How Disney and Scarlett Johansson reached the point of no return

Creative Artists Agency Co-Chairman Bryan Lourd had high hopes for the annual gathering of entertainment moguls hosted in July by Allen & Co. in Sun Valley, Idaho. Like many there, he was looking to strike a deal.

In the lobby of the Sun Valley Lodge, he spotted Walt Disney Co. Chief Executive Bob Chapek, the man he hoped would make it happen. Mr. Lourd had been negotiating with Disney executives about a payout to his client Scarlett Johansson. He was seeking tens of millions of dollars for the star of "Black Widow," in a contract dispute regarding the film’s simultaneous release in movie theaters and digital streaming.

Mr. Lourd told Mr. Chapek in the relaxed mountain setting that after months of fruitless back-and-forth between the two sides, they should come to an agreement, said people familiar with the conversation. Mr. Chapek responded with a classic Hollywood brushoff, saying, in effect, Have your people call my people.

Three weeks later, Ms. Johansson dropped a breach-of-contract lawsuit on Disney. As Mr. Chapek had done throughout his career in entertainment, he left talent relations to underlings, rejecting a potential opportunity to forestall what has blown up into the most acrimonious star-versus-studio battle in decades.

After a little more than 18 months at the helm of the world’s largest entertainment company, Mr. Chapek, 61 years old, is juggling pandemic shutdowns and shifting consumer habits, as the industry moves from a golden era of movie theaters to a potential streaming-age bonanza that has stars and their agents, managers and lawyers up in arms over their share.

SCARLETT JOHANSSON FILES LAWSUIT OVER ‘BLACK WIDOW’ STREAMING ON DISNEY+

For years, studios paid stars a base salary. But bigger names often negotiated a share of box office grosses or a cut of licensing fees, which for blockbuster movies could yield eight-figure payouts. The rules of the road for streaming are still being written, and big-name actors fear a reduction in box-office bonuses if their pay depends on streaming metrics rather than movie tickets.

Disney simultaneously released "Black Widow" in theaters and on its Disney+ streaming channel in July. The company stood to collect most of the $30 users paid to watch the movie at home, compared with roughly 60% of movie theater tickets sold. The more home viewers, the less Ms. Johansson collects, her team feared.

The outcome of the legal battle could help set new compensation benchmarks for digital releases, according to current and former Disney employees interviewed for this article, as well as executives who do business with the studio.

Since the lawsuit, brothers Joe Russo and Anthony Russo, directors of Marvel’s "Avengers: Endgame," the highest-grossing movie of all time, hit an impasse in negotiations to direct another Marvel movie. The Johansson dispute left them unsure how their next movie would be distributed and how they would be paid, according to people familiar with the matter. The Russos declined to comment.

Actress Emma Stone, negotiating a deal to star in a sequel to the movie "Cruella," secured an additional payment this summer from Disney to make up for the film’s simultaneous release in theaters and streaming this year.

Other studios also have made such payments, some hastily arranged to keep their stars happy.

AT&T Inc.’s WarnerMedia paid more than $200 million in new deals with stars, directors and others whose salaries were tied to profits, after the company decided to simultaneously release all of its movies this year on HBO Max and theaters, according to people familiar with the payouts.

The shifting landscape has also put pressure on talent agencies, which live on commissions.

Ms. Johansson’s challenge to the image-conscious entertainment giant—its origin story rooted in a theme park known as "The Happiest Place on Earth"—is the summer’s talk of the town.

"WandaVision" actress Elizabeth Olsen, recently asked about Ms. Johansson suing their mutual studio, told Vanity Fair, "I think she’s so tough," adding, "I was like, ‘Good for you Scarlett.’ "

Even the lawsuit sets out a David versus Goliath story line, noting that Ms. Johansson’s Black Widow character doesn’t have the super strength provided by a serum like Captain America has or a high-tech armored suit like Iron Man. "Black Widow relies solely upon her wits and her extraordinary skills, including expertise in hand-to-hand combat," her lawyers said.

Ms. Johansson, 36, declined to comment.

For Mr. Chapek, the lawsuit is a high-profile collision with the kind of A-list talent loved by global audiences and with whom he has had little experience. He climbed the ranks at Disney in such divisions as home video and theme parks, where he succeeded with a hard grip on the bottom line. He left the glad-handing to subordinates.

As chief executive, Mr. Chapek directed a company reorganization that gave more power to executives in charge of purse strings, at the expense of Disney’s creative chiefs, company executives said.

Ms. Johansson’s advisers said Disney’s response to the lawsuit has appeared to be, by turns, ignore and attack.

Disney said the lawsuit has no merit and that Ms. Johansson has already been paid her $20 million salary and has the potential to earn more because of the movie’s airing on Disney+. The suit was "especially sad and distressing in its callous disregard for the horrific and prolonged global effects" of Covid-19, the company said after the suit was filed, in a sharp defense that instead seemed to rally support for Ms. Johansson from fellow Disney stars, as well as the actors’ union and women’s organizations in Hollywood.

Mr. Chapek said in an August earnings call that release strategies—whether in theaters, via streaming or both—would be determined on a movie-by-movie basis. Disney declined to make Mr. Chapek available for comment.

