What did Paramount promise Hollywood to secure WBD?

A new movie every 11 days? That’s what Paramount’s David Ellison is promising after clearing a path this week for his company’s acquisition of Warner Bros. Discovery, combining two storied Hollywood studios.

The CEO’s settlement with a group of state attorneys general over antitrust concerns stipulates that the newly minted company will release at least 30 films into theaters in 2027 and 2028 and at least 32 films in 2029, 2030 and 2031.

Currently, the combined entity has 35 films scheduled to be released next year, according to data from Rentrak.

But questions remain about what caliber of releases the industry can expect — and what happens after the five-year agreement expires.

“This is much more complicated than simply asking whether 30 movies is enough,” Paul Dergarabedian, head of marketplace trends at Rentrak, told CNBC. “Thirty wide releases would represent a meaningful commitment to theatrical, and I think everyone in exhibition would welcome a robust pipeline of films.

“But ultimately the proof will be in how those movies perform, how varied the slate is, how consistently they reach theaters and how the combined company executes on those commitments,” he said.

Hollywood has been clamoring for more theatrical titles since the Covid pandemic shuttered theaters and clogged the production pipeline. Ellison’s theatrical commitment, which he touted as early as April at the industry’s annual CinemaCon event, had garnered approval from the CEOs of the “Big Three” cinema operators — AMC’s Adam Aron, Cinemark’s Sean Gamble and Regal’s Eduardo Acuna — even before Paramount’s settlement.

Cinema United, the lobbying group that represents theater owners, had been staunchly against the merger, but gave its seal of approval this week, saying the agreement with the states “accomplishes many of exhibition’s objectives.”

However, not all exhibitors are on board. A number of theater executives, who requested anonymity to speak candidly, told CNBC they remain skeptical.

Paramount’s settlement includes stipulations about the number of theatrical releases the company must distribute over the next five years, how many of those releases need to be distributed widely and how many need to have a budget of more than $50 million. Paramount agreed to face steep penalties if it fails to meet the thresholds.

Consolidation among movie studios has traditionally led to fewer film releases, which, in turn, results in lower revenue, particularly for smaller theater chains and independent operators.

Overall industry dynamics have shifted drastically since Covid disrupted the theatrical space, leading to fewer screens and fewer moviegoers. Some of these woes have been masked by higher movie ticket prices — which are expected to help boost the domestic box office above $10 billion for the first time since the pandemic — but the moviegoing industry is still adapting to new economics.

Several theater operators told CNBC they were concerned the merger between Paramount and Warner Bros. would not only decrease the number of studios contributing films to the ecosystem, but also decrease competition and give the combined company a more powerful bargaining position when it comes to windowing terms and rental fees.

While larger exhibitors, which operate hundreds of locations, can weather consolidation, the smaller players have far less leverage.

Some theater owners also said they fear that Paramount will not be able to sustain its 30-plus theatrical output after the five-year deal, especially as production and marketing costs continue to rise and as Paramount contends with around $79 billion in debt once the merger closes.

“Of course, I worry about what happens in year six,” Rob Lehman, president and chief operating officer at Santikos Theaters, told CNBC. “You know, after the five years is up, does it then drop down to 18 movies a year?”

Still, Lehman called Paramount’s guaranteed number of films “a win for the industry.”

Under the terms of its settlement agreement, if Paramount falls short of its annual quotas, it’ll be fined $30 million per film, 90% of which will be paid out to film workers and 10% to the National Association of Attorneys General.

Though $30 million per film could prove to be a material penalty if Paramount significantly misses the mark, it pales in comparison to the cost of actually making and marketing a film.

And, “quantity by itself is not enough,” Dergarabedian said. “You could say you are going to release 30 movies, or even 100 movies, but those movies still have to connect with audiences. If you had half as many films and every one of them became a major hit, which scenario would you rather have? So ultimately, it is not simply about how many movies are released. It is about having enough movies, released at the right cadence, that audiences actually want to see.”

Next year, the combined Paramount-Warner Bros. slate includes new entries in popular franchises like Sonic, Godzilla, Minecraft, A Quiet Place, Teenage Mutant Ninja Turtles, Lord of the Rings, The Conjuring and the DC superhero universe.

There are also simple logistical questions around 30 films released from one company in a year.

With 52 weeks on the calendar, that’s less than 2 weeks between new releases — not accounting for marquee weekends when the industry typically stacks big premieres.

A merged Paramount-Warner Bros. could easily cannibalize its own ticket sales if major releases are placed too close to one another.

Combine that with growing competition for coveted premium large format screens like Imax and Dolby and the schedule looks even trickier.

At present, the combined slate of Paramount and Warner Bros. for 2027 contains six dates where both studios have a theatrical release planned. There are also pockets on the calendar that have three to five releases stacked up on a weekly basis.

“From a pure strategy standpoint, it’s reasonable to expect release date shifts among the two studios’ planned slates,” Dergarabedian said. “In some cases, it’ll be to avoid overlapping audiences while, in others, it may be to diversify their cadence of box office.”

For example, the combined company currently has nine horror films slated for 2027 and could look to shift dates to allow these features to have longer playability without competing.

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

Paramount’s settlement with the state AGs mandates that at least 20 of the films released by the combined company in each of the first two years after closing have a wide release in more than 2,000 theaters. For the following three years, that increases to at least 21 films.

“The agreement very specifically stipulates that it only has to be 20 wide releases, which is nothing,” said industry analyst David Poland.

Currently, Paramount is on track to have 14 wide releases in 2026 and Warner Bros. is set for 13, for a total of 27 wide releases between them, according to Rentrak data.

“The importance of wide releases cannot be overstated,” Dergarabedian said. “These are the films that generate the biggest theatrical impact, fill auditoriums, drive concession sales and create the kind of cultural conversation that benefits the entire moviegoing ecosystem.”

Then there is the definition of “tentpole.”

In Hollywood, a tentpole film is one with a high budget that makes enough money between ticket sales and merchandise tie-ins that a studio can fund smaller-budget projects that may not be as profitable.

For many in the industry, a tentpole feature is one that costs more than $100 million to produce, often exceeding $200 million or $250 million, and that drives significant traffic to movie theaters. Think, the Marvel Cinematic Universe, Universal’s recent hit “The Odyssey” or Sony’s “Spider-Man: Brand New Day.”

The Paramount settlement, which mandates that at least 20% of the company’s annual releases be tentpole films, defines that category as a film with a budget of at least $50 million.

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