Harry Potter could make HBO Max a streaming giant, but JK Rowling and a deal with NBC stand in the way – CNBC

British author and screenwriter J.K. Rowling poses upon arrival to attend the UK premiere of the film 'Fantastic Beasts: The Crimes of Grindelwald' in London on November 13, 2018.

TOLGA AKMEN | AFP | Getty Images

WarnerMedia owns the rights to one of the most powerful franchises in the world, but a series of controversial statements from the woman who created it threatens to tarnish the brand irrevocably.

The Harry Potter books have been a commercial success since they were first published in 1997 and become a key part of the cultural zeitgeist over the last two decades. However, author J.K. Rowling has faced public backlash in recent years for comments about transgender men and women that have been seen as transphobic and oppressive.

These remarks have turned the very people who were once inspired by the Harry Potter novels and films against Rowling, leading to threats of boycotts against future content.

These fans, including members of the LGBTQ community, helped the franchise garner more than $9 billion at the global box office over the course of eight films and led to the sales of more than 500 million copies of Rowling's Harry Potter books worldwide.

There has been speculation for months that WarnerMedia would utilize the franchise to bolster sign-ups for its fledgling streaming service HBO Max. After all, Disney's streaming platform Disney+ has seen great success from transitioning its blockbuster Star Wars and Marvel franchises into digital series.

Rumors have circulated that AT&T-owned HBO Max could launch a TV show based on the books or turn Rowling's co-written stage play "The Cursed Child" into a feature-length film.

However, WarnerMedia in January quickly quashed reports that a show based on the beloved book series was coming to HBO Max.

Still, WarnerMedia CEO Jason Kilar more recently reiterated the company's support for Potter. "There's this little thing called Harry Potter, which is one of the most beloved franchises," Kilar said earlier this month during the Morgan Stanley Technology, Media & Telecommunications Conference in a session that was webcast. "And we're incredibly thankful to be able to partner with J.K. Rowling and so I would argue there's a lot of fun and potential there as well."

Kilar didn't elaborate beyond that, but it stands to reason that WarnerMedia would seek to dive deeper into the Wizarding World. The company has already begun to explore this universe in the decades before Harry Potter's birth in its Fantastic Beasts film series.

Still, there are two things that may stand in the way of these plans Rowling and a 2016 licensing deal that gave NBCUniversal the exclusive TV rights to the Harry Potter films.

Rowling's comments about transgender men and women surfaced in late 2019. The author expressed support for Maya Forstater, who had lost an employment tribunal over comments she had made on social media about transgender people.

Forstater had disagreed with the U.K. government's plans to allow people to self-identify their gender, as she does not believe that it is possible for a person to change sex. Her opinion is that men who undergo reassignment surgery are still men, even if the law recognizes them as women.

"Dress however you please," Rowling wrote in a tweet on Dec. 19, 2019. "Call yourself whatever you like. Sleep with any consenting adult who'll have you. Live your best life in peace and security. But force women out of their jobs for stating that sex is real?"

For people like Forstater and Rowling, there is a belief that gender identity is separate from biological sex and should not be given priority when it comes to lawmaking and policy. These with similar beliefs often call themselves gender critical feminists, fear that sex is being argued into nonexistence and that it will erode women's rights.

These feminists are often referred to as "trans-exclusionary radical feminists" or TERFs. This is usually used in a negative context.

"Social media, despite inherent flaws, can serve as a mechanism to empower voices that have been traditionally disenfranchised, like trans individuals, and also to demand accountability for those in positions of power whose words may cause harm to groups with historically less power," said Caty Borum Chattoo, executive director of the Center for Media & Social Impact at American University.

Anti-government protesters hold signs calling out J.K. Rowling's transphobic twitter comments as they take part in a Harry Potter themed rally in front of Democracy Monument on August 3, 2020 in Bangkok, Thailand. The pro-democracy protest called for demonstrators to "Cast the Patronus Charm to Protect Democracy". This event was part of a string of protests.

Lauren DeCicca | Getty Images News | Getty Images

Rowling addressed her opinions about sex and gender identity again in June 2020.

"If sex isn't real, there's no same-sex attraction," she wrote in one of several tweets on June 6. "If sex isn't real, the lived reality of women globally is erased. I know and love trans people, but erasing the concept of sex removes the ability of many to meaningfully discuss their lives. It isn't hate to speak the truth."

A few days later, after facing criticism, Rowling penned a 3,600-word essay on her personal website defending her comments.

"But endlessly unpleasant as its constant targeting of me has been, I refuse to bow down to a movement that I believe is doing demonstrable harm in seeking to erode woman as a political and biological class and offering cover to predators like few before it," Rowling wrote.

It was at this point that LGBTQ groups like GLAAD and the Human Rights Campaign, and even the actors who brought her work to life, began to speak out against her.

The most notable voices were from the trio of Daniel Radcliffe, Emma Watson and Rupert Grint, who portrayed Harry Potter, Hermione Granger and Ron Weasley, respectively, in the original films.

Grint reiterated his support for trans people in an interview with Esquire published last Friday.

"I felt like I had [speak out] because I think it was important to," he said. "Just out of kindness, and just respecting people. I think it's a valuable group that I think needs standing up for."

Representatives from Rowling's public relations team declined to comment, directing CNBC to speak with Warner Bros.

