Netflix’s bombshell bid to buy Warner Bros. Discovery has left movie theater owners riddled with fear that the potential acquisition could kill their business, according to a report.
Movie theater attendance had already plummeted amidst the rise of streaming platforms, and as a result, there have been fewer blockbuster hits. Many theaters also closed for good during the COVID-19 pandemic, with those remaining now struggling to fill seats for screenings.
Now, another potential nail in the coffin comes as Netflix agreed to acquire Hollywood studio Warner Bros., including its film and television studios HBO and HBO Max, in a massive $82.7 billion deal. Meanwhile, Paramount is also competing to take over the studio with a hostile bid.
If either deal comes to fruition, it could result in fewer theater releases – and if Netflix succeeds, it may mean shorter periods for films to be exclusively shown in theaters before they get put onto streaming, according to a Wall Street Journal report.
“When legacy studios are absorbed there’s a significant decline in production,” Michael O’Leary, the chief executive of theatrical exhibition trade group Cinema United, told the Journal.
While Netflix has denied that it would have shorter exclusivity periods for Warner movies in theaters, the acquisition does not bode well for many cinema owners.Movie theater attendance has dropped drastically in recent years.
Theater owners have spent millions on upgrades to try and lure customers back, and the industry appeared to be stabilizing this year as the number of theaters closing slowed, according to the report. In the U.S. and Canada, about 1.2 billion movie tickets were sold in 2019, but that figure dropped to 441 million in 2021.
Domestic box-office sales are only expected to reach about $8.8 billion this year – a far cry from the over $11 billion in annual sales made for the five years before the pandemic.
Investors believe those sales need to reach $10 billion for theater owners to become as profitable as they were pre-pandemic, Texas Capital Securities analyst Eric Wold told the outlet.
More blockbuster movies, such as this year’s A Minecraft Movie, are needed to bring big crowds back to the cinemas. More recent releases, such as Avatar: Fire and Ash, fell somewhat short, bringing in an estimated $88 million in the U.S. and Canada over the weekend, according to the report.
“When the movies are there, people want to go,” Greg Marcus, the CEO of the theater chain Marcus Corp, told the Journal.
Another issue plaguing theaters is the slow release of movies in recent years due to disruptions caused by the pandemic and labor strikes in Hollywood.
With fewer movies releasing, theater owners have turned to upgrading their facilities with things amenities such as plush rocker seats, massive screens, new sound systems and better concessions as a way to try and attract more customers. Marcus Corp has spent $390 million over the past decade on such upgrades.
Netflix, one of the original streaming services, typically does not send its movies to theaters. If they do go to theaters, it is just for a few weeks before they get added to streaming.
However, the company said it would honor Warner Bros. commitments to theatrical release, which extends to 2029 or 2030, according to CBC.
The Los Angeles Times reported in April that the average theatrical window post-COVID has only been about 30 days. Before the pandemic, films would typically be in theaters for at least 80 days before they became available on streaming services.
Alicia Reese, a senior analyst with the financial services firm Wedbush, told CBC that Netflix’s shorter theatrical window will be an issue for theaters.
“You’re training moviegoers to skip the theatrical window. And that’s the risk of it being too short,” she said.
“My opinion is that while [Netflix] goes about honoring these exclusive theatrical windows, they will quickly learn the value of them,” Reese said. “And they’ll probably change their tune.”
It was unclear what Netflix plans to do once that commitment to theatrical releases expires.
Netflix’s deal to purchase Warner Bros., which includes about $10 billion in debt, with an equity value of $72 billion, is not expected to close before the third quarter of 2026, when the Discovery Global separation is set to be completed. It’s not yet clear what changes will affect customers when the deal closes.
“Our mission has always been to entertain the world,” co-CEO of Netflix Ted Sarandos said in a statement.
“By combining Warner Bros’ incredible library of shows and movies — from timeless classics like Casablanca and Citizen Kane to modern favorites like Harry Potter and Friends — with our culture-defining titles like Stranger Things, KPop Demon Hunters and Squid Game, we’ll be able to do that even better,” he continued. “Together, we can give audiences more of what they love and help define the next century of storytelling.”
Warner Bros Discovery CEO David Zaslav said the merger “combines two of the greatest storytelling companies in the world” to bring more options to consumers.
While Paramount was proposing to acquire all of Warner Bros Discovery’s assets as part of its bid, the Netflix deal will allow WBD to proceed with the announced separation of its Streaming & Studios and Global Networks divisions into two separate companies. Discovery Global, which will separate from Warner Bros in late 2026 and ahead of the completion of the Netflix deal, includes the cable television brands CNN, TNT Sports, Discovery and TBS, a number of free-to-air channels in Europe, as well as digital and streaming products such as Discovery+ and Bleacher Report.
