What’s Next For Paramount?

There’s still an unlikely possibility that Skydance Media won’t acquire Paramount (a 45-day “go-shop period” that started July 8 allows Paramount execs to actively solicit other acquisition proposals), the “New Paramount,” as the companies are calling it, is likely to be a different thing than the Old or Existing Paramount.

Oh, it will continue to be a movie studio. But think of it in terms of something else, and a good example is what Elon Musk told investors on a call earlier this year regarding his company’s Q1 performance:

“We should be thought of as an AI robotics company. If you value Tesla as just an auto company — it’s just the wrong framework.”

That’s right. Tesla isn’t a car company.

And arguably, David Ellison, founder and CEO of Skydance Media, soon-to-be chairman and CEO of the New Paramount, is every bit as much of a tech bro as Elon, so were he to say “If you value New Paramount just as a movie company. . . .”

Which probably makes the folks who own movie theaters more than somewhat nervous.

NATO Crisis

Like the members of the National Association of Theater Owners (NATO).

In its official statement regarding the proposed acquisition (which it refers to as a “proposed merger”—which is true to the extent that Skydance Investor Group will acquire National Amusements, which owns Paramount, and then “merge” Skydance and Paramount Global into the New Paramount), the organization doesn’t open with anything like “We congratulate Skydance and Paramount on a merger that will continue the 100+ year existence of the studio” but that “NATO will look closely at the details of the proposed merger.”

The details it wants to see is whether the “transaction will result in more movies being made for the global theater-going audience or less.”

And while NATO is “encouraged by the commitment that David Ellison and the Skydance Media team have shown to theatrical exhibition in the past.” But as that investment warning has it: “Past performance is no guarantee of future results.”

Arguably Team Ellison is more attuned to future opportunities than the past.

Box Office Isn’t Boffo

And if we look at the past, theatrical performance was a hell of a lot more important and lucrative than it is now.

From 1995 to 2019 there were no fewer than 1,221,778,976 tickets sold at the box office in the U.S. The peak year was 2002, when theaters sold 1,575,756,527, per The Numbers.

In 2020 the number collapsed to 219,986,842. While last year it had a sizeable increase to 829,962,217 tickets, that is still 391,816,759 fewer tickets than the worst year (1995) in the previous generation.

As business owners everywhere know, “If you’re not growing, you’re dying,” and Ellison et. al. are not investing some $8 billion to maintain the status quo.

The NATO statement goes on to say “a merger that results in fewer movies being produced will not only hurt consumers and result in less revenue, but negatively impact people that work in all sectors of this great industry—creative, distribution and exhibition.”

How making fewer movies would “hurt consumers” is something of a mystery. The “less revenue” part is understandable, assuming that this means less revenue to NATO members.

Consumers are becoming increasingly less interested in what NATO describes as “the critical goal of more movies on the big screen.”

The Forever Lost Fifth

At a conference held at Cannes in May, Donna Langley, chairman of Universal, said in an interview that the state of the industry is “sad” right now and that there has been a decline in the global marketplace of “about 20 percent” and “We don’t really think we’re going to recapture that.” Langley suggested that theaters need more, better product: “I know how I am as an audience member, if there’s not too many things to go see, you kind of lose the habit. You lose the will to get yourself up off your couch and go to a movie. And there’s so many good options, of course, at home with streaming.”

And remember: Langley runs one of the most important movie studios in the world.

Domestically, things are arguably worse than the 20 percent decline.

Last year Statista surveyed U.S. members of Gen Z, Millennials, Gen X, and Boomers about their post-pandemic interest in going to the movies. And in all generations, the number of those who are less interested are greater than those who are more interested—and not by a trivial amount.

As in:

• Gen Z: 14% more     27% less
• Millennials: 18% more     33% less
• Gen X: 10% more     37% less
• Boomers: 6% more      44% less

According to a HarrisX poll for IndieWire released earlier this year, only 34 percent of Americans want to go to a theater to see a movie. Which means 66 percent aren’t going, but still viewing.

So there is clearly a growing number of people not getting off their couches.

And for the New Paramount couch people are important.

In 2023 the Paramount+ streaming service lost about $1.6 billion. Netflix had $33.7 billion in revenue and a net income of $5.4 billion in 2023.

Seems like that is a place where there is some serous opportunity for the New Paramount.

The Game’s The Thing

And it is important to note where Paramount has some strength in its movie franchises and what the New Paramount could do with it: Mission: Impossible (which Skydance has long been a production partner with), Transformers, Teenage Mutant Ninja Turtles, Dungeons & Dragons.

Skydance has a strong games business. And we shouldn’t underestimate games: in 2023 Fortnite had some 650 million registered users. Transformers, Turtles, and Tom lend themselves to the game-playing realm.

While games might appear trivial compared with the movie business, according to a recent study by the Entertainment Software Association (ESA), U.S. consumers spent $57.2 billion on video games last year. Sixty-one percent of the U.S. population spends at least one hour per week playing.

The top grossing console and PC games in the ESA study are Hogwarts Legacy, Call of Duty: Modern Warfare 3, Madden NFL 24, Marvel’s Spider-Man 2, and The Legend of Zelda: Tears of the Kingdom, which means three out of five closely align with the Paramount franchise films.

Drawing Is Cost-Effective

Skydance also has an animation business that the New Paramount wants to grow, as it has announced that it wants to move animation creation to the cloud (remember: David Ellison is the son of Larry, who founded and is currently chief technology officer and executive chairman of Oracle Corporation, which knows more than a little about the cloud) and he wants to leverage artificial intelligence for the creation of animation.

While some of the top-grossing films in theaters right now are animated—Inside Out 2, Kung Fu Panda 4, Despicable Me 4, IF—there is a great opportunity for not only for Paramount+ but CBS, MTV, Nickelodeon, and Comedy Central. Small screens may not generate the revenue of animation on the bigger ones, but advertising sales is more determinative than the rolling of the dice at the box office (do you remember Disney’s Wish from last year? Neither do many others.)

Skydance execs are talking the “synergies” from the acquisition, and a consequent $2 billion in annual savings. No matter how you look at it, that means spending cuts.

Odds are, the folks at NATO aren’t going to have to “look closely at the details.”

The changes will likely be awfully damned obvious.