After Batgirl, Is House Of Dragons Safe

Whether it’s in a big building in midtown Manhattan or a small studio in Venice, wherever art and business collide, there are conflicts. The bean counters do their best to make the business of the art make sense to the owners and investors, and the creatives believe that you can’t put a price on art. But the production of the Batgirl movie being canceled and written off for tax purposes wasn’t a case of bean counters versus creatives.

Why was the Batgirl movie canceled? The answer to that question is AT&T ($T), and their grand, but bad plan. What was AT&T’s plan? It was to use the Warner Bros assets they captured when they acquired Time Warner to create a streaming platform, HBO Max, and make that platform like Netflix ($NFLX). To execute this plan, AT&T execs leveraged all of the entertainment value associated with the HBO brand, and bastardized it, by approving low quality content in order to fill their streaming platform with options. This is why HBO Max / Time Warner’s new owners, Warner Bros. Discovery ($WBD), decided to scrap Batgirl and write it off. Everything surrounding the Batgirl movie and its cancellation hints at the movie not being a theatrical blockbuster, but instead, the streaming service version of an album filler.

Movie economics requires a film to bring in three times the advertised budget in order for the film to make a profit for the studio. This means that Batgirl - which had already hit $90 million in production costs  - would have needed to make $270 million for the film to make a profit, and that’s if $90 million was the final number needed to finish the film. In the current state of live action comic book consumption, $270 million doesn’t seem like a tough number to get to. DC comics is the comic book company owned by Warner Bros, and it is the rights owner to comic book heroes like Superman, Wonder Woman, Batman, and Batgirl. With the success of ‘The Batman’, which was released earlier this year, and grossed over $700 million worldwide on a budget of $200 million, it would seem that a ‘Batgirl’ film that followed would be easy money. Michael Keaton, who played Batman in the 1989 “Batman” film even put on the bat suit again for the first time in 30 years for the ‘Batgirl’ movie. Batgirl had comic book fans and people nostalgic for the 80s looking forward to the film. The movie had to be pretty bad if the momentum from the last Batman film and a Michael Keaton appearance couldn’t justify the movie's release to the execs at Warner Bros Discovery. And that’s pretty on brand for what Warner Bros. was while in the care of AT&T. AT&T cared less about great work, and more about getting content onto HBO Max to sell subscriptions.

But What About House of the Dragon

The surprise from the Batgirl news leads me to wonder, what will House of the Dragon be like? Whose vision will the show be made in? And how long will it stick around? In HBO’s heyday, when the network was producing top tier content like The Wire, The Sopranos, Sex in The City, Rome, True Blood, Boardwalk Empire, and Game of Thrones, Richard Plepler was the head of HBO. Plepler left HBO after Time Warner was acquired by AT&T. All guesses point to Plepler not wanting to be a part of the make HBO into Netflix experiment.

House of the Dragon was announced in October of 2019, when Time Warner and HBO were under AT&T. The production of House of the Dragon started in 2021, a few months before AT&T announced it would spin off its Time Warner asset and merge it with Discovery. And the show is now ready to be presented to the world as a product of Warner Bros Discovery. Under Plepler, HBO was a museum of fine art. Under AT&T, HBO Max became the refrigerator door with your five year old’s finger paintings. Will House of the Dragon be fine art or your kid’s finger painting?

Under Plepler, HBO was seen more as creatives than bean counters. The first season of Game of Thrones cost around $60 million to produce, and season two had a budget of around $69 million. By season 8, HBO was spending $15 million per episode. This type of spending is in contrast to how HBO’s new decision maker David Zaslav operates. Zaslav, who has built Discovery into a reality TV powerhouse with shows like Naked and Afraid, Deadliest Catch, and Gold Rush just to name a few, has stated the days of big spending to compete with Netflix are over. Does that mean House of the Dragon will be canceled after one season if the reception isn’t exceptionally strong? $15 million per episode must be tough for someone like Zaslav to reason with, when Discovery has built Naked and Afraid into a top reality show by only providing the contestants with a stipend and covering their travel expenses, but not paying out a grand prize.

The Outlook

The outlook for Warner Bros Discovery is clear to me. I see a media guy and bean counter in David Zaslav,  who is cutting costs and spending with discipline to create a competitive streaming service. Good investing is about investing in good businesses. Investors don’t care how great the content is if the business behind the content is bad, and not getting better. Spending big to win the streaming war is so 2018. As Scott Galloway has pointed out, the winner of the streaming wars is TikTok. Netflix ended Q2 2022 with 220 million subscribers, Disney+ ($DIS) ended Q2 2022 with 137 million subscribers, HBO Max, HBO and Discovery+ ended Q2 2022 with 92.1 million subscribers combined, and TikTok currently has 1 billion monthly active users. What's even more impressive is TikTok has earmarked a measly $200 million to pay its top creators. $200 million is small when compared to the $17 billion Netflix spent on original content, the $18 billion that HBO Max was prepared to spend on content in 2022, and the $33 billion Disney noted it would spend on content in 2022.

It’s very rare to have comic book fans and Wall Street focused on the same thing at the same time, but last week’s news did just that. The move by Warner Bros Discovery to scrap the Batgirl film after investing $90 million had comic book fans and Wall Street asking, WTF? But the issue at hand was created by AT&T, who had no clue how to run a media company, when they purchased a media company to make a streaming service. AT&T made a big mess of the Warner Bros assets, and now the team at Warner Bros Discovery has been tasked with cleaning up that mess.

If you’re a DC fan who hasn’t been impressed by the last few theatrical offerings from DC, then David Zaslav may be the content curator/CEO for you. Zaslav has acknowledged that Warner and DC have some of the most recognizable intellectual property in the world, and he believes DC is something that he and his team can make better. Zaslav has also stated that he is prioritizing theatrical releases. It’s expected that HBO Max will merge with Discovery Plus to create a new streaming service, where subscribers will have access to scripted shows like Westworld and reality shows like 90 Day Fiancé. Will the scripted content found on the newly created streaming service be as plentiful as it was under AT&T? Probably not, but the business will be better, which is great for investors.