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CNBC EXCLUSIVE: CNBC TRANSCRIPT: WARNERMEDIA STUDIOS AND NETWORKS GROUP CHAIRMAN & CEO ANN SARNOFF SPEAKS WITH CNBC’S “SQUAWK ALLEY” TODAY

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WHEN: Today, Tuesday, December 8

WHERE: CNBC's "Squawk Alley"

Following is the unofficial transcript of a CNBC EXCLUSIVE interview with WarnerMedia Studios and Networks Group Chairman & CEO Ann Sarnoff on CNBC's "Squawk Alley" (M-F, 11AM-12PM ET) today, Tuesday, December 8. Following is a link to video on CNBC.com: https://www.cnbc.com/video/2020/12/08/warnermedia-studios-ceo-on-decision-to-release-movies-to-hbo-max-and-theaters.html.

All references must be sourced to CNBC.  

JULIA BOORSTIN: We're joined now by Ann Sarnoff Chair and CEO of WarnerMedia Studios and Networks Group. Ann, thank you so much for joining us in this exclusive interview, your first interview since joining Warner Brothers.

ANN SARNOFF: Hi Julia, nice to be here. Thank you.

BOORSTIN: So first, just to start off, tell us about this decision? Why does it make sense to release your next 18 films simultaneously on streaming and also in theaters?

SARNOFF: Well, it really obviously stems from the pandemic. We've been trying to figure out the best way forward for the last eight months since we first went into lockdown with all our movies and television shows. And now we're getting them back up into production, and we have many, you know, we've reported many movies which are ready to go, and they've been sitting on shelves. So we thought this was the most kind of creative and win/win situation to bring them out not only in theaters, but simultaneously for 31 days on HBO Max so that people who don't have access to theaters in the U.S. are able to see the movies and we're able to market them more fully because we're marketing on multiple distribution platforms.

BOORSTIN: I want to ask you to respond to that criticism of Christopher Nolan and some other big Hollywood names. And I'm wondering if you think this is going to make it really hard for you to negotiate with top talent both in front and behind the camera.

SARNOFF: Well, look, I mean we are big, big fans of the exhibitors. We have been great partners with them, including in releasing Chris Nolan's movie "Tenet" this summer. We had a great partnership with the theaters and we were very happy with the release, which I think you know has done over $360 million globally. The majority of that being in international markets, and about 60 million U.S. So we are really trying to work with the theaters to give them ready supply and we thought by announcing that we will have all 17 movies in theaters in 2021, that they would know that their business could operate because they will have a full stream of movies. Many other studios have been kicking the can down the road so to speak and moving their movies, either later in 2021 or 2022, and in fact about 35 movies have been pushed to digital, either sold to streamers or to PVOD. So we didn't want to do that. We wanted to see the movies on the big screen the way they were meant to be.

BOORSTIN: And I will follow up more on theaters, but I just want to return to my question about your relationship with content creators, both actors and directors and producers. It was reported in The New York Times that you have to pay $10 million to Gal Gadot and also the director of Wonder Woman 1984 to compensate them for the fact that they won't be getting that back end, that additional payment based on how the film performs in theaters. Going forward, how are you going to negotiate if you no longer have that incentive, that back end incentive, to give to those content creators? And also, how are you explaining how you're having one part of your company, HBO Max, make a licensing deal with another part of your company, the studio?

SARNOFF: Right. So along those lines we have negotiated fully-vetted market based rates for the window that HBO Max is buying if you will – the 31 day availability on HBO Max and they're paying for that and it's going into the pot so that the economics are balanced out for any potential theatrical cannibalization by being on HBO Max. But you know, we're working through this system with our talent, with their agents. I think the more they see the visibility of how they will be paid, we're finding that people are understanding the economics. And this is unprecedented so, if anything new is always a little bit difficult to work through for the first time, but this new hybrid model has not been tried before. And as I said earlier, we're trying to be creative. It's a pandemic we're all trying to face. So we're trying to create a win/win/win where the filmmakers and the talent get to see their movie on the big screen, they get to share in some additional economics from HBO Max. And as I said, those who aren't able to go to a theater, either because it's not open in their town or they're not comfortable, they can watch the movie on Max and those who really want to return to theaters, we would love for them to do that. And hopefully as the year goes on, more and more people will be able to go to theaters. So we are in the process, having many conversations with the talent, the agents and the exhibitors to try to work through how this can work and be good for all of them.

