Is Disney going to buy a theater chain?

Let's get into the discourse around the Paramount Decree of 1948 ending

I was originally going to write about Disney’s earnings this week, but on Friday, a judge ended the Paramount Decree of 1948 and chaos erupted. 

A little bit of background: The Paramount Decree of 1948 finalized a decade-long antitrust case run by the government against certain Hollywood studios — Paramount, Universal, MGM, 20th Century Fox, Warner Bros., United Artists, Columbia, and RKO. The courts ruled that the control Paramount and other studios’ involved in the case had over the film distribution violated antitrust laws. It had become too monopolized. 

The courts specifically pointed to two actions deemed in violation: complete ownership over theaters chains where films played nationwide, and “block booking.” Block booking was a process where theaters contractually agreed to carry a number of films from a studio regardless of the quality. To think of it in today’s terms, if a theater wanted to carry Avengers: Endgame, they would have to carry several other, lesser quality Disney films. If theaters didn’t want to carry those lesser titles, they couldn’t get Endgame. Safety in numbers: studios could release a hundred films a year and expect to profit because of block booking, even if only three or four of those movies were actually going to bring in audiences. 

The decree forever changed Hollywood’s landscape. Studios shifted to focusing on major blockbusters, and began releasing fewer films per year. This allowed “room for the growth of an independently financed movie market, which allowed competition,” Peter Labuza wrote at Polygon. It was healthy and good — arguably, right up until the Regan administration when mass consolidation under major mergers and acquisitions began, once again reshaping the media and entertainment landscape.

That was 72 years ago. In 2018, the Department of Justice’s antitrust chief, Makan Delrahim, moved to review and possibly terminate “legacy antitrust judgments that no longer protect competition.” This included the Decree. After reviewing the case, Judge Analisa Torres on Friday declared that the Decree was outdated because the entertainment landscape has drastically changed. 

Here’s one example crucial to why I’m covering it in this newsletter — Disney was not included in the original 1948 lawsuit because the company was considered too small. Clearly, that’s no longer true in 2020. 

Torres also declared that due to changes in the overall entertainment landscape, it’s unlikely that studios labeled in the original lawsuit “could or would reinstate their cartel to monopolize the motion picture distribution and theater markets.” Finally, Torres wrote that despite the Decree ending, the studios named in the initial lawsuit were still subject to antitrust laws. So, if Universal or Paramount tried to monopolize the film industry again, the courts would intervene.

Well. Where to begin?

Let’s start with the reaction, and the main reason we’re talking about the Paramount Decree in a Disney-focused newsletter. Disney’s name was thrown around with Netflix and Amazon as companies that could purchase a movie theater chain and effectively revamp the theatrical landscape. Other industry insiders and reporters (including myself) argued that Disney isn’t interested in purchasing a chain, especially right now while the company loses a staggering amount of capital because of the pandemic. 

But that’s not to imply that Disney, like every other studio (some of which are now owned by telecom conglomerates), won’t take advantage of the decree going away. Despite Torres’ argument that it’s unlikely the studios would “reinstate their cartel to monopolize the motion picture distribution and theater markets,” that’s exactly what’s happened over the last several years — it just happened via internet tubes and acquisitions, not physical ownership. 

The concern swirling around people’s minds is that Disney will gobble up theaters across the country, and only show its films (or, make the majority of showings its films), isolating competition from other big studios like Warner Bros. and icing out smaller firms like A24. (Disney already owns its own theater, the El Capitan in Hollywood that carries Disney films.) Could Disney expand on this idea, using a newfound exhibition power to increase the number of screens its films are on? What about carrying Disney+ titles for a limited period to try and double dip profits wise? 

Or, to look at it through a “block booking” lens, what if Disney wanted to make the first two episodes of The Falcon and The Winter Soldier a limited-time theatrical event? It’s not necessarily an unheard practice. Studios have charged fans to watch 30 minutes of exclusive footage before a movie is officially released. But in this situation, in order for theaters to carry a highly anticipated new entry in the Marvel Cinematic Universe, they also have to show a title that Disney executives know isn’t going to perform well, but might generate some revenue if it’s part of a package. The theaters are agreeing to buy more in order to get the one title — The Falcon and the Winter Soldier — they really want. 

