Paramount Skydance surprised Hollywood denizens earlier this month with a $20-a-share bid for rival studio Warner Bros. Discovery, which promptly rejected it, hoping possible other bidders might send offers closer to $30.
But maybe David Ellison, scion of one of the world’s wealthiest humans, Oracle founder Larry Ellison, and newly in possession of the merged Paramount Skydance, should be grateful he got the stiff arm. While some news outlets tote up the admirable list of legacy media assets a merger between $PSKY and $WBD would encompass, analysts aren’t so sure the resulting company would be any more competitive.
In fact, suggested analysts at LightShed Partners in a recent research note, one of Warner’s biggest-grossing films of the year provides 13 million reasons for a thorough reconsideration of further consolidation, driven by the increasingly crummy economics of traditional theatrical exhibition and cable networks’ fading revenues.
Warner Bros. Discovery spokespeople have tried to spin a tale of largely uninterrupted box-office success for its movies since early in the year, but that’s getting increasingly difficult to pull off.
Yes, last spring’s A Minecraft Movie was a massive hit, if slightly surprising to many Hollywood denizens who hadn’t paid attention to the games their children play. Its $957 million global box office is still No. 3 on the year, behind China’s animated sequel Ne Zha 2, and Disney’s live-action remake of Lilo & Stitch.
Sinners and Weapons were both smaller original films that punched way above their weight at the box office. The Conjuring: Last Rites has delivered $474 million globally since debuting Sept. 5, the kind of reliable return expected from a solid horror franchise. WB also distributed Apple TV’s F1: The Movie, earning a sweet little fee for a film that grossed almost $629 million worldwide.
But the quirky Mickey 17 from Korean auteur Bong Joon Ho wildly underperformed in the spring. More recently, Paul Thomas Anderson’s celebrated new film One Battle After Another appears headed for a $100 million loss, despite glowing reviews for a more-or-less original film vaguely based on one of Thomas Pynchon’s labyrinthine novels.
And then there’s the latest Superman, a reboot of the original superhero franchise on which success Warner Bros.’ DC division is betting heavily. Superman was warmly received by critics and fans, and made a lot of money, some $615 million in worldwide theatrical grosses.
Then it debuted on WBD’s subscription streaming service, HBO Max, and racked up 13 million views in 10 days. That set off great shouts of joy from the Hollywood trades, so reliant on the Movie Industrial Complex to pay their own bills.
But not so fast, kids. Turns out $615 million in box office doesn’t go nearly as far as it once did, especially when you total Superman’s super-sized production and marketing budgets. The official judgment is that the reboot “underperformed” in theaters.
Depending on who you ask (this money stuff is almost never fully public in Hollywood), the company spent around $225 million to produce Superman, though a tax-credit filing in Ohio put the “full production budget” at $363 million. We’ll let the auditors figure out that massive discrepancy, but regardless, you should add in an estimated $125 million in “prints & advertising,” Hollywood-speak for marketing costs.
That makes for an all-in cost of at least $350 million, on a film whose box office has to be split with exhibitors, typically on a 50-50 basis. So, it appears the film didn’t make back its production and marketing costs in theaters, short at least $43 million.
But all that marketing spend helped drive all those views on HBO Max, defenders of theatrical like to say.
If so, WBD didn’t get its money’s worth there, either. LightShed Partners points out that, a week before Superman streamed, a romcom called The Wrong Paris, set in the gay Paree of Texas rather than France, debuted on Netflix.
The dirt-cheap little feature, made for surely far less than superhero prices and with little in the way of traditional marketing, attracted 35 million views in its first 10 days, according to Netflix viewership numbers. That’s nearly three times what Superman managed, even with all that theatrical buzz, 87 years of IP history, and endless fan conversation, LightShed noted.
Why does this matter?
To start, it once again helps explain Netflix’s general indifference to mergers & acquisitions, as Co-CEO Greg Peters reiterated again at a recent conference (though Netflix might be interested in that Paramount lot down the street from its Hollywood HQ, should the historic production facility become surplus to Ellison’s needs).
But maybe Ellison should steer clear too, LightShed suggested, especially so soon after closing the $8 billion deal for Paramount, a $1.5 billion deal with the South Park creators, and a $150 million acquisition (at far above market prices) for Bari Weiss’ The Free Press.
“While it can be tempting to use M&A to accelerate strategy, acquisitions bring entanglements and make it harder to focus on original IP vs. trying to mine existing franchises and catalog,” according to the note. “We believe the success or failure of the new Paramount will be determined by its ability to create new IP that can penetrate the zeitgeist, not by how much legacy IP it has acquired.”
Basically, more Superman in your library may not be so super if it also means paying off another $50 billion in deal costs, plus WBD’s $35 billion in outstanding (though company-friendly) debt left over from the last time it was in the middle of a deal.
That a new deal will happen at all is no certain thing. Comcast may decide to jump in, while analysts as a whole have been cautious about a deal’s real prospects, given the industry’s fading economics and the lack of multiple obvious suitors. That uncertainty helped send WBD shares back below $20 apiece again the past couple of days (they closed Thursday a little above $18).
KeyBanc assigned a 50% chance that no deal will occur, while Wells Fargo raised its price target to $21 from $14. Broader analyst consensus is a bit under $19.
Helping drive everything is the new contract that WBD CEO David Zaslav signed in June. Should he secure a sale of WBD before the end of 2026, at a price north of $16 and change, Zaslav will automatically vest 400 million shares of the company’s stock on deal close. Zaslav will be motivated, even if others in Hollywood aren’t so sure this deal is worth the trouble.