CARL QUINTANILLA: Yeah, and it's Carl. I mean, obviously the, the talent's got decisions to make but so do consumers who might now see some additional value in HBO Max and Stankey did say that engagement's up almost 40% in 30 days, largely because of "The Undoing." For consumers who are going to start to pay for the service, can they count on this kind of access to films past 2021 or is this really just a 2021 pandemic one off?

SARNOFF: Oh, hi Carl. Look, this is a 2021 strategy. We do not know what's ahead beyond 2021. We are very hopeful that we're beyond the pandemic. But this was really a makeshift solution to be able to put, to be able to afford to market the movies and put them in theaters. We really wanted them to, to be able to be seen on the big screen. So, it's a 2021 strategy and will as the year goes on, we'll revisit and work with the theaters and work with our talent and agents and see how 2022 is shaping up.

JON FORTT: And hi, it's Jon Fortt. This strikes me as bold in two ways. One, you're releasing in theaters, committing to it, which is different than a lot of others have been doing. And though you're breaking this release window. We're really going to see how much some people prefer the theater experience to at home. What are the most important data points that you are going to be tracking throughout 2021 to decide where you go in 2022?

SARNOFF: Well, of course, we'll see how many people go to theaters relative to whether they're open or not I mean, as you know, we've launched a big movie and I believe we're the only studio to launch a big movie. And during the pandemic, we launched Christopher Nolan's "Tenet" in the summer. We're very happy with that but we learned a lot. We learned a lot about the inclination of people to go to theaters when they're open. Obviously the exhibitors have done an amazing job making their theaters, more safe with, with regards to ventilation, spacing out showtimes so that theatres can be thoroughly cleaned in between showtimes and, and, you know, we were very pleased with the way we, we partnered with them and very hopeful that more people would have gone to see "Tenet" in the U.S. In the international market, it was a very different story. The theaters were more open, more people went to them. It was really a little bit more like normal but what we've learned through "Tenet" is the U.S. is not quite ready yet to, to fully reopen and have full engagement of fans back into theaters, hence this new strategy. So, we'll, we'll look at a theatrical box office as well as how many people watch the watch the movies on HBO Max, of course.

BOORSTIN: And you mentioned how important it is to give theaters that inventory so they can keep showing something in the coming months. But I also want to note that it's also very interesting that you decided to announce this without working on the deals with the theater chains first and I'm wondering what kinds of concessions or compromises you think you're going to have to make sure that they feel like this makes sense for them? There were some harsh words from AMC's Adam Aron in response.

SARNOFF: Sure. Well, we, we're definitely working with the theater chains. We worked with them on "Tenet." We worked with them on, on "Wonder Woman." And by the way, early sales of "Wonder Woman," which went on sale last week, are strong so we feel really positive despite the surge in the virus to see that the ticket sales are going quite well obviously for the markets that are open. So we'll, as we always have, we've, we've been very good partners and vice versa with the theatrical chains and so we will, we'll work with them on making sure that they, that they have a fair deal as we go into this new strategy.

BOORSTIN: And just a final question. I think it's really important to know that you oversee all of WarnerMedia's content on entertainment content including on HBO Max and all of these different platforms. What do you expect this news, this announcement to do for HBO and HBO Max. Now you have about 38 million HBO subscribers, inclusive of HBO Max, a year from now, 18 movies later, how many do you think you'll have?

SARNOFF: Well, I can't speculate on the subs but you might have heard John Stankey announced this morning at the UBS conference that we have 12.6 active, million active subs on HBO Max and that's gone up really quickly in the last six months since we, since we launched the service so we are very, very pleased with the momentum that we have on HBO Max and I don't know. I mean look, this is, this is new for all of us. We hope we are able to attract new subs and convert those who have access to HBO Max who haven't yet converted. But we'll just have to see. We'll take it a movie at a time and see how we go.

BOORSTIN: Well, and this is certainly a big bold move shaking up the industry. We really appreciate you joining us to talk about it, and we hope you'll come back and keep us posted on how everything's going such as those big "Wonder Woman" ticket sales. Thanks so much for joining us.

SARNOFF: Thanks Julia.