After a Rough Film Year, Can Kevin Tsujihara Lead Warner Bros. Back to the Top?

Kevin Tsujihara Warner Bros Studio Problems
R.Kikuo Johnson for Variety

When Kevin Tsujihara ascended to the top executive suite at Warner Bros. Entertainment, he inherited a gold-plated legacy.

For decades, the fabled studio of Humphrey Bogart and Bette Davis maintained its dominance in the Hollywood pecking order, and held the promise of staying there — in recent years on the backs of such lucrative franchises as “Harry Potter” and “The Dark Knight.”

But in today’s high-stakes, competitive landscape, sustaining that lofty perch has proven excruciatingly difficult.

R. Kikuo Johnson for Variety

In the 2½ years since Tsujihara was named chairman and CEO, and took command of Warners’ massive ship, the company has been riding a sea of fundamental change. Entertainment is being consumed around the globe at record levels, but exactly when, where and how that happens has become more fluid in a rapidly shifting industry — making the job of any Hollywood chieftain more complex and perplexing than ever.

Consequently, Tsujihara is facing markedly different challenges across Warners’ movie, television and digital businesses than did his predecessor, Barry Meyer. And, he insists on doing it his way. He’s bucking tradition in the way Warners manages its operations and exploits key intellectual property assets, like those from its DC Entertainment division. He has chosen to keep significant power in his own hands on the film side, getting into the weeds and retaining greenlight control, a drastic departure from how Meyer had delegated that authority to movie chief Alan Horn.

Tsujihara also is pushing hard to maintain Warners’ leadership position in TV production and its mega-power status in the gaming universe — a door he first opened during his 21-year climb up Warners’ executive ladder.

While the exec has been successful in guiding the studio’s TV and game divisions to strong results, he’s facing intense pressure to turn around the diminished fortunes of the movie arm. This past year saw Warners suffer a costly and protracted string of flops — so many that the studio is being elbowed out of its usual supremacy in domestic market share. This marks the first time in a dozen years that the Burbank studio will finish third by that measure for two years running.

Prominent media analyst Jessica Reif Cohen, of Bank of America Merrill Lynch, praises Tsujihara and Warners’ powerhouse television business, but stresses the need for vastly improved results from the “lackluster” film division: “That continues to be where the pressure is for them,” Reif Cohen says. “They certainly have the IP to make it work on the film side. Now it’s time. They have to execute.”

What makes Tsujihara’s job even more demanding is that he’s charting a new course against established competitors and newcomers like Netflix, which have grown more formidable. Disney rolls out multiple films and spinoffs across TV, video games and consumer goods — from its powerhouse trio of subsidiaries Pixar Animation, Marvel and Lucasfilm.

PLAYING THE LONG GAME: Tsujihara presented Warners’ slate at CinemaCon 2015. “Great content is more valuable than ever,” he tells Variety. “We have the best array of assets that are going to allow us to win under many different scenarios.” Charbonneau/REX Shutterstock

Warners’ succession of bombs began early in the year with the Wachow­ski siblings’ “Jupiter Ascending,” which lost more than $100 million, followed by the TV spy nostalgia trip “The Man From U.N.C.L.E.,” the wildly over-inflated fantasy jaunt “Pan” and this month’s “Our Brand Is Crisis,” a quirky political drama that even perennial box office stalwart Sandra Bullock couldn’t save. This year’s write-offs could be substantial, although the studio has financial partners on most of its movies. Insiders suggest that the loss on “Pan,” alone is estimated at $100 million, and “Man from U.N.C.L.E.” an estimated $50 million.

While the studio’s earlier flops could rightfully be blamed on former movie group chief Jeff Robinov and his team, Tsujihara says he takes full responsibility for everything on this year’s slate.

In an extensive interview with Variety, the CEO, who assumed his post in March 2013, sounded resolute in his pledge to right Warners’ movie ship.

“I think it’s hard any time you have something that people have worked incredibly hard on for a long period of time and they are not as successful as we all had hoped,” he says. “But one thing I can say is it’s highly motivating to me — and it’s highly motivating to the team — to win. And we’re going to win.”

The Warners brass touts what it expects to be its second year of record profits, thanks to returns from TV and games. And the company looks forward to a robust 2016 on the film front — powered by three tentpole releases, beginning with “Batman v Superman” in March, followed by another DC Entertainment property, “Suicide Squad,” in August, and the pre-Thanksgiving offering of J.K. Rowling’s Harry Potter spinoff, “Fantastic Beasts and Where to Find Them.”

