Mission improbable

In 1971, Robert Evans, then senior vice-president of Paramount Pictures, recorded a promotional reel on the studio’s historic Hollywood lot.

It was a tough time for the film business. An outdated executive class had failed to anticipate the economic malaise of the market and the shifting desires of moviegoers, who were increasingly retreating from theatres to their television sets. When Mr. Evans had joined Paramount a few years earlier, the company had just been acquired by Gulf + Western, becoming the first Hollywood studio to be swallowed up into a larger industrial conglomerate. Now, the studio had cut its staff and tightened its belt – so much so that Mr. Evans’s office wasn’t large enough to shoot his promo. The executive instead had to commandeer the nearby set of the TV series The Young Lawyers.

“We’ve made some mistakes. Some people have learned from them, and some people haven’t. We have,” Mr. Evans says in the reel, before detailing two new promising movies in development: Love Story and The Godfather. “We at Paramount don’t look at ourselves as passive backers of film. We look at ourselves as a creative force unto ourselves, and that is why Paramount is going to be paramount in the industry in the seventies. I promise you that.”

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Last week in Las Vegas, Paramount’s latest leader, David Ellison, stood on the stage of the Colosseum theatre at Caesars Palace to deliver his own grand promise of revitalization.

After playing a slick, Tom Cruise-narrated clip tracing a typical day on the Paramount lot – the same Melrose Avenue production hub that Mr. Evans once stood inside, though now populated by such figures as Timothée Chalamet, Will Smith and Sonic the Hedgehog – Mr. Ellison stared down more than 4,000 anxious theatre owners from across North America, all there to attend the splashy annual film industry conference known as CinemaCon.

Even though Mr. Ellison has only been leading Paramount for eight months, the 43-year-old tech scion pledged that his studio was going to be a newly energized, unstoppable force in an industry enduring another brutal era of financial and existential anxiety. But to fight the good fight, Mr. Ellison would need to continue along Paramount’s historical arc of conglomeration – he would need to acquire Warner Bros., the century-old jewel of Hollywood that was coming off its best year in recent memory (One Battle After Another, Sinners), and which Mr. Ellison had recently wrested away from rival bidder Netflix for about US$110-billion, pending regulatory approval. (Warner shareholders overwhelmingly approved the deal in a vote Thursday.)

“I came here today for a couple of reasons. One is because I love cinema – I always have, and I always will,” Mr. Ellison told the crowd, flashing a marquee-wide grin and sporting the de rigueur fashion of today’s Hollywood executive (dark blue sport jacket, black T-shirt, blue jeans, fresh black-and-white sneakers).

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“I want to look every single one of you in the eye and give you my word: Once we combine with Warner Bros., we’re going to make a minimum of 30 films annually across both studios,” Mr. Ellison continued. “People can speculate all they want, but I am standing here telling you personally that you can count on our complete commitment, and we’ll show you.”

Back in the seventies, Mr. Evans’s soothing brand of bluster proved prescient, with Paramount’s Love Story and The Godfather (plus Serpico, Chinatown, Nashville, and too many other instant classics to count) leading Hollywood to a new golden age of easy riders and raging bulls. Yet half a century later, Mr. Ellison’s consolidation-heavy vision represents a far riskier proposition, a multibillion-dollar bet built atop a global entertainment landscape that is undergoing tectonic levels of instability.

Against this uneasy era of change, the relatively untested chief executive is promising bold benchmarks that many Hollywood players, including some of the most respected and recognizable names in the world, fear he won’t be able to meet. And away from the big screen, Mr. Ellison is facing critics who fear the downstream cultural consequences of engineering a mega-merger built on the back of what appears to be a political agenda.

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All of this is happening at a point when the film industry is bleeding. Today, overall movie theatre attendance is down about 20 per cent from pre-pandemic years, with the studios not so much tightening their belts as injecting Ozempic straight into their bottom lines. Just as CinemaCon began, the Walt Disney Company laid off 1,000 positions across the company in order to “streamline operations.” A few days prior, Sony Pictures cut hundreds of film and television jobs.

