What did Paramount promise Hollywood to secure WBD?

A new movie every 11 days? that’s what Paramount’s David Ellison announced this week that his company warner bros discoverya combination of two-story Hollywood studios.

The settlement between the CEO and a group of state attorneys general over antitrust concerns requires the new company to release at least 30 movies theatrically in 2027 and 2028, and at least 32 movies in 2029, 2030 and 2031.

The combined entity currently has 35 films scheduled for release next year, according to Rentrac data.

But questions remain about what size of release the industry can expect and what will happen after the five-year contract expires.

“This is much more complex than just asking 30 movies is enough?” Paul Dergarabedian, head of marketplace trends at Rentrak, told CNBC. “30 wide releases represents a meaningful commitment to theaters, and we think everyone attending the exhibition will welcome a solid pipeline of films.

“But what will ultimately prove is how those films perform, how diverse the production is, how consistently they reach theaters, and how the combined company delivers on those promises.”

Hollywood has been looking for more theatrical titles since the coronavirus pandemic shuttered theaters and choked production pipelines. Mr. Ellison’s theater initiative had already been touted in April at the industry’s annual event, CinemaCon, and had been endorsed by the CEOs of the “big three” movie theater operators. AMC’s adam aaron cinema junk Sean Gamble and Regal’s Eduardo Acuña — even before their settlement with Paramount.

Cinema United, a lobby group representing theater owners, had been adamantly opposed to the merger, but gave approval this week, saying the agreement with the state “achieves many of the exhibition’s objectives.”

However, not all exhibitors are participating. Several theater executives, who requested anonymity to speak candidly, told CNBC they remain skeptical.

Paramount’s proposed settlement includes provisions regarding the number of theatrical releases the company must distribute over the next five years, how many of those films must be widely distributed, and how many have budgets of $50 million or more. Paramount agreed to impose stiff fines if standards were not met.

Historically, consolidation among movie studios has resulted in fewer movie releases, resulting in lower profits, especially for small theater chains and independent operators.

Since the coronavirus disrupted theatrical spaces, industry-wide trends have changed dramatically, leading to fewer screens and fewer movie audiences. Some of those woes have been masked by soaring movie ticket prices, with domestic box office receipts expected to top $10 billion for the first time since the pandemic, but the industry is still adjusting to new economic conditions.

Multiple theater owners told CNBC they were concerned that the Paramount-Warner Bros. merger would not only reduce the number of studios offering films to the ecosystem, but also reduce competition and give the combined company a stronger bargaining position when it comes to window terms and rental rates.

Large exhibitors operating hundreds of locations can survive consolidation, but smaller companies have much less leverage.

Some theater owners also said they were concerned that Paramount would not be able to sustain more than 30 theatrical productions after the five-year deal, especially as production and marketing costs continue to rise and Paramount will be saddled with approximately $79 billion in debt after the merger closes.

“Obviously we’re worried about what’s going to happen in Year 6,” Rob Lehmann, president and chief operating officer of Santikos Theaters, told CNBC. “After five years, will the number of movies be reduced to 18 per year?”

Still, Lehman called the number of films guaranteed by Paramount “a victory for the industry.”

Under the terms of the settlement agreement, if Paramount fails to meet its annual quota, it will be fined $30 million per film, with 90% of that going to the film industry and 10% going to the National Association of Attorneys General.

If Paramount misses the mark significantly, $30 million per movie could be a significant fine, but it’s a pittance compared to the cost of actually producing and selling the films.

And “quantity alone is not enough,” Dergarabedian said. “You can say you’re going to release 30 movies, or you’re going to release 100 movies, but those movies still have to connect with audiences. If you had half a movie and they were all big hits, which scenario would you choose? So ultimately it’s not just about how many movies are released. What’s important is that you’re releasing enough movies at the right pace that audiences actually want to see them.”

Next year’s combined Paramount and Warner Bros. slate includes new releases from popular franchises such as Sonic, Godzilla, Minecraft, A Quiet Place, Teenage Mutant Ninja Turtles, The Lord of the Rings, The Conjuring and the DC Superhero Universe.

There’s also a simple logic question about the 30 movies released by one company in a year.

There are 52 weeks in the calendar, so new releases are less than two weeks apart. The industry doesn’t usually take into account weekends that coincide with big premieres.

The merged Paramount and Warner Bros. could easily cannibalize their own ticket sales if their major releases are too close to each other.

Combine this with increased competition for coveted premium large-format screens from companies like Imax and Dolby, and the schedule is likely to become even more difficult.

Currently, Paramount and Warner Bros.’ 2027 calendar includes six dates where both studios plan to release the film theatrically. The calendar also has pockets stacked with 3-5 releases per week.

“From a pure strategic standpoint, it’s reasonable to expect the studios’ planned release dates to be different,” Dergarabedian said. “Sometimes it’s to avoid duplication of audiences, and sometimes it’s to diversify the pace of box office sales.”

For example, the combined company currently has nine horror films scheduled for 2027 and may consider moving the dates to allow those titles to play longer without conflict.

“Hopefully they’ll put together some great movies and backstory programming,” Lehman said. “Show us kids movies, show us horror movies, show us high-end action movies.”

Paramount’s settlement with the state auditor’s office requires the combined company to widely release at least 20 films released in the first two years after closing in more than 2,000 theaters. In the next three years, it will increase to at least 21 films.

“The contract is very specific about only having 20 wide releases, which isn’t a big deal,” said industry analyst David Poland.

Currently, Paramount is scheduled to release 14 wide films in 2026, and Warner Bros. is scheduled to release 13 wide films, for a total of 27 wide releases between the two companies, according to Rentrak data.

“The importance of widespread release cannot be overstated,” Dergarabedian said. “These films have the biggest impact on theaters, filling audiences, driving concession sales, and creating the kind of cultural conversation that benefits the entire moviegoing ecosystem.”

Next, there is the definition of “tent pole”.

In Hollywood, a tentpole film is a high-budget film that makes enough profit between ticket sales and merchandise tie-ins to allow studios to fund lower-budget projects that may not be as profitable.

For many in the industry, a high-profile production is one that costs $100 million or more to make, often more than $200 million or $250 million, and brings in a lot of traffic to movie theaters. Think, Marvel Cinematic Universe, universal Recent hit song “Odyssey” sony’s “Spider-Man: Brand New Day”.

Paramount’s proposed settlement requires that at least 20% of the company’s annual releases be large-format films, defining that category as films with budgets of $50 million or more.

“A $50 million production budget feels like a relatively low threshold for what we traditionally think of as a blockbuster movie,” Dergarabedian said. “But at the same time, if a $50 million movie becomes a huge hit and becomes a cultural and box office phenomenon, it can definitely become a tentpole.”