Paramount Studios in Los Angeles on April 29, 2024.
Eric Thayer | Bloomberg | Getty Images
More consolidation, more problems: that is the latest fear gripping the theatre industry.
After a negotiation process that lasted months, Supreme and Skydance have reached a merger agreement. While the proposed tie-up has been touted as a perfect match by those involved, Hollywood theater operators have their concerns.
That is to say, the continued consolidation of the industry will exacerbate the production problems that have led to fewer film releases in recent years.
“A merger that results in fewer films being produced will not only hurt consumers and result in less revenue, it will negatively impact the people who work in every sector of this great industry: creative, distribution and exhibition,” Michael O'Leary, president and CEO of the National Association of Theatre Owners, or NATO, said in a statement Monday.
Paramount and Skydance have been longtime production partners, co-financing and distributing films in the Mission: Impossible, Star Trek, Terminator and Transformers franchises, among others.
Skydance founder David Ellison, speaking at an investor conference on Monday, noted that Paramount and Skydance have produced 30 feature films together. He said the deal would “unify key rights to several of Paramount's most iconic franchises” and “allow us to expand our franchise management.”
However, each company has other production partners and it is unclear how this merger could affect production in the future.
“The entire industry will be closely watching how Skydance and Paramount's release slate evolves over the next few years,” said Shawn Robbins, founder and owner of Box Office Theory. “I think it's fair to say there's cautious optimism right now. It's a different situation than what would have occurred if another major studio had stepped in to acquire Paramount, which likely would have cannibalized theatrical content production to a large extent. Nothing is certain at this point.”
Fear of fusion by groups like NATO arises after the consolidation of Disney and 20th Century Fox in 2019. Before the two studios merged, each released about a dozen titles each year, according to data from The Numbers. Since 2021, the combined studio has only released about a dozen films per year.
And, so far in 2024, the two studios have only released three titles.
“Merger phobia is a result of concerns theater owners have about the effect that declining movie listings are having on their bottom lines,” said Paul Dergarabedian, senior media analyst at Comscore. “It's all about the product, and a strong lineup of big-screen movies keeps the industry going and ensures the momentum that is key to multiplex success.”
Exhibiting
The film industry as a whole has had to deal with a lower influx of titles. Pandemic shutdowns brought production to a standstill and were followed by a double strike in Hollywood that also halted the production of new films. While box office analysts expect the number of films to increase in 2025 and 2026, there remains uncertainty about whether production will ever return to pre-pandemic levels.
“However, despite being a volume-driven business, it's more about the quality of the releases and their appeal to audiences than the quantity,” Dergarabedian said. “If there are fewer films seeking the same revenue, that's not necessarily a bad thing. If there are fewer films but the average revenue per film is higher than in a more crowded theatrical market, then it's a nimble business and ultimately more sustainable in the long run.”
One immediate positive is that the Paramount-Skydance merger will unite Skydance Animation and Nickelodeon. Former NBCUniversal CEO Jeff Shell, who will become Paramount's next chairman when the deal closes, told investors Monday: “We're going to be an immediate leader in animation.”
“From a theatrical perspective, animation is very important and Paramount is very strong with Nickelodeon,” he said during the investor conference.
Animated films have had strong box office sales this summer. Disney and Pixar's “Inside Out 2” has grossed $1.2 billion at the global box office over the past month, the fifth-highest gross for an animated film ever. Its domestic gross of $533.8 million is the third-highest for an animated film.
Universal and Illumination's “Despicable Me 4” grossed $122 million during its five-day domestic debut over the July 4 holiday weekend.
“A Paramount that recognizes the unique place that movie theaters hold in communities across the country and around the world will be a catalyst for more movie options being available to today's moviegoers and new generations of fans in the years to come,” said NATO's O'Leary. “We look forward to hearing more about this proposal and working with all stakeholders to achieve the ultimate goal of more movies on the big screen.”
Disclosure: Comcast is the parent company of NBCUniversal and CNBC.
— CNBC's Lillian Rizzo contributed to this report.