Rowling's reputation isn't the only thing taking a hit, particularly, after she posted a number of comments that have been dubbed "anti-trans."

While overall fiction book sales rose 31.4% in June 2020, compared with May, Rowling's titles only saw a 10.9% increase, according to NPD BookScan. A year prior, Rowling's book sales were higher than the industry's 33.2% rise.

Other Harry Potter licensed titles that Rowling did not author also saw a slight drop, with sales increasing only 7.7% last June.

Sales growth of Rowling's books also slowed in July and August, but rebounded in September. An analyst for NPD said the sales slowdown could have been due to Rowling's comments or because of a seasonal shift in book sales.

Ultimately, Rowling's sales were up 16% in 2020, beating the performance of the juvenile fiction segment, which rose 11%, and adult fiction, which was up 6%.

"So if the news had an impact, it was short," the analyst said.

People pose for photgraphers with copies of J.K. Rowlings new book 'Harry Potter and the Cursed Child' during an event to mark the book launch at a mall in Chennai, India on July 31, 2016.

Arun Sankar | AFP | Getty Images

Still, the controversy could come back to haunt AT&T. When it was reported that HBO Max might be making a new Harry Potter series, ardent fans, who traditionally would have clamored for more Wizarding World content were torn. As much as they would like to see additional content, they didn't want to reward Rowling's recent behavior with their wallets.

"I actually talked to students about this particular issue a few months ago, right before I retired," said Garland Waller, former director of the TV graduate program at Boston University. "They are very conflicted. They said things like, 'Harry Potter was such a part of my life, but now I feel guilty if I watch any of the old HP movies.'"

Fans worldwide have been outspoken about the betrayal they have felt from Rowling's comments. Harry Potter is a story that inspired so many to embrace themselves, whether that be through accepting their own sexual orientation or gender identity or sharing their true selves with the people they love. Many have also pointed to the Harry Potter series as a catalyst for them to deal with bullies and grief.

Social media is filled with comments from fans who now feel conflicted about supporting new content that would ultimately benefit Rowling financially.

Aside from Rowling, WarnerMedia also faces a challenge from a deal it struck with NBCUniversal in 2016.

The agreement, worth in the north of $250 million, allows the Comcast-owned NBC to show all of the Harry Potter films on cable until 2025. WarnerMedia had previously had a similar deal with Disney's ABC network.

Because the deal was struck before HBO Max or Comcast's Peacock launched, the two companies negotiated a pact that would allow them to share the digital rights to the films, a representative from WarnerMedia told CNBC.

This allowed HBO Max to launch last May with all of the Harry Potter films in its digital library. Peacock then took over in October.

But there appears to be some confusion about the digital rights going forward. WarnerMedia told CNBC that over the course of the next four years, the two streamers will continue to swap custody of the franchise.

However, a representative from NBCUniversal says NBC solely owns the digital and TV rights to the films through 2025 and that there is no deal in place for shared custody of the digital rights. Instead, WarnerMedia would need to negotiate a new deal to get access to the digital rights of the films.

CNBC has reached out to both companies for clarity on the matter.

Daniel Radcliffe as Harry Potter in "Harry Potter and the Sorcerer's Stone."

Warner Bros.

"No doubt that AT&T's WarnerMedia now regrets its decision to license Harry Potter for streaming by NBCUniversal until 2025 a decision that reflected a short-term, immediate-gain minded 'head in the sand' mentality of streaming-first realities," said Peter Csathy, founder and chairman of digital media consulting firm CreaTV Media.

"WarnerMedia earned the immediate bucks, but gave up the long-term marketing punch for HBO Max that only Harry Potter could have given," he said. "They will not make that same mistake twice. Once NBCU's license is over in 2025, WarnerMedia will never let go of the Harry Potter franchise ever again. Harry Potter will play the leading role in WarnerMedia's overall long-term corporate strategy."

Waller noted that people feel hurt by Rowling's comments and want the author and WarnerMedia to make "an honest effort to do the right thing."

That could be through donations to trans organizations, bringing on a trans showrunner or producer to oversee future content, ensuring that production jobs go to trans individuals as part of diversity initiatives, and having continued and frank discussions about diversity.

"My experience with students these days is that they spot a fake a mile away," Waller said. "They are tired of corporate types blathering on about how open they are and how much they care. If it's a superficial, lame effort, the powers that be will be pilloried. Authenticity is the key."

It is unlikely that Rowling's recent commentary will tarnish the Harry Potter brand for too long, Csathy suggested, calling it a "rare, timeless, enduring" franchise that will ultimately eclipse its creator.

"Yes, some fans understandably will be turned off forever due to J.K. Rowling's rants and tune out forever because of it but the vast majority of Harry Potter fans not only will stick with the franchise," he said. "They will crave more. And Warner Bros. will happily give it to them, inspired by Disney and its burgeoning multichannel vision for Star Wars."

Editor's note: This article has been updated to include a fuller direct quote from Ms. Rowling's June 2020 essay. It also now used the words "slow" or "slowdown" to describe Ms. Rowling's 2020 book sales growth.

Disclosure: Comcast is the parent company of NBCUniversal and CNBC. In addition to holding the exclusive TV rights to the Harry Potter films, NBC also operates Harry Potter-theme lands at its amusement parks.

Link:

Harry Potter could make HBO Max a streaming giant, but JK Rowling and a deal with NBC stand in the way - CNBC