In the battle for consumer eyeballs, the so-called Big Five legacy Hollywood studios (Paramount, Warner Bros., Disney, Sony, Universal) are making fewer movies and TV series – a drop of 36 per cent from 2021 to 2025 – as they struggle in the shadow of Big Tech. This includes not only the likes of Apple and Amazon, who have waded into entertainment production with increasing devotion and dollars, but the nominally free waterfalls of content provided by Instagram, TikTok, and YouTube. The latter service now reaches more than 2.7 billion monthly users globally – nearly 10 times the subscriber base of Netflix, the once presumed boogeyman of Hollywood.

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At CinemaCon, a four-day secondhand-smoke bubble in which studios and exhibitors gather to convince themselves and each other that they are in a business of unrivalled growth and innovation, Mr. Ellison arrived eager to sell the notion that conglomeration is the only path forward for Paramount, and for Hollywood at large. If Paramount Skydance, as the company is now known, hopes to compete on screens of all sizes, and in every global territory, then it needs to exploit not only the intellectual property sitting inside its own vaults (Top Gun, Spongebob Squarepants, Star Trek, Transformers) but also the mega-franchises controlled by Warner Bros. (Harry Potter, Batman, The Lord of the Rings, and everything HBO).

But the industry has watched this particular love story curdle before. Prior to the 2019 merger in which the Walt Disney Company acquired 20th Century Fox for US$71.3-billion, the two studios annually released about 25 new releases in theatres combined. By the end of this year, the total will be just 14, a nearly 50 per cent decline that has had a devastating domino effect.

Fewer movies means fewer production jobs, just as fewer new releases means fewer audiences to keep theatres in business. Not just in the United States, but in every global market that consumes and/or produces filmed content. This includes Canada, whose audiences typically make up eight to 10 per cent of the weekly North American box office. Meanwhile, the country’s major filming hubs of Toronto and Vancouver, which have only recently recovered after suffering through the writers’ and actors’ strikes of 2023, would see their local labour forces severely impacted if either Paramount or Warner Bros. tightened their output.

In Vegas, the notion that Mr. Ellison will be able to ramp up production to 30 movies per year under a combined Paramount and Warner Bros. – the two studios barely eking out 28 titles between them over the course of 2026 – all while reckoning with a US$79-billion debt load struck some as the ultimate big-screen fantasy.

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“Unfortunately, history shows us that consolidation results in fewer films being produced for movie theatres. We believe this transaction will be harmful to exhibition, consumers, and the entire entertainment ecosystem,” Michael O’Leary, head of the theatre lobbying group Cinema United, told the CinemaCon crowd during his state-of-the-industry address.

“Further concentrating marketplace power in the hands of a smaller group of distributors that dictate the terms, windows, scheduling, screen placement of movies, and access to historic film catalogues will have a real and lasting impact on Main Street and millions of movie fans around the world.”

Then there are the potential effects of having one company control not only two iconic movie studios, but also two major streaming services (Paramount+ and HBO Max), two television production giants (CBS and Warner Bros. TV Group), a wealth of cable channels (some of whose audiences overlap, à la Nickelodeon and Cartoon Network), and two major news operations (CBS News and CNN). The proposed union represents such a vast corporate web that U.S. Senator Elizabeth Warren slammed the merger as an “antitrust disaster.”

To many in the CinemaCon crowd, Mr. Ellison’s future wasn’t the one that they needed to survive, but the one that they should be fighting against, Terminator-style.

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“My worry is about what it means to the pipeline of movies, because last year with Warner Bros., they had their best year, and now you’re putting them together with Paramount. I feel it’s like the Disney/Fox situation – you’re going to have less content,” Ellis Jacob, president and CEO of Cineplex, Canada’s largest exhibitor, said in an interview. “And with the way they’ve leveraged this deal, it worries me, too. So it’s a bit troubling.”

It isn’t just the Cineplexes of the world that are worried, either. In an open letter to the Competition Bureau of Canada, the Network of Independent Canadian Exhibitors noted that Warner Bros. is reported by its members – including many mom-and-pop single-screen operations that serve as vital community hubs across the country – to be the “most exhibitor-friendly major studio,” when it comes to repertory releases, offering straight percentage splits rather than the costly per-title minimums demanded by others. If Warner Bros. disappears, then so do decades’ worth of trusted business relationships.

