What’s Good For David Zaslav and Tyler Perry May Not Be Good For The Industry

Remember the $90-million Batgirl movie that Warner Brothers canceled after filming was done?

David Zaslav, president and CEO of Warner Bros. Discovery (WBD), made this unpopular decision, predicated on his doing what Presidents and CEOs of any industry—whether  motion pictures or fast food—need to do, which is increase shareholder return. A write-off is apparently better than potential losses. And Zaslav is showing himself to be an exec willing to make big bets on upping ROI.

And WBD’s latest earnings performance, reported last week for Q4 2023, indicates that there are a whole of potential changes on the horizon that may radically alter moviemaking in the not-too-distant future.

There are a lot of elements of the company, from Warner Bros. Pictures to the Food Network to Max.

The studio part of the business showed a loss in the “content” category, down 19 percent compared with the same period in 2022. Total revenues were down 17 percent and adjusted EBITDA (i.e., Earnings before interest, taxes, depreciation, and amortization), was off 29 percent compared with Q4 ’22.

Meanwhile, in the WBD “Direct-to-Consumer” segment (Max), things were somewhat improved, with the adjusted EBITDA improving 75 perfect compared with the same period in 2022—but not exactly a pop-the-champagne moment, because the adjusted EBITDA was still a $55,000,000 loss—better than the previous $217,000,000 loss, but still red ink.

Zaslav managed the improvement in Direct-to-Consumer by reducing the amount of spending on content by 30 percent.

Make less product, spend less money.

Something else happened last week that will undoubtedly have consequences that will reverberate from the Helmsley Building in New York (where WB has its headquarters) and beyond.

Filmmaker Tyler Perry, who happens to own n Atlanta studio on 330 acres (the Warner Bros. lot in California is a third the size) with 12 sound stages, was planning to double the number of sound stages on the property. He estimated the cost for the additional sound stages was to be $800 million.

Then Perry saw the capabilities of Open AI’s Sora, the AI model that allows the generation of videos from text prompts with high fidelity both in terms of the rendering of the objects in the scene and the physics of movement: If Perry wanted to show Madea dancing on the moon, a set of instructions would allow him to render that tout suite.

Perry told The Hollywood Reporter last week that because of the Sora demo he has put the $800-million investment in studio infrastructure “indefinitely on hold.”

In the 2023 SAG/AFTRA contract AI was a top issue. As the organization explains, the new contract “Establishes definitions and coverage for creation, use, and alteration of ‘digital replicas’ of performers.” It covers both those who are in top roles as well as those in the background. But only people. Not everything else that is part of creating a motion picture.

Taken to its logical conclusion, things like Sora will mean that there are a whole lot of people who won’t be necessary for film making, from carpenters to painters to logistics coordinators booking the transportation for shooting at some far-flung location.

Perry sees that. So even though he spent time over the past few years planning the studio expansion, he has put it on hold. For $800 million he can buy a whole lot of compute power running on NVIDIA GPUs.

Which brings us back to Zaslav.

He is looking to transform the way Hollywood does things while becoming more cost effective in operations.

And then he sees that there is the potential of saving on the order of millions via AI.

Isn’t it conceivable that he could order the making of films that meet the requirements of the SAG/AFTRA contract (as well as that of the Writers Guild) yet use something like Sora such that essentially everything else besides the talent is digitally created?

It would, in effect, be like the creation of video games.

Suddenly moviemaking can become a whole lot more cost-effective. Use the writers. Use the actors. But forget about doing a whole lot in the way of location filming or even set-building. Creating movies becomes like making video games.

And games are a bright spot for Warner Bros. Discovery, as it pointed out in reporting out its earnings: “Games revenue increased meaningfully due to the continued performance of Hogwarts Legacy.”

Who needs to go to Ainwick Castle to shoot exteriors or build a replica of the Great Hall at Christ Church College, Oxford, on a sound stage when you can simply use a server farm in El Segundo?