Paramount Says It’s All in on Theatrical Distribution as It Aims to Stave off California Merger Challenge

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Paramount is looking to convince California’s top prosecutor that its megadeal to acquire Warner Bros. Discovery will be a boon for movie theaters.

Theaters will be a core part of the combined company’s plans to drive engagement on streaming platforms in order to compete in a crowded playing field led by Netflix, Disney and Amazon, said Paramount legal chief Makan Delrahim to California attorney general Rob Bonta in a letter last week. He wrote that Paramount sees the “prospect of rivaling their much larger competitors” by “leaning into theatrical releases to attract audiences and ultimately subscribers.”

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“Theatrical runs increase awareness and anticipation through marketing and word-of-mouth, and then help convert that demand into viewing when the title later becomes available (and promoted) on the platform,” the letter, first reported by Semafor, said. “With a continued focus on theatrical distribution, Paramount gains opportunities to cross-promote and engage new audiences for future releases.”

The missive comes as Paramount, which has secured approval from shareholders and Warner Bros. Discovery’s board, positions itself to stave off a lawsuit challenging the merger by state regulators. Any effort on this front would almost surely be led by Bonta. “There are red flags everywhere for us,” he told reporters during a press briefing on Monday. “We’re looking at things like higher prices, lower wages, fewer jobs, less quality, less choice, less competition.”

In the letter, Paramount stressed that it will broaden theatrical distribution with the aim of creating momentum behind films before they reach streaming services. To compete with streaming juggernauts like Netflix, Amazon and Disney, it said it plans to maximize theatrical output.

One example of a film that informs the company’s thinking: Top Gun: Maverick, which broke streaming viewership records on Paramount+ in 2022 following a theatrical run that grossed more than $1.4 billion. The release also increased catalog engagement on the platform, boosting viewership of the original film by nearly 400 percent and the Tom Cruise-led Mission: Impossible franchise by 140 percent, it said. Last year, Paramount CEO David Ellison called expanding the Top Gun, Star Trek and Transformers franchises top priorities.

The deal’s impact on theatrical distribution will likely play a major role in an antitrust lawsuit. Paramount and Warner Bros. Discovery have historically combined for roughly 25 percent of all domestic box office receipts over the past five years, according to OpusData. A merger would make the company the largest theatrical distributor in the country by most estimates. Ellison has pledged to release at least 30 movies a year with minimum 45-day theatrical windows, though that commitment has drawn skepticism in some corners of Hollywood.

Unlike its theater business, however, the combined company would have a meager share of streaming. Paramount and Warner Bros. Discovery collectively represent roughly 10 percent of all streaming viewership, far behind the likes of Netflix (32.5 percent), Disney (16.7 percent) and Amazon (15.3 percent), according to Nielsen data.

The deal has drawn comparisons to the combination of Disney and 21st Century Fox in 2019, which saw fewer movies getting releases in theaters by the entertainment giant in the following years.

Regulators represent one of several groups — including the European Union, the Federal Communications Commission and consumers — that can pose an obstacle to consummating the takeover. Paramount+ subscribers filed a lawsuit last month challenging the deal, alleging the acquisition will substantially reduce competition in streaming, news and theatrical distribution in violation of antitrust laws.

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• Jeffrey Chassen

  Jeffrey Chassen, Veteran Hollywood Publicist, Launches Gingham PR