”If a film is set for traditional theatrical distribution, a contingency plan will need to be in place for if it goes to streaming,“ one agent tells TheWrap
So many Hollywood studios this year have been offloading their films to either streamers or their own digital platforms — leaving creatives without the accustomed bonuses from hitting box office targets — that dealmakers are developing a dual approach to negotiations on future projects.
According to multiple agents, they are now negotiating terms with studios for both a theatrical release as well as a a streaming debut when setting up a project so that contingencies (and compensation) is in place no matter how the film eventually reaches consumers.
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“Going forward, every deal that gets negotiated — whether it’s for an actor, writer or director — will incorporate streaming buyout language. So you’ll be making two deals every time you’re making one deal,” one agent told TheWrap. “If a film is set for traditional theatrical distribution, a contingency plan will need to be in place for if it goes to streaming.”
Another agent who has been at the forefront of negotiating theatrical-to-streaming deals during the pandemic said, “We’re trying to convince the studios to make a theatrical and streaming deal today. Streaming and theatrical needs to be negotiated up front from now on.”
A third agent added: “Yes, that will be the reality of dealmaking moving forward.”
Even before the coronavirus pandemic shut down movie theaters and disrupted the studios’ release slates, there had been instances where projects initially developed for the big screen were diverted to content-hungry streaming services, as when Netflix picked up Paramount’s sci-fi sequel “The Cloverfield Paradox” and Warner Bros.’ live-action “Mowgli” in 2018.
But the pandemic disruption of movie theaters has accelerated the phenomenon this year — with Warner Bros.’ plan to release all of its 2021 movies on streaming the same day as theaters and Disney shifting three films initially intended for cinemas to Disney+ instead. “This transition was always going to happen, but the closure of the theaters accelerated the timeline and it has taken place over the past few months,” the first agent said. “Ultimately, these new deal structures will exist irrespective of the pandemic, and I think it’s going to apply to finished films as well.”
And there’s no question that sheer volume of movies bypassing theaters this year has kept agents busy revisiting contracts that had been signed under an old distribution framework. “No one anticipated the pandemic, so there was no streaming contingency/back-up deal negotiated,” the third agent said. “So all parties have been forced to renegotiate in those theatrical deals.”
When a film gets a traditional theatrical release, top actors, directors and producers often negotiate bonuses based on the box office performance of the film — for top A-listers that can include a coveted share of the first-dollar gross calculated even before the studio turns a profit.
But when a film debuts on streaming — or when the theatrical release is hobbled by a simultaneous streaming debut, as with Warner Bros’ 2021 slate — the streamer typically finds a way to compensate key parties for that backend compensation. The streamer typically pays the film’s production budget, plus a fee ranging from 20-30% of that amount, plus an additional buyout to cover any backend bonuses.
Typically, though, the streamer calculates that buyout with the assumption that the film would have been only a modest success in theaters — which could deflate compensation for a film that would have turned out to be a blockbuster.
One insider told TheWrap that everyone has a different backend, depending on what was negotiated for them, so it really depends on who it is and what leverage they have. For example, a producer who has done one movie and doesn’t have a set backend deal in place won’t get the same payout as, for example, an A-lister with 50 credits to her name and a negotiated backend deal of 10% of the adjusted gross.
“How studios compensate A-list actors, directors, writers and producers is complicated, with contracts negotiated film by film and person by person,” the insider said. “But it boils down to two checks. One is guaranteed (a large upfront fee) and one is a gamble: a portion of ticket sales after the studio has recouped its costs.” With a film being sold to a streamer, the second check becomes a moot point — unless the streamer is willing to pay an upfront fee.
For example, Warner Bros. decided to simultaneously debut “Wonder Woman 1984” on HBO Max and in theaters on the same day (before they announced the same move with 17 other films). Given the circumstances, the studio acknowledged that the sequel was unlikely to match the $400 million domestic gross for 2017’s original “Wonder Woman.” After a tense negotiation, star Gal Gadot and director Patty Jenkins each got $10 million in backend bonuses, according to The New York Times. Representatives for Warner, Gadot and Jenkins did not respond to requests for comment.
Brush Nash, box office analyst and founder of the-numbers.com, predicted studios will want to have a backup plan for streaming factored into all their theatrical deals — particularly those without robust streaming services of their own. “Universal, Paramount and Sony will be looking at films at a more deal-by-deal basis, and it could go in two directions,” he told TheWrap. “One direction could be the PVOD window deal that Universal has done, and I certainly think that’s going to be in the conversation in the future,” he said, referring to Universal’s deal with AMC Theatres that now gives the studio the option to release its films as premium video on-demand titles after they have been in theaters for 17 days.
“But I can also see Paramount or Sony going to Netflix or a streamer and making a contingency plan in case a film doesn’t get to theaters or doesn’t do well right away in theaters,” Nash added.
The pandemic’s disruption of movie distribution has led to rapid change for studios and streamers alike — but it’s also accelerated shifts that had begun with the rise of streaming services and the shift in consumer behavior. “Obviously, this pandemic is unprecedented but it may cause some studios to think of backup plans in case theatrical release plans fall apart,” he said.