'Black Widow' lawsuit challenges new distribution strategies, streaming profits

After actor Scarlett Johansson shocked Hollywood by filing a breach of contract lawsuit against The Walt Disney Co., film and theater analysts could at least agree on one thing: It was not supposed to happen this way.

According to a lawsuit filed July 29 with the Los Angeles Superior Court, Johansson said Disney breached her contract with the studio for the Marvel film "Black Widow" by releasing the picture on the Disney+ streaming service at the same time as its theatrical debut. Johansson claimed her contract had stipulated an exclusive theatrical release for "Black Widow" and included significant payouts to the actor that were tied to the box office performance of the film.

Disney quickly refuted the claims, arguing in a statement that Johansson has received $20 million to date for her work on "Black Widow."

The dispute between Johansson and Disney could impact the industry well beyond Johansson's paycheck alone, film and theater analysts agreed. It could set a precedent for the compensation of talent under new distribution models that include streaming on studio platforms, and it could help determine which of those models become the new post-pandemic normal.

Pay to play

Johansson claims her pay was materially impacted by Disney's hybrid release strategy. The studio delayed the release of "Black Widow" amid the COVID-19 pandemic as theaters closed and consumers stayed at home. It then said the title would be released exclusively in theaters before going to streaming. It later doubled back, ultimately releasing the film simultaneously in theaters and on its Disney+ streaming service. To access the film, Disney+ subscribers had to pay a $29.99 premium video-on-demand purchase price.

"Black Widow" earned $80.4 million domestically during its opening weekend at the box office, according to data from Kagan, a media research group within S&P Global Market Intelligence. While that is in line with past Marvel titles like "Doctor Strange," which opened to $85.1 million in 2016, the opening was well below that of female-driven titles like Marvel's "Captain Marvel" and Warner Bros.' "Wonder Woman" — each of which opened above the $100 million-dollar mark domestically.

More troubling, however, is the steep drop off "Black Widow" saw in its box office grosses week to week. During the film's second week in theaters, its domestic gross fell 36.2% week over week, according to Kagan, and it fell an additional 54.7% during its third week.

By comparison, Kagan data shows "Captain Marvel" had a 27.4% first-week drop, while "Wonder Woman" fell only 0.2%.

Boxoffice Pro chief analyst Shawn Robbins estimates that the global box office sales of "Black Widow" will land at about $400 million. In a more typical environment, a worst-case performance of "Black Widow" would collect twice that, he said.

"As much as Disney is trying to adapt in the times of COVID … this raises a lot of questions about the relationships with people that are making the movies," Robbins said. "It was pretty clear that a lot of money was left on the table."

Currents in the stream

Other studios are undertaking similar hybrid-release strategies, and they have also had to field distress from their talent. For example, Legendary Entertainment, the production company behind "Dune" and "Godzilla vs. Kong," was reportedly considering a lawsuit against AT&T Inc. studio Warner Bros. after the studio said that all its 2021 films would get a hybrid release. However, Warner Bros. managed to settle that dispute, as well as similar disputes totaling $200 million in payouts, without being targeted by legal action, according to the Journal.

"Unfortunately these are movies where contracts and incentives were negotiated in a pre-pandemic world, and no one could predict that this was going to happen," Kagan analyst Wade Holden said. "I thought it was understood in the industry that if you're doing this kind of thing, you have to work things out with the people involved. It does seem strange this slipped through the cracks."

If Johansson wins her lawsuit and sets a precedent, Disney would likely have to modify its terms with film talent to tie its compensation to its streaming platform as well as theatrical performance. That could change the financial calculus of Disney+ and other streaming services producing original film content, Wedbush Securities exhibition analyst Alicia Reese said.

"Disney will be setting a precedent with other actors and producers, and this could cut meaningfully into streaming margins. This would dilute the argument that premier access day-and-date releases are wildly profitable versus exclusive theatrical releases," Reese said, saying this tension against streaming debuts could have a net positive impact for theater operators if studios have more incentive to prioritize box office results.

Disney did not address the potential impact on the profitability of Disney+, but the studio previously said "Black Widow" had earned $60 million on Disney+ worldwide during its debut weekend.

"There is no merit whatsoever to this filing," the company said in a statement. "The release of Black Widow on Disney+ with Premier Access has significantly enhanced her ability to earn additional compensation on top of the $20M she has received to date."

Bigger than 'Black Widow'

The impact on the future of streaming distribution and talent compensation goes well beyond "Black Widow." While Disney and other studios changed their debut dates and strategies for films throughout the COVID-19 pandemic, Johansson's high-profile lawsuit could cause studios to reconsider at a time when new COVID-19 variants are threatening the pandemic recovery.

"It's sort of incredible that [they] couldn't come to an agreement and had to make it a public matter," said Dan Rayburn, streaming media consultant and principal analyst for Frost & Sullivan.

The next test for Disney will be the September Marvel release of "Shang-Chi and the Legend of the Ten Rings," which is slated for a 45-day exclusive window in theaters before it hits Disney+. Even more eyes will be on the November debut of "Eternals," for which Disney has not announced a Disney+ release date, Robbins said.

"Now that there are challenges within Disney's own house, that really raises a lot more support within the industry for questioning hybrid release strategies," he added.