Warners may land another venerable movie franchise, James Bond. At a recent breakfast meeting at the Montage hotel in Beverly Hills, Tsujihara and his pal, MGM chief Gary Barber, along with Warner Bros. business affairs president Steve Spira, were overheard discussing a potential deal; Sony’s distribution pact for the 007 films just expired with the release of “Spectre.” But Tsujihara is circumspect about Warners’ prospects of being the future home of Her Majesty’s favorite secret agent. “It all kind of depends on how the deal works,” he says.

Just as Tsujihara claims that short-term results don’t concern him, his boss, Jeff Bewkes, CEO of parent Time Warner, also stresses the importance of putting things in perspective. “When you look at it on a longer trend line, the Warner Bros. team works better and is producing better results than all the other studios,” he maintains, in an interview with Variety.

“Kevin is smart enough to keep an eye on the horizon and a 10-year plan. He understands: Don’t get too high and don’t get too low.”
Thomas Tull, Legendary Pictures

But to some, both inside and outside the studio, the lagging performance exposes flaws that are more systemic, including bloated film marketing that sometimes misses the mark; and the fact that Tsujihara is spread too thin.

Many veterans at the studio, and producers who work there, believe — especially given the company’s vast operations — that Tsujihara would be wise to adopt a similar structure to the one that served Meyer and, before him, longtime chiefs Bob Daly and Terry Semel. A year into Tsujihara’s tenure, Daly was quoted as calling for a No. 2: “If the company is going to grow,” Daly says, “he’s eventually going to need a chief operating officer.” One producer notes that the CEO has many other duties, at one time overseeing 18 direct reports. Bewkes doesn’t see a problem. He notes that Daly and Semel, together, had 32 executives reporting to them, quipping that Tsujihara’s arrangement is “streamlined” by comparison.

Producer Brett Ratner, whose RatPac has a deal at Warners to co-finance as many as 75 films over four years, says Tsujihara’s deep engagement has been a bonus for the movie operation: “Kevin is, I would say, one of the only chairmen of a studio that is hands-on and knows what’s happening — hands-on without interfering with other people doing their job.”

Tsujihara has made it clear that he’s sticking with his current motion picture group structure, despite questions from some about the viability of a tripartite leadership of roughly co-equals: production chief Greg Silverman, worldwide marketing and distribution boss Sue Kroll and New Line label leader Toby Emmerich.

“I think every company … is structured differently,” Tsujihara says. “I think for right now, with this team, I am very comfortable with how we are greenlighting films.”

Warners’ TV operation is also run by a troika: Craig Hunegs, WBTV Group president of business and strategy; WBTV Group president and chief content officer Peter Roth; and WB Worldwide Television Distribution boss Jeffrey Schlesinger. But they have a history of working together under former TV group leader Bruce Rosenblum, making the transition into a new era smoother.

Jonathan Littman, president of Jerry Bruckheimer Television, was impressed when he ran into Tsujihara at a charity event this fall and the CEO ticked off from memory each of the half-dozen projects the WB-based banner has in the early stages of pilot development. “From our point of view,” Littman says, “the transition has been seamless.”

Sitting in a sunlit conference room just steps from the office where Jack Warner built an empire, Tsujihara prefers to focus his interview on the 60% of the studio’s business (in adjusted operating income) that falls outside this year’s theatrical missteps. Across most of the operation, revenues are mostly growing, and colleagues praise their CEO for being an incisive leader who has broken down organizational barriers.

FLAILING FILMS: Warners’ 2015 losers have included “Pan,” clockwise from left, “Jupiter Ascending” and “Our Brand Is Crisis.”

The soft-spoken 51-year-old, the son of Northern California egg farmers, grows impatient when pressed about forgettable films and the anonymous critics calling for a management reorganization. His clipped answers make it clear he considers such talk precipitous and ill-informed. He will even challenge the idea that 2015 has been a theatrical pratfall. “We are going to end the year with $3.5 billion of worldwide box office,” he argues. “I think that is a number that a number of studios have probably never hit.”

Bewkes stands shoulder-to-shoulder with Tsujihara in that regard. “This isn’t a sports league. We’re trying to make money over the long run,” the Time Warner boss says, with a laugh of apparent exasperation at the question. “Whether we’re No. 1 or 2 (at the box office), we really don’t care as much as we care about whether we are making good product, and whether we’re reinvigorating our pipeline of really audacious talent.”

