Why theater owners are concerned

Paramount Studios in Los Angeles on April 29, 2024.

Eric Thayer | Bloomberg | Getty Images

More consolidation, more problems: that's the latest fear gripping the theatre industry.

After a months-long negotiation process, Decisive and Skydance have entered into a merger agreement. While the proposed union is seen as a perfect match by those involved, Hollywood's movie theater operators have concerns.

Namely, that continued consolidation in 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 be harmful to consumers and result in less revenue, but will also have a negative impact on people who work in all sectors 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 long been production partners, financing and distributing films from the Mission Impossible, Star Trek, Terminator and Transformers franchises, among others.

Skydance founder David Ellison touted during an investor call Monday that Paramount and Skydance have produced 30 feature films together. He said the deal would “unite key rights to several of Paramount's most iconic franchises” and “allow us to expand franchise management.”

However, both companies have other production partners and it is unclear what implications this merger will have for future production.

“The entire industry will be watching closely to see how Skydance and Paramount's releases play out 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 if another major studio had acquired Paramount, which would have more likely cannibalized the theatrical content output to a significant degree. Nothing is certain right now.”

Concerns about the merger of groups such as NATO follow closely on the heels of the consolidation of Disney and 20th Century Fox in 2019. Before the two studios merged, they each released about a dozen titles per year, according to data from The Numbers. As of 2021, the combined studio has released only about a dozen films per year.

So far, the two studios have only released three titles in 2024.

“Mergerphobia is a result of concerns theater owners have about the impact a declining number of films in the marketplace will have on their bottom line,” said Paul Dergarabedian, senior media analyst at Comscore. “It's all about the product, and a robust pipeline of big-screen offerings keeps the industry moving and creates momentum, which is key to success at the multiplex.”

Now showing

The theater industry as a whole has struggled with a slower flow of titles. Pandemic closures crippled production and were followed by a double Hollywood strike that also disrupted the pipeline of new films. While box office analysts expect the number of films to increase in 2025 and 2026, it remains uncertain whether production will ever return to pre-pandemic levels.

“But even though it's a volume-driven business, it's more about the quality of the releases and their appeal to audiences than it is about quantity,” Dergarabedian said. “If you have fewer films chasing the same dollars, that's not necessarily a bad thing. If you have fewer films, but the average gross per film is higher than it would be in a more crowded film market, that's a lean and mean and ultimately more sustainable business in the long run.”

One immediate bright spot is that the merger between Paramount and Skydance brings together Skydance Animation and Nickelodeon. Former NBCUniversal CEO Jeff Shell, who will become Paramount's next president 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 has a very strong presence with Nickelodeon,” he said at the investors conference.

Animated films have enjoyed strong box office sales this summer. Disney and Pixar's “Inside Out 2” has $1.2 billion at the worldwide box office last month, the fifth highest grossing 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 U.S. premiere over the Fourth of July weekend.

“A Paramount that recognizes the unique place of theaters in communities across this country and around the world will be a catalyst for more moviegoing options available to movie fans today and to generations of new fans in the years to come,” NATO's O'Leary said. “We look forward to hearing more about this proposal and working with all interested parties to achieve the critical goal of putting more movies on the big screen.”

Disclosure: Comcast is the parent company of NBCUniversal and CNBC.

— CNBC's Lillian Rizzo contributed to this report.

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