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What almost everyone attending CinemaCon could agree on, at least, was that Paramount’s Mr. Ellison comes by his love of movies honestly.

The son of Oracle founder Larry Ellison – one of the richest men in the world, with a net worth exceeding US$200-billion – David grew up with a family collection of 3,000 VHS tapes. For David, an ideal day was either bingeing Star Wars or learning how to fly planes like his father. It is no accident that the clip Mr. Ellison used to preface his CinemaCon appearance opened with a quote from the 1927 film Wings – “They had come to fly – only to learn that aviators are made on the ground” – which follows First World War combat pilots, and won the very first Academy Award for Best Picture.

After attending film school at the University of Southern California, Mr. Ellison dropped out to become a movie star. That plan didn’t go so well; his supporting roles in such efforts as the 2006 war drama Flyboys and the 2010 sex comedy Hole in One were barely noticed by critics or audiences.

Soon, though, Mr. Ellison had capitalized on his passion and connections to produce big-budget films through his company Skydance, favouring explosion-heavy thrill rides that sometimes hit the box-office sweet spot (World War Z, Top Gun: Maverick, several Mission: Impossible instalments), sometimes not so much (Terminator Genisys, Geostorm, Gemini Man).

After Skydance acquired Paramount last year for US$8-billion following a contentious, seven-month process – one that was financed thanks to backing from Larry Ellison and the private-equity firm RedBird Capital – Mr. Ellison immediately set his sights on Warner Bros. Last year, Warner’s chief executive David Zaslav essentially put the company on the block as it suffered under a US$35-billion debt load, which was partially created by another merger, the 2022 takeover of AT&T’s WarnerMedia by Discovery Inc. (Mr. Zaslav, for what it’s worth, may be an even larger admirer of Paramount’s Robert Evans than Mr. Ellison, spending US$16-million in 2020 to buy Mr. Evans’s Beverly Hills estate.)

While Mr. Ellison might have walked into CinemaCon with the notion that the movie stars were aligned on his grand merger cause, he also arrived in Vegas with a target on his back – one that he had arguably painted himself.

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On the first day of CinemaCon, a fiery open letter opposing the deal was released, boasting more than 1,000 film-industry signatures, including such high-profile names as Ben Stiller, Mark Ruffalo, J.J. Abrams, Damon Lindelof and Denis Villeneuve – the latter three heavyweight filmmakers each set to release highly anticipated projects from Warner Bros. later this year. The petition decried the deal as prioritizing “the interests of a small group of powerful stakeholders over the broader public good” and would result in “fewer opportunities for creators, fewer jobs across the production ecosystem, higher costs, and less choice for audiences around the world.”

“There are thoroughly anti-competitive concerns about this merger. Is it unlawfully consolidating industry in critical markets? Is it consolidating buying power in respect to writers and production? Are consumers going to have reduced choice? The answer to all may very well be yes,” said Matt Platkin, a former New Jersey attorney general whose firm helped organize the petition. “And that doesn’t even touch on some of the concerns about the regulatory process.”

The going assumption among industry players is that the merger’s U.S. approval process via the Department of Justice will take at least a year. Yet statements by the likes of Federal Communications Commission chairman Brendan Carr, who has said that Paramount’s bid is “cleaner” than the one offered up by Netflix and expects it to be approved “pretty quickly,” point to the merger being all but a done deal.

“Look, I think the train has left the station. I think this is well on its way. You can sign all the petitions you want,” veteran producer Jerry Bruckheimer (Pirates of the Caribbean, F1) told CinemaCon attendees during a panel discussion. “There’s not much we can do about it, other than take David at his word that he’s going to make 30 movies a year, and that would be fantastic.”

Mr. Bruckheimer was one of several high-profile filmmakers who contributed a cameo in the Paramount promotional reel that preceded Mr. Ellison’s onstage appearance at Caesars – an event during which the studio finally confirmed that Mr. Bruckheimer’s sequel to Top Gun: Maverick was officially a go. Director James Cameron, who has publicly endorsed Mr. Ellison’s plan, was also in the clip, and happened to stop by Paramount’s presentation to pump up his new 3D concert documentary, Billie Eilish: Hit Me Hard and Soft.

