpful to their businesses," Kilar said.

Benefits vs. costs

While the day-and-date move will certainly accelerate growth for HBO Max, the supersized SVoD service that launched nationally on May 27, it will also come at a potentially high cost for the studio, according to MoffettNathanson analyst Michael Nathanson.

"Indeed, this decision will be a very costly one for everyone involved: AT&T, participants/rights holders, and theatrical exhibitors. It is hard to find any winners here," Nathanson explained in a research note.

He also questioned whether US theaters will even agree to play Warner Bros's 2021 slate under this temporary hybrid theater/streaming day-and-date model. The move could also push other studios to give it a try.

It's a big financial gamble on the part of Warner Bros, which represented 42% of WarnerMedia revenues in 2019, but 12% of the Warner Bros total comes from the box office, the analyst estimates.

Reaching the point of no return?

Warner Bros billed this as a "unique one-year plan" spurred by a pandemic that has already decimated the theater business. Nathanson is not so sure, now that the genie is out of the bottle

"We have a hard time believing the messaging that this is only a temporary 2021 plan, however, even if that might be the current plan today. Once the windows change, it will be hard to go back," he explained.

For now, there's too much uncertainty for WarnerMedia to know what 2022 might bring and form its thinking on movie distribution. "In terms of beyond 2021, we don't know," Kilar told Vox.

AT&T might get some ancillary benefit in the form of broadband subscription growth aided by bundling in HBO Max, but "[t]he payoff for all this, of course, is faster growth for HBO Max," Nathanson explained. "The most obvious takeaway from [Thursday's] news is that AT&T is, come hell or high water, going to drive traffic to HBO Max. Production delays and shutdowns clearly impacted what would have been some high-profile launch content, but the growth achieved by HBO Max (to date) can only be described as just 'OK.' "

HBO Max ended Q3 2020 with 8.61 million "activations," with many coming by way of pay-TV partnerships that effectively will upgrade and convert HBO subs to HBO Max, but just north of 3.5 million direct-to-consumer "retail" subs.

Nathanson expects the day-and-date movie release on the streaming service will accelerate HBO Max's attach rate, but believes it's inevitable that the hybrid release and distribution strategy and loosening of home exhibition windows will exacerbate a material degradation of theatrical revenues.

"And the move into HBO Max undoubtedly will have downstream impacts on home video and rental revenue streams, as well," he added.

So, how bad will it be and how well will HBO Max have to perform?

Nathanson estimates that the US hybrid window could lead to a loss of revenue of $1.2 billion, meaning HBO Max's annual average subscriber base would need to be +8.4 million higher than status quo to restore current revenue levels. The issue, he says, is that HBO is already in a third of US homes, so the total addressable market (TAM) from which to draw new HBO Max subs is one-third smaller than would be the case for a traditional theatrical release.

"Assuming some measure of password sharing… well, the TAM gets smaller still," he points out. "To be clear, narrowing the TAM by a third or more doesn’t mean that this can’t work, and there are clearly retention benefits of this strategy even for existing HBO/HBO Max subscribers. But a smaller TAM is, under normal circumstances, a tough place to start a breakeven analysis."

WarnerMedia says it's baking this temporary distribution model into its financials. Kilar told Vox that there's a "material license fee" for HBO Max's one-month distribution window for the Warner Bros films.

"So there's absolutely economic consideration for what's going on here," Kilar said. "Obviously, none of us can wave a wand and cause non-pandemic box office to suddenly show up in 2021. But the HBO Max exhibition comes at a price. And talent and the behind-the-scene folks that get participation get to participate in that."

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— Jeff Baumgartner, Senior Editor, Light Reading