David Ellison’s checkered box office history

If there is one paramount skydance CEO David Ellison knows all too well that it’s an impossible task.

Mr. Ellison, the producer of five “Mission: Impossible” movies, is trying to buy the movie. warner bros discovery For almost 6 months. In September, he made the first unsolicited offer to WBD, encouraging rival media companies to consider the sale process, which resulted in the agreement with WBD. Netflix The move is to sell the famous Warner Bros. movie studio and WBD’s prestigious streaming assets.

Ellison launched a hostile tender offer, but was also brought back to the negotiating table with WBD on a seven-day waiver from Netflix. This week, Paramount upped its overall offer for WBD.

The Warner Bros. movie studio is a big part of why Ellison has worked so hard to win the support of WBD’s board and shareholders.

Last year, Warner Bros. was the second-highest grossing studio at the domestic box office. Paramount was in fourth place.

Mr. Ellison, a longtime Hollywood executive, has produced some box office hits, but his track record has been anything but consistent.

While Netflix has had a troubled relationship with theatrical releases, choosing to disrupt its traditional business and prioritize streaming movies for its subscribers for years, Ellison’s production company Skydance is following a tried-and-true theatrical strategy.

Taking ownership of Warner Bros. would be a game-changer for both companies.

“If the merger is approved, any company that subsequently acquires Warner Bros. will add significant strength to its portfolio, both in terms of brand identity and revenue generation potential,” said Paul Dergarabedian, head of marketplace trends at ComScore. “So it’s understandable that competition would be fierce among potential suitors for the chance to win the studio.”

Skydance released its first theatrical feature in 2006. This is a World War I drama starring James Franco as an American fighter pilot. The studio has released nearly 30 films over the past 20 years, most of them in partnership with Paramount, according to ComScore data.

Paramount and Skydance completed a merger in August that was engineered by Ellison.

Skydance’s biggest success has come from Tom Cruise in particular. The studio’s six highest-grossing All-Star Cruise films in the world include five “Mission: Impossible” movies and 2022 blockbuster “Top Gun: Maverick.”

Landing a $1 billion movie on your own is no small feat, especially in the wake of a pandemic.

The theatrical business has been in flux in recent years as consumer habits have changed, movie studios have struggled with how long movies should be shown in theaters before hitting the domestic market, and streaming has sucked up potential releases.

For comparison, disney has released $6 billion in movies since 2021: Avatar: The Way of Water, Inside Head 2, Deadpool & Wolverine, Moana 2, Zootopia 2, and Avatar: Fire and Ashes.

Warner Bros. released “Barbie” in 2023, Universal released “Super Mario Bros. Movie” in the same year, and Sony released “Spider-Man: No Way Home” in 2021, according to ComScore data.

However, Top Gun: Maverick is a bit of an anomaly for Skydance. In addition to being the studio’s only $1 billion film, it is also the only film in the studio’s library to gross more than $230 million domestically.

In fact, only five of Skydance’s features have grossed more than $200 million in the U.S. and Canada to date.

Worldwide, the production company has generated more than $500 million in ticket sales for seven of its films, which would be an even greater feat if many of these films had modest budgets.

“The challenge for Ellison and Skydance, like all studios, production companies and distributors, is to maintain budgets to justify continued investment in these film series, especially since later releases in major series tend to have diminishing returns compared to earlier releases,” Dergarabedian said.

Of course, it’s unclear exactly how much money Skydance spends on each film it makes, since it splits production costs 50-50 with its studio partners. Still, the budgets of many franchise films ballooned with each new release.

Look at the latest movie, Mission: Impossible. Mission: Impossible: The Last Judgment grossed $599 million worldwide, making it the fourth highest-grossing film in the series. However, the film reportedly had a budget of $400 million. This is before marketing costs, which typically amount to about half of the production budget.

So Skydance partnered with Paramount to spend an estimated $600 million on Final Reckoning ahead of its theatrical release. The $599 million earned from ticket sales will then be split.

The studio splits the box office revenue with the theater operator, usually split 50/50 by the end of the movie’s theatrical run.

The result is often a film that does well at the box office but ultimately isn’t profitable for the studio that produced it. And unlike some franchises like Marvel, Star Wars, and Harry Potter, Mission: Impossible doesn’t have a strong merchandising department and doesn’t have as much fan demand for toys, apparel, collectibles, etc.

With the merger with Paramount, Ellison’s Skydance now has more properties that fall under the production company designation. This includes the high-grossing “Sonic the Hedgehog” series and upcoming films such as “Scream 7,” “Paw Patrol 3,” “Street Fighter,” “Scary Movie 6,” and “Focker in Law,” the latest installment of Robert De Niro’s “Meet the Parents” series.

But Paramount’s string of franchises still doesn’t measure up to the heavy hitters WBD has on its roster.

“Warner Bros. is one of the jewels of theatrical distribution,” Dergarabedian said. “The company’s slate of films, filmmaker relationships, brand recognition and reputation as one of the premier and iconic film studios make it a coveted asset by all players in the entertainment industry.”

WBD’s library includes DC superheroes, Harry Potter, Lord of the Rings, Game of Thrones, Looney Tunes, and Scooby-Doo. It is also the distributor for the Legendaries Dune, Godzilla, and King Kong franchises.

“In Paramount’s particular case, the studio’s box office market share has often been challenged in the years leading up to 2015 to keep up with its competitors and its own peak performance,” said Sean Robbins, director of analysis at Fandango and founder of Box Office Theory. “Occasional hits like the Sonic, A Quiet Place, and Scream franchises have provided bright spots, and Top Gun: Maverick was a shocker four years ago, but some of the studio’s most lucrative IPs have seen diminishing returns among modern moviegoers.”

Paramount Skydance needs box office stability, and a well-known and beloved series is one way to achieve that. Of course, being famous doesn’t guarantee box office success, but it lowers the barrier to entry.

“Paramount is looking to mine every opportunity as the brand refocuses on multiple streaming series aimed primarily at older audiences following the recent end of Tom Cruise’s Mission: Impossible series, Transformers’ regression from its biggest blockbuster era, and Star Trek’s cinematic hiatus,” Robbins said.

Disclosure: Versant is the parent company of CNBC and Fandango.