‘Matrix’ legal slugfest exposes Hollywood’s shifting priorities

For Hollywood business types, the divide between the Warner Bros. and his longtime financial partner Village Roadshow Entertainment Group was a lot like seeing Neo and Trinity from “The Matrix” go their separate ways.

For 25 years, Los Angeles-based Village Roadshow and Warner Bros. enjoyed a successful relationship in which Village provided some $4.5 billion to co-finance 91 films, including hits like “The Matrix,” “Sherlock Holmes” and “Joker.”

Village Roadshow shared the spoils of Warner Bros.’ wins while softening the blow of flops such as “Jupiter Ascending” and “King Arthur: Legend of the Sword.”

But the power couple’s partnership has become mired in a dispute rivaling a messy celebrity divorce.

Village Roadshow this month sued Warner Bros. for breach of contract, accusing the studio of “deliberate and consistent coordinated efforts” to “eviscerate the significant value of Village Roadshow’s intellectual property in order to support” its sister streaming service HBO Max. Warner Bros. denies any wrongdoing, calling Village’s actions “duplicity.”

The widening dispute is a window into the dramatic corporate shakeups and strategic shifts that have defined the entertainment industry in recent years. These include the race to stream, changes to corporate DNA, and the unraveling of traditional co-funding deals as studios increasingly want to control established franchises for reboots and spinoffs. As these trends accelerate, such fights are unlikely to go away.

The centerpiece of the dispute is “The Matrix Resurrections,” which Warner Bros. moved from an exclusive theatrical release to first-time same-day streaming on HBO Max, the service parent company WarnerMedia launched in 2020 to compete with Netflix.

According to Village Roadshow, the simultaneous December release cut the legs off the film’s box office, which grossed a meager $37.6 million in the United States and Canada.

The ‘Matrix’ sequel was part of Warner Bros.’ HBO Max’s controversial 2021 same-day movie release strategy, dubbed “Project Popcorn,” was meant to be both an adaptation to the COVID-19 pandemic and an adrenaline rush for its new streaming business. Filmmakers and production companies were unhappy to lose potential profits, so the company cut deals with stars, directors and financial partners.

But Warner Bros. and Village Roadshow couldn’t get along before the debut of the fourth “Matrix” movie, and now the accusations are rampant.

Warner Bros. said Village Roadshow refused to pay the more than $100 million it agreed to provide to finance the film. Nevertheless, as the film was locked, the Village Roadshow logo appeared in the opening credits. Village Roadshow also received more than 40 tickets for the premiere, according to legal documents.

“Village’s actions were misleading and this dispute is also contrived,” the studio said in a statement. “Village was happy to have their name in the film’s credits, traveled to the world premiere in San Francisco and introduced themselves to the media as the film’s producer. … This is not how we do business, certainly not with trusted partners.”

The dispute is much broader than “The Matrix” and “Project Popcorn,” however. Warner Bros. plans to release half of its films straight to streaming rather than in theaters. Village Roadshow says some of these films are spinoffs (sequels or spinoffs) of properties it co-owns.

Beyond the streaming issues, Village Roadshow accused Warner Bros. to prevent the company from participating in works based on its films in violation of its rights.

Village Roadshow said Warner Bros. didn’t allow him to co-invest in the upcoming ‘Wonka’ movie, starring Timothée Chalamet, even though he co-financed Roald Dahl’s 2005 adaptation ‘Charlie and the Chocolate Factory’. Warner Bros. argues that the new film is not a direct prequel to Johnny Depp’s film, so the studio was not obligated to let Village Roadshow in under the terms of their contract.

Village Roadshow also said Warner Bros. had asked the company to give up its rights to co-finance a television show based on the Tom Cruise film “Edge of Tomorrow”, which it had co-financed, before suing. Warner Bros. chose to drop the show after Village Roadshow refused, according to the lawsuit.