Bewkes jolted the media world in early 2013, when he designated Tsujihara as the successor to Meyer. The favorite for the post had been Rosenblum, the veteran head of the company’s television group, which produced half of all the studio’s revenue. Tsujihara, a Stanford Business School graduate, came from the company’s home entertainment operation and also served as exec VP of new media and exec VP of business development and strategy. While those assignments might have appeared less glamorous, his expertise at easing consumers into a new world of digital entertainment access, while also overseeing a growing video-game unit, positioned him as an agent of change.

On Tsujihara’s watch, studio veterans say there’s been greater communication among WB’s film, TV, DC Entertainment, home entertainment and consumer
products divisions. There’s much more interaction with Time Warner siblings HBO and Turner Broadcasting. And, to the delight of many on the lot, the film division no longer calls the shots on the management of the character-rich DC Entertainment vault.

With TV now the single-biggest driver of earnings for the company, many in the division find a preoccupation with the film division misguided. And Warner TV, already the biggest content producer in Hollywood, is making a wider range of series for more platforms than ever. It’s moving to expand outside the U.S. and beyond linear TV, through deals such as its investment in digital multi-channel network Machinima. The intent: keeping revenue flowing regardless of the future of the challenged broadcast TV space.

Hunegs says Tsujihara has embraced aggressive expansion. “We feel like we’re playing offense more than defense,” he notes.

CBS Corp. chief Leslie Moonves gives Tsujihara high marks for being a quick study in the intricacies of TV, an area he was less familiar with when he became CEO. When CBS and Warner Bros. TV were wrangling over new multimillion dollar contracts for the stars of “The Big Bang Theory” last year, Tsujihara was a major force in bringing all sides to consensus on a deal, recalls Moonves. The CEOs have also worked closely on the management of the Warner Bros./CBS joint venture, CW. “Kevin is level-headed and extremely smart,” Moonves says. “He’s someone who acknowledges what he doesn’t know, yet he brings a very smart sensibility to doing business.”

GOING DIGITAL: Thriller “11/22/63,” based on a book by Stephen King, debuts next year on Hulu.

The mandate that Tsujihara gave his TV triumvirate was to plot an aggressive strategy for diversification and growth. There was a danger that the studio could rely too heavily on its traditional source of TV profits — broadcast network series — at a time when the broadcast business is in flux. Warners is still reaping big bucks in syndication even from modest-sized primetime successes such as CBS comedy “2 Broke Girls” and drama “Person of Interest.” But the threat of that arena contracting, at a time when networks are favoring in-house production in order to control all after-market rights, has sent Warner Bros. TV in several new directions: international, unscripted and series for content-hungry cable and digital outlets.

Internationally, Warners’ $273 million 2014 acquisition of Scandinavian production house Eyeworks gives the studio on-the-ground production capabilities in key European territories. The dual benefit of growing overseas allows WB-affiliated producers to scout the world for hot new properties to bring to the U.S. for adaptation as well as build out local production operations as demand for programming grows in those markets. Warners’ push coincides with Turner Broadcasting’s drive to greatly expand its portfolio of international channels.

In the unscripted realm, Tsujihara was a big factor in recruiting former Fox alternative chief Mike Darnell, considered one of the architects of the contemporary reality TV business, to join WBTV Group as president of unscripted and alternative television, reporting to Roth. Darnell enjoys a lofty perch, overseeing the studio’s syndicated programming and his own development cluster, and significant resources to rev up Warners’ slate. It’s another diversification effort to balance a portfolio that has historically leaned toward scripted series — with the number of those set to grow by leaps and bounds.

Under Tsujihara, Warners has vowed to double its production of scripted series for basic, premium and SVOD channels by 2018. Big bets to come next year on that front include HBO’s “Westworld” and Hulu’s “11/22/63,” both shepherded by J.J. Abrams’ WBTV-based Bad Robot. Animation production for Turner’s Cartoon Network and Adult Swim has been stepped up dramatically with an eye to the potential to drive consumer products sales down the road. Cartoon Network’s WB-produced “Teen Titans Go!” hit the Tsujihara trifecta as a DC Entertainment-based property produced by Warner Bros. Animation for a Turner channel that is seeing growth in licensing and merchandising.