As for the rest of Paramount’s forthcoming lineup, it can be crudely if efficiently summed up as red-meat movies for red-state audiences.

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There is the Christmas-timed NFL biopic Mr. Irrelevant: The John Tuggle Story; a new installment in the Scary Movie franchise that places a big, fat target on anything “woke”; a retelling of A Christmas Carol starring the seemingly un-cancelled Johnny Depp; a remake of the arcade staple Street Fighter; a military-man-and-his-dog thriller called Heart of the Beast headlined by Brad Pitt; and an adaptation of the hugely popular first-person shooter video game Call of Duty from Friday Night Lights director Peter Berg and Yellowstone mastermind Taylor Sheridan.

For those in the CinemaCon crowd, there wasn’t much room for mystery as to how the studio’s slate aligned with Mr. Ellison’s own political sensibilities.

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The Paramount mogul touched down in Vegas one day after skipping a spotlight hearing in D.C. held by Democratic Senator Cory Booker on the potential anti-competitive elements of the deal. (A company representative said Mr. Ellison was busy attending a family funeral.) Mr. Ellison was also revealed to be hosting an invitation-only dinner the following week “honoring” U.S. President Donald Trump and CBS News’s White House correspondents at the newly renamed Donald J. Trump Institute of Peace in Washington. The developments all come about half a year after Mr. Ellison hired conservative writer Bari Weiss – who has decried the “overzealous, out-of-touch, hysterical reaction” to President Trump’s policies – as editor-in-chief of CBS News.

“I don’t think people want to see CNN become Fox News, and I don’t think they want to see this deal go through because the President wants it to,” said Mr. Platkin, the former New Jersey attorney general. “At a time when we’re supposed to be addressing people’s cost of living, the White House and Department of Justice are encouraging these types of large-scale corporate consolidations that don’t result in a better deal for the average consumer.”

Whatever hurdles the deal may or may not face in President Trump’s America, don’t discount the scrutiny that it will face elsewhere. Britain’s Competition and Markets Authority is set to launch an investigation into the merger shortly, while Canada’s Competition Bureau has confirmed that it’s currently reviewing the proposed transaction. The potential market effects, though, differ significantly from territory to territory.

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When Netflix first staked its claim to Warner Bros. late last year, there was an initial fear in Canada that Bell Media, whose streaming service Crave subsists on a healthy amount of Warner Bros. content – including a key licensing deal for HBO titles – would be the first to suffer the consequences via a loss of programming. Yet sources inside Bell say that the company’s deal with Warner Bros. will last well into the next decade, no matter which company might acquire the studio. In fact, the lack of a standalone HBO Canada service makes the case for a merger slightly cleaner here than elsewhere.

“In Europe, there are a lot of Paramount and Warner linear television channels that might conflict with each other. One country might have a Warner free-to-air channel, but in another EU jurisdiction, Warner is a pay-tier channel. That makes it much more complicated than in Canada, where Warner’s content is distributed through output deals with various Canadian streamers and broadcasters,” said Stephen Zolf, a partner at the Toronto law film Aird & Berlis, where he’s a member of its competition/antitrust group.

“I think that the Competition Bureau will kick the tires, and examine if there are any remedies needed. But my sense is that they tend to put their finger up to the wind to see where it’s blowing from elsewhere.”

The largest and brightest red flag, though, belongs to the massive amount of debt involved to create the combined company – about US$79-billion, which has led many analysts to believe that Paramount is wildly overpaying.

“That debt burden is going to drive all kinds of concerns,” said Keldon Bester, executive director of the Canadian Anti-Monopoly Project and a fellow at the Centre for International Governance Innovation. “There will be the sharp need to reduce costs, produce less, and start squeezing more out of the underlying assets through price increases across the business.”

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That debt narrative is further complicated by the equity commitments of the deal. Larry Ellison’s holdings, for instance, are largely based on the value of his Oracle stock, which is highly exposed to any shocks related to, say, the artificial intelligence industry. Meanwhile, the US$24-billion in financing provided from a handful of Gulf State sovereign wealth funds, including Saudi Arabia’s Public Investment Fund, are exposed to fallout from the war in Iran. (As for concerns of political influence regarding the Middle East, a filing with the U.S. Securities and Exchange Commission notes that the sovereign wealth funds will have no governance rights in the merged company.)