“When Village Roadshow refused, WB said the quiet part out loud: it will not allow Village Roadshow to benefit from any of its derivative rights in the future,” the company said in its complaint.

Producers who have worked with Warner Bros. and Village Roadshow, who spoke anonymously to protect relations, were quick to point out that neither company was quite the same as when the pact began in 1997.

At that time, Village Roadshow Pictures was the film subsidiary of Melbourne, Australia-based Village Roadshow Ltd., the entertainment giant founded by Roc Kirby. Warner bosses have had a close relationship with the Kirby family over the years. In 2013, Village Roadshow execs traveled from Down Under to attend Warner Bros.’ retirement party. longtime chairman Barry Meyer following a deadly battle for the succession.

But Village Roadshow is now owned by private equity firm Vine Alternative Investments, which acquired a majority stake in Falcon Investment Advisors in 2017. Former film-focused Village Roadshow executives, including Bruce Berman, who was once a executive of Warner Bros., have since left . The company is now led by Steve Mosko, a television veteran who was brought on as chief executive after a long career at Sony Pictures Television.

For its part, Warner Bros. has been through several messy corporate sagas over the years. Talent relations soured under AT&T ownership, which took over Warner Bros. in 2018 as part of an $85 billion acquisition of Time Warner. Now, the phone giant is set to spin off from WarnerMedia and merge it with Discovery in a deal expected to close as early as April.

Many people who oversaw Warner Bros. during the good times of the Village Roadshow relationship – from Bob Daly and Terry Semel to Meyer and Alan Horn to Kevin Tsujihara – are long gone. Still, some of the people who run the day-to-day affairs of Warner Bros., including chief operating officer Carolyn Blackwood, have been with the company for years.

If Village Roadshow and Warner Bros. parted ways for good, it would be the last co-funding deal to be scrapped. Studios used to welcome partners to co-invest in films to mitigate risk through broad deals. Now that intellectual property is everything for entertainment companies, they want to keep more of their franchises to themselves.

The transition to streaming has also disrupted traditional co-funding. With the theatrical business model, financiers would share in the profits of box office success. But if a movie does stream on HBO Max, where it’s a small part of a larger subscription offering, the financier doesn’t get the same benefit.

Legendary Entertainment has invested in Warner Bros.’ The films “The Hangover” and “Dark Knight” thanks to a co-financing agreement that ended in 2013. Now Legendary makes films with Warner Bros. via a different strategy, in which Warner Bros. is releasing Legendary movies, including the recent “Godzilla vs. Kong” and “Dune,” while also investing in its productions.

Warner Bros. in 2018 decided not to renew its co-financing deal with RatPac-Dune after The Times reported that director and producer Brett Ratner had been accused of sexual harassment and misconduct by multiple women. Ratner denied the allegations. Warner Bros. in 2019 bought out RatPac-Dune’s financial stakes in films such as “Wonder Woman”.

Co-financing still exists in Hollywood through companies like Bron Creative in Canada, though such deals now largely serve to reduce the risk of expensive bets on adult dramas like “Cyrano” and “House of Gucci.” from MGM. Studios aren’t as keen on sharing profits from safer blockbusters, like DC superhero movies.

The Village Roadshow-Warner Bros. is expected to begin in earnest with a status conference scheduled for March 11. Warner Bros. wants to force the dispute into arbitration and has heavy hitters to make its case. Daniel Petrocelli, the trial attorney who represented Walt Disney Co. in its streaming-related fight with Scarlett Johansson, is the studio’s outside counsel.

Zev Raben, an entertainment attorney at Ramo Law who is not involved in the dispute, expects the matter to be ultimately resolved through arbitration or settlement. Such a result would reflect how Disney and Johansson settled their differences in September with undisclosed terms.

“Arbitration is preferred in the entertainment industry by many parties, and a big reason is that it kinda keeps the dirty laundry out of sight,” Raben said. “My fear is that it continues to be a bit in the dark about how these things are being worked out.”

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