The big question surrounding all of these moves is how significantly they will pay off over the long haul. For now, WB is in investment mode, whether through M&A or in executive and creative talent or writing checks to deficit-finance big-budget event series such as “11/22/63,” a thriller based on the Stephen King tome. In the past, Warners had been more cautious about diving into the premium cable business because the path to back-end profitability was much murkier than in the broadcast arena. But with the gyrations of the marketplace in the past few years and the rise of SVOD syndication, the new sentiment is that Warners can’t afford to stay on the sidelines.

“Despite all the changes that are occurring, great content is more valuable than ever,” Tsujihara says. “We have the best array of assets that are going to allow us to be the most flexible and to win under many different scenarios.”

Another crucial opportunity is DC Entertainment. While Disney has been minting millions from the riches of its Marvel universe, analysts have been waiting for years for DC to demonstrate similar punch for Warner Bros. Meeting with investors a year ago, Tsujihara said that, in consumer products alone, DC lagged billions of dollars behind Marvel. If Warners could generate just half of what Marvel does, it could add $150 million to Time Warner’s profits, Tsujihara estimates.

FORWARD SPIN: The studio expects a stronger performance from the film arm in 2016, anchored by DC’s “Batman v Superman: Dawn of Justice,” and “Harry Potter” spinoff “Fantastic Beasts and Where to Find Them.”

Tsujihara also gets high marks from his boss for helping make Warners’ game business a market leader. For the first nine months of this year, the company ranked as the No.1 U.S. video-game publisher, with “Mortal Kombat X” topping the charts. So while the film slump contributed to a 5% year-over-year revenue decline in the just-completed third quarter, to $1.1 billion, TV revenue jumped 21% to $1.46 billion, while videogames and other sources, including consumer products, rose 54% to $622 million.

Bewkes is among those who give Tsujihara credit for acquiring important franchises even prior to his chief executive days. He was overseeing video games in 2007 when Warners acquired TT Games, British maker of Lego video games. During his time as the executive over Warner Bros. Home Entertainment, Tsujihara also led acquisitions including Midway Games and Rocksteady Studios. “He got us into the games business without losing money, which is what everyone else did,” Bewkes says. It was the TT deal that brought Warners not just the Lego video-game franchise, but the spinoff “The Lego Movie,” an unexpected hit. Two sequels are coming in 2017 and 2018.

As he prepared to become CEO, Tsujihara recognized how paramount brands that scale had become. His mantra: “Let’s focus on the big franchises … the big things that can move the needle.” It’s no wonder, then, that he pushed to prolong his studio’s most important franchise. Over a dinner in England and a subsequent phone call, the CEO-in-waiting persuaded Rowling to create a spinoff to the Harry Potter films. The famously reclusive writer calls Tsujihara the one who made the upcoming “Fantastic Beasts” series happen. Two sequels are expected to follow.

While many analysts think the Rowling and superhero franchises are a safe bet going forward, other costly investments on the film side appear much riskier. Critics question the modern viability of “Tarzan,” the 20th-century ape man tale that Warners will roll out next summer, and Guy Ritchie’s “Knights of the Roundtable: King Arthur” in July. With a cast of mostly unproven stars, the film begs indulgence of Arthurian heroes, a dozen years after a Disney retelling of the legend crumpled.

Tsujihara has no plans to pare down the scope or size of the studio’s offerings — still at 26 this year, compared to slates in the teens for many of its competitors and just 11 for powerhouse Disney. “I think we are always going to have a big, ambitious kind of broad, diverse slate,” Tsujihara says. “That is what we do.”

To promote that slate, Warners routinely spends more on television ads than its rivals, according to iSpot.tv tracking service. It’s expenditure of more than $500 million so far this year ranks 60% ahead of second-place Universal. Warners execs dispute the figures, and question iSpot.tv’s methodology. But when big spends produce paltry results, it can’t go unnoticed.

Marketing boss Kroll offered an unusual mea culpa in the days after Bullock’s “Our Brand In Crisis” failed to open — marking the first time in a decade that a Bullock feature grossed less than $10 million in its debut weekend. Kroll acknowledged, “Neither the concept of the story nor our campaign connected with moviegoers.”

But Tsujihara declines to second-guess the marketing team. “I don’t think it’s constructive to point at any individual part of the process,” he says, adding, “Our team wins together and we lose together.”

Brent Lang contributed to this report.