Black Widow Star Scarlett Johansson Sues Disney (DIS): Why It Matters

The Walt Disney Company's (DIS) latest release Black Widow is turning into a fount of controversies. The movie, which recorded Hollywood's best weekend opening of the year only to crash to one of the lowest box office grosses for a Marvel movie, generated headlines after theater owners criticized Disney's business strategy. It is in the news again. This time, its star Scarlett Johansson is suing the studio for breach of contract.

At issue is Johansson's salary from the movie. She claims that Disney's decision to simultaneously release the movie in theaters and on its streaming service cut into her overall earnings because it "lured" audiences away from the former to the latter. Johansson would have received a percentage of profits from the movie's theatrical collections.

The case is a first of its kind and could set a precedent for future star earnings from the new medium. Given that the stock market has rewarded Disney based on the performance of its streaming service in recent times, it could also set the pace for investor expectations from its future earnings.

Why Is ScarJo Suing Disney?  

Typical studio films pay between $15 million and $20 million to major stars for big movies. Above that amount, the stars take a cut of box-office and home entertainment receipts, known as backend payments, as part of their remuneration. The latter payout can be especially substantial for big ticket movies and hit franchises. For example, Tom Cruise had a hefty payday from the Mission Impossible series.

With over $22.5 billion in revenues, the Marvel series is a lucrative franchise for stars who act in it. In her suit, Johansson claims that Disney had assured her that Black Widow would have a "theatrical-only" release. "As Ms. Johansson, Disney, Marvel, and most everyone else in Hollywood knows, a 'theatrical release' is a release that is exclusive to movie theatres. Disney was well aware of this promise, but nonetheless directed Marvel to violate its pledge and instead release the picture on the Disney+ streaming service the very same day it was released in movie theatres," the suit states.

It further claims that Disney's decision prevented the actress "from realizing the full benefit of bargain with Marvel." A source told the Wall Street Journal that she has lost an estimated $50 million due to Disney's business tactic. According to the suit, the studio did not respond when Scarlett Johansson's lawyers attempted to renegotiate the terms of her agreement with the company.

Disney said that the suit was without merit. "Disney has fully complied with Ms. Johansson's contract and furthermore, the release of Black Widow on Disney+ with Premier Access has significantly enhanced her ability to earn additional compensation on top of the $20 million she has received to date," the Burbank, California-based company stated, adding that Johansson received compensation of $20 million to act in the movie. It also blamed the actress for filing a suit with "callous disregard for the horrific and prolonged global effects of the COVID-19 pandemic."

Black Widow earned $60 million on Disney Plus, the studio's streaming service, in its opening weekend and had a $158 million box office haul (domestic and overseas) during the same time period. It crossed the $100 million mark at the domestic box office in five days, the fastest to reach this figure in a year when the pandemic shutdown hammered box office revenues for most studios.

However, the movie has witnessed a dramatic drop in collections since then and has among the lowest grosses for any feature in the Marvel universe. Johansson is the not only one blaming the movie's streaming release for low collections. The National Association of Theater Owners (NATO) put out a statement blaming the entertainment conglomerate and castigating streaming as "a pandemic-era" artifact.

How Much Should Actors Get Paid for Streaming Roles?

While Disney Plus has boosted Disney's stock price, streaming service may prove to be a mixed blessing for actors. It has the potential to expand their reach across geographies and bolster their personal brand. But it can also eat into their overall earnings from the company's franchises. Actors receive less money upfront in the current system but backend payments provide a steady stream of earnings later. Streaming could change that dynamic.

According to some reports, Netflix, Inc. (NFLX), the biggest streaming service in terms of subscribers, pays actors more money and retains future earnings from streaming for itself. For example, Hollywood actor Ryan Reynolds was paid $27 million to start in Six Underground. Will Smith is reported to have raked in $35 million for his role in Bright 2. The downside to these figures is that Reynolds and Smith cannot partake in any future success of their movies, meaning they will not receive a backend payment even if viewers stream the movies many times. For Netflix, high upfront payments inflates movie budgets, making it important that they are successes.

Other streaming services are also taking steps to make changes to their payment terms. HBOMax—a division of Warner Media, which is owned by AT&T Inc. (T)—is reported to have amended its agreement with stars and spent as much as $250 million as payment after announcing that its movie slate would be released on streaming as well as theaters this year. However, the studio has not provided specifics of the new compensation agreement with actors.

Johansson's suit might bring such discussions into the open. Trade publication Variety states that it is "emboldening" actors like Emily Blunt and Emma Stone—both stars of recent streaming releases—to weigh their options and could have a costly "cascade effect" for Disney. Joe Pichirallo, a former studio executive, told the site that "a new compensation system needs to be worked out so talent doesn't feel like they are being disrespected or treated poorly."

The outcome of this case could have repercussions on Disney's bottom line as well. By pouring money into its content initiatives, Netflix has raised the bar for the average budget in streaming productions. An omni-channel strategy coupled with a higher upfront salary for actors could eat into Disney's overall profits from a typical production.