The many roadblocks and potentially calamitous outcomes were more than enough to keep sending the CinemaCon crowd rushing back to the conference’s many open bars for one drink after another – especially the staffers currently working inside Paramount and Warner Bros.

Should the merger go through, Paramount expects to yield more than US$6-billion in synergies, including “corporate-wide efficiencies” that many expect will hit staffing in the marketing, distribution and business affairs departments particularly hard. Already, Paramount laid off about 1,000 employees this past October following the Skydance acquisition.

“People really want to know what the leadership is going to look like,” said Paul Dergarabedian, head of market trends for the analytics firm Comscore. “What are they going to call the combined studios? Are they going to keep Warner separate, at least to the public? Brands matter to the audience, and the Warner Bros. identity has been built over decades and decades.”

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While Warner Bros. executives didn’t name-check Paramount during their splashy presentation inside Caesars – a nearly three-hour affair that culminated with Mr. Villeneuve, Mr. Chalamet, Jason Momoa, and Zendaya debuting the pulse-pounding, ear-rattling first seven minutes of Dune: Part Three – there were subtle nods of stubborn defiance. Indicating that they had no plans of abandoning ship any time soon (or being made to walk the plank), studio co-chiefs Mike De Luca and Pam Abdy revealed more titles in development for 2027 and 2028 than any other studio. This was the Warner Bros. of the future, whether Paramount liked it or not.

Still, between exhibitors mourning the potential loss of a standalone Warner Bros. while chomping down on steaks at Caesars’ Peter Luger outpost and rival studio execs crowding Nobu’s sushi spreads to privately but gleefully anticipate Paramount getting tripped up in regulatory red tape for the next year, the prevailing CinemaCon attitude was one of depressed resignation. The consolidation forces at work here are too powerful, the urge to ensure that Hollywood escapes the grasp of Silicon Valley too overwhelming.

Even some members of the exhibitor trade group Cinema United felt that the fight was already over. On the final day of CinemaCon, Adam Aron, chief executive of U.S. multiplex giant AMC, issued a statement of support for Paramount’s acquisition plans, praising “David Ellison’s track record of success” – a break in Cinema United’s stance that was so unexpected it reportedly sparked an emergency meeting between theatre owners.

Yet outside the CinemaCon sandbox, there were signs that the deal is not exactly a fait accompli.

Late last week, a federal U.S. judge blocked the US$6.2-billion takeover of local TV giant Tegna by its rival Nexstar, a deal that was publicly endorsed by both Mr. Trump and the FCC’s Mr. Carr. A few days before that, a New York federal jury found that Live Nation and Ticketmaster illegally operated as a monopoly.

Meanwhile, reports have surfaced that Saudi Arabia’s Public Investment Fund is set to step away from its US$5-billion investment in the PGA Tour rival LIV Golf, sending a chill to any cultural enterprise looking for plentiful Gulf State cash.

And the open letter that kicked CinemaCon off gained more than 2,000 additional signatures by the end of the conference, including such bold-face names as Florence Pugh (Avengers: Doomsday) and Pedro Pascal (The Mandalorian & Grogu).

“There has been a great deal of time and money, done very effectively, to create the impression not just in Hollywood but in capitals around the world that there’s an inevitability to this transaction. And my view of life is that things are inevitable until they’re not,” said Cinema United’s Mr. O’Leary. “Our approach is we’re going to play until the whistle. Things change very quickly.”

Typical of Hollywood, it was left up to the comedians to get the last word in.

On the third night of CinemaCon, attendees were given a sneak peek at the new comedy Spaceballs: The New One, the long-promised sequel to the original Mel Brooks farce that finally got the go-ahead once Amazon gained control of the film’s rights after buying MGM a few years back. The trailer’s opening voiceover summed up the industry’s M&A obsession nicely: “Nearly 40 years ago, a promise was made. Some people thought it was just a joke. But then, with Hollywood studios merging willy-nilly like middle-aged couples at a swingers party, Amazon acquired MGM and opened the vault.”

Mr. Ellison shouldn’t get any ideas about going after Amazon MGM, though. Few would want to make an enemy of Jeff Bezos. Or, even worse, Mel Brooks.