One business associate said Mr. Chapek, focused on innovation, asks of proposals: Does this make us a new media company or an old media company? The pandemic helped nudge digital technology to center stage.

A month into Mr. Chapek’s tenure last year, theme parks and movie theaters closed because of Covid-19, leaving Disney+ one of the company’s only divisions making money. Disney invested additional millions into the subscription streaming service, which in less than two years collected more than 116 million sign-ups.

Mr. Chapek and his team last year redirected such would-be theatrical releases as "Hamilton" and "Soul" to Disney+, which drew subscribers and kept them glued to their screens. Disney shares soared to record highs on the streaming figures, even though Covid-19 suffocated other entertainment divisions. The win gave Mr. Chapek support from Disney’s board of directors, said a person briefed on the CEO’s relationship with the board.

Disney had postponed the release of "Black Widow" three times because of the pandemic. Further delays meant postponing future movies in the blockbuster Marvel superhero series, as well as related TV shows, theme-park attractions and merchandising that fuel the Disney franchise machine.

In March, Mr. Chapek said "Black Widow" would premiere on the Disney+ streaming platform on the day it opened in theaters. The decision wasn’t made lightly, a person close to the chief executive said, knowing it would likely undermine box-office receipts.

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$100 million job

Ms. Johansson had warning. Former Disney CEO Robert Iger said during a shareholder meeting in March 2019 that Marvel releases would be available on Disney+ immediately following theaters. That prompted Ms. Johansson’s team to ask Disney to guarantee that "Black Widow’’ would receive a traditional big-screen release, her lawsuit said.

Marvel’s chief counsel, Dave Galluzzi, wrote in response that "it is 100% our plan to do a typical wide release of Black Widow." Should that change, he wrote, "we would need to discuss this with you and come to an understanding as the deal is based on a series of (very large) box office bonuses."

After the simultaneous release was announced, Ms. Johansson’s team made an opening bid: Pay the actress $80 million. The calculation was based on what the star would receive in a hypothetical global box-office take of $1.2 billion, a sum in league with Marvel hits "Captain Marvel" and "Black Panther." (Hobbled by the pandemic and at-home release, the movie has so far been one of Marvel’s worst performers, with $371 million grossed world-wide.)

The deal, as pitched, would pay Ms. Johansson a total of $100 million for the movie, including her $20 million salary. It was an eye-popping sum, but her team saw it as a starting point.

Disney never responded with a counteroffer.

One reason was uncertainty in the company over who should be leading the negotiations, according to Disney employees and associates. Mr. Chapek, faced with the pandemic’s existential threats to live entertainment, gave underlings the power to make a deal.

His top lieutenants, including Disney Studios Content Chairman Alan Bergman, and Media and Entertainment Distribution Chairman Kareem Daniel, didn’t return calls or emails from the Johansson team or engage in serious talks, said people involved in negotiations for the actress. Disney didn’t make the executives available for comment.

Ms. Johansson added another lawyer to her team, John Berlinski, who often represents talent in contract disputes. Disney then hired Dan Petrocelli, a partner at O’Melveny & Myers LLP, known for helping studios in such battles.

The company under Mr. Iger, who is Disney’s executive chairman until the end of the year, had its squabbles with talent but none as incendiary as L’Affaire Johansson.

Mr. Iger, who is credited with resurrecting Disney as a brand powerhouse, was comfortable hobnobbing with movie stars on red carpets and at industry events. Mr. Chapek had little interest in the glitzy side of show business, according to people who worked with him at Disney over the years.

Mr. Iger, who is Mr. Chapek’s boss for the next few months, didn’t want to interfere in day-to-day company matters, including the Johansson suit, according to people who know him. He was on his boat this summer when the dispute erupted.

Alan Horn, the longtime Disney Studios head known for decades of star-wrangling, also wasn’t involved. He is expected to leave his post when Mr. Iger steps down at the end of the year, part of an executive exodus that will put Mr. Chapek’s team fully in charge.

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Nested narratives

The uncertainty and acrimony between Ms. Johansson and Disney has frustrated executives at Marvel Entertainment, the Disney division responsible for creating the most lucrative franchise of modern Hollywood, said people who work with the division.

Marvel Chief Creative Officer Kevin Feige has presided over a stable of stars with relatively little friction. Disputes remained largely behind the scenes.

Around the time Mr. Chapek became chief executive, Mr. Feige was capitalizing on years of planning for his storytelling universe. Disney was spending hundreds of millions of dollars producing Marvel TV shows for Disney+, such as "WandaVision," "Loki" and "The Falcon and the Winter Soldier," all pandemic hits.

Putting "Black Widow" on Disney+ conflicted with Mr. Feige’s tiered approach—creating TV shows that complement movies on the big screen. He resisted plans for the movie’s simultaneous release, in part because he didn’t like the idea of having one of Marvel’s few female-driven movies demoted to the at-home streaming service, said people familiar with his thinking.

Yet there was no easy solution at hand. Further delays would slow Marvel’s subsequent movies and TV shows.

Disney last month sought to move the dispute into confidential arbitration, which the company believes the contract calls for. No ruling has been issued.

Ms. Johansson, meanwhile, is in Europe shooting a Wes Anderson film she agreed to make long before the "Black Widow" dispute.

It will be released by Fox Searchlight, a division of Disney.

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