For the Love of Cinema: Disney-Fox Merger Could Have Trickle Down Effects on the Middle Market

This article analyzes how the Disney-Fox merger may re-write the rule book for how the film industry and theatre chains play together.

People still love to go to the movies. United States box office revenue hit $11 billion in mid-December, making 2018 a record-breaking year. With back-to-back growth amidst peak TV hits on streaming services, analysts suspect streaming won’t be killing off the cinema anytime soon.

But Walt Disney Co.’s $71.3 billion cash and stock bid for 21st Century Fox Inc.’s and its assets, including its film studio, might re-write the rule book for how the film industry and theatre chains play together.

As it currently stands, Disney – which owns the high grossing Star Wars, Pixar and Marvel franchises – accounts for nearly 27 percent of last year’s sales ($2.9 billion in ticket sales through to the second week of December 2018 according to research from Box Office Mojo). Absorbing Fox will push Disney’s share to nearly 40 percent, leading to more leverage at the box office.

Disney already made theatres sign a secret agreement before handing over the reels for Star Wars’ The Last Jedi, demanding a reported 65 percent take of revenue for ticket sales, according to the Wall Street Journal. Ignore the terms, and Disney said it would snatch up another five percent, bringing their share of ticket sales to 70 percent, bucking the 50/50 split that previously existed.

Deals like the proposed Disney acquisition are slowly eroding the lines between film studios and theatres, and challenging the middle market where independent cinemas are still thriving.

Unfortunately, it’s about to get worse.

Death of the Paramount Decree

This past September, the U.S. Department of Justice’s Anti Trust division began reviewing the 70-year-old Paramount Decree, a landmark Supreme Court decision that forced major studios to divest themselves from theatre chain ownership.

The 1948 decision ended what was referred to as the “studio system” where Paramount, MGM, Universal, Columbia Pictures (Sony), 20th Century Fox, United Artists and Warner Bros, held a monopoly on the film biz from production right through to exhibition.

“The Paramount Decrees have been on the books with no sunset provisions since 1949. Much has changed in the motion picture industry since that time,” said Makan Delrahim, antitrust chief at the DOJ, in a statement. “It is high time that these and other legacy judgments are examined to determine whether they still serve to protect competition.”

Around the same time the review was announced, rumors swirled that Amazon or Netflix were going to purchase Mark Cuban’s Landmark Theatres. “It’s very possible that the Paramount decree gets overturned,” said David Miller, an analyst with Imperial Capital LLC told Bloomberg. “It will be interesting to see if Amazon could be the first to test the new rules.”

Ultimately, it was Charles S. Cohen who bought Landmark Theatres for an undisclosed sum in December, 2018. The deal gives Cohen Media Group, a producer and distributor of independent films, a chain of 52 theatres across 20 markets.

Cohen’s media company had previously acquired the Quad, New York’s first multiplex, and La Pagode, the Parisian staple. Cohen’s street cred in the indie flicks and foreign films sector could be a positive for Landmark Theatres but with the Paramount Decree on the chopping block, some analysts are concerned about the effects of consolidation on the middle market.

Consolidation Hits the Middle Market

“A worrying trend is this major consolidation drive, with big cinema chains buying up medium cinema chains and becoming global, gigantic cinema corporations,” Patrick von Sychowski, editor of Celluloid Junkie, told the 2018 Nostradamus report on the film industry. “In a way, they have to be that, because of [the pressure from the] consolidated Hollywood studios, and technology companies like Netflix and Apple.”

Von Sychowski points out that’s the small to medium-sized cinema operators like U.S-based Alamo Drafthouse and iPics or Everyman Cinemas in the UK, that drive innovation and help keep the box offices open. “If we only have these global corporations, then we don’t have a healthy ecosystem, in which new ideas, new trends, new types of films, and new audiences can find a home.”

Unfortunately, consolidation seems unavoidable, with its effects rippling outwards and no one’s catching up to Disney anytime soon.

“Disney is becoming the Wal-Mart of Hollywood: huge and dominant,” Barton Crockett, a media analyst at B. Riley FBR, told Bloomberg. “That’s going to have a big influence up and down the supply chain.”

Illustration by Christy Lundy'

Steve McOrmond

Steve McOrmond is a former Content Marketing Manager at Firmex and Senior Content Marketing Manager at Chisel AI.