It’s an abstract, extremely hypothetical question right now for many reasons, but especially in the midst of a pandemic. The downsides are just as prevalent as the possible upsides. Theater chains are posting their worst quarterly earnings in decades as movie theaters across the world remain closed. Disney buying an AMC doesn’t make any sense until theaters are out of the deep red — and even then, theaters haven’t been a viable business operation for years. Attendance is down year over year, and the studios whose movies do draw out audiences are also figuring out how to balance streaming operations alongside theatrical releases. 

Disney is one of the few studios that theater chain executives are wary of upsetting because of how much revenue Disney’s films bring in globally — $13 billion last year alone. That leaves the studio in a pretty good situation already. While other studios might not have the ammo to bargain for a stronger cut of box office revenue (usually around 50/50), Disney has demanded a higher cut, reportedly making up to 65 percent of revenue. Plus, it can command more from the exhibitors without worrying about selling enough concessions, cleaning crews, administration fees, property rental fees and a plethora of other costs that come with owning and operating a theater. Why deal with all the extra hassle when you already hold the upper hand via the product you’re licensing?

Here’s how I know that Disney can effectively do no wrong in the eyes of theater exhibitors: when the company announced it was moving Mulan, easily one of the most anticipated tentpole blockbusters of the calendar year, to Disney+ exclusively, AMC didn’t put up a fight. Instead, CEO Adam Aron acknowledged that times are difficult, adding that he was hopeful Disney would work with AMC in the future. (The theater chain recently signed an agreement with Universal to shorten the mandatory exclusive theatrical window to 17 days, and is hopeful other studios will agree to similar terms.) 

Disney doesn’t need to own a theater chain to monopolize the industry; it already has. 

To further argue why owning a chain doesn’t make sense, there’s Disney’s financial troubles. The company is still reeling from its $71.3 billion purchase of 21st Century Fox. Is 21st Century Fox likely to be as lucrative a purchase as Pixar, Marvel Entertainment, and Lucasfilm? Jury’s out — but my gut instinct is not within the next several years. It might not be a regrettable purchase yet, but it’s one the company has to figure out how to best monetize. 

On top of a $71.3 billion acquisition, Disney is also staring down the barrel of depleting capital. Revenue safety nets like Parks are critically impacted by the pandemic; advertising is down and greatly affecting the company’s media networks division; studios revenue has depleted because theaters are closed. The only bright side is streaming and, while it’s a breath of fresh air, isn’t a profitable sector yet. Disney isn’t fucked, but Disney isn’t doing great. And the hardest part of the situation, which Disney’s executives spelled out in a letter to investors, is they can’t predict consumer behavior. People are very likely to return to theaters when a vaccine is found or cases come down, but a pre-COVID number isn’t guaranteed, especially in a world where streaming is so accessible. 

While it seems unlikely that Disney is going to try and purchase a chain of theaters, the more viable threat ending the Paramount Decree has on the industry relates to block booking. Under Torres’ orders, studios won't be able to explore licensing film packages to theaters until 2022 in order to allow theaters “a transitional time period to adjust their business models.”

So, in two years time, could studios like Disney take advantage of the decree ending? The irony to this answer is that Disney was never implicated in the original lawsuit so it was never technically held back by the decree. Though, as The Hollywood Reporter pointed out, the studio has been guided by it. This is where the current Hollywood landscape comes into effect. Disney wants to push people toward Disney+ (and Hulu, etc), but also wants its big, $1 billion blockbusters in theaters. Disney could license special screenings of its Disney+ series (like the aforementioned Falcon and the Winter Soldier scenario) or mid-budget Disney+ movies to theaters alongside the next Marvel or Star Wars film. Disney gets to maintain control of screens in theaters with very little additional investment. 

Devil’s advocate

Those are arguments against why Disney would go all in on physically owning the theatrical landscape. What about the arguments “for” Disney taking advantage? The big two reasons are directly connected: vertical integration and more control over data. Owning the physical spaces that play movies produced by the studio would complete Disney’s vertical integration. Owning the distribution also means Disney would make 100 percent of the profits. And, if Disney were to use its theaters to play movies from other studios, it could take 50 percent of the revenue that come with carrying the films. Moreover, hypothetically — again, everything is hypothetical right now — Disney could also use newfound ownership of a chain to collect more data that could be useful for its rapidly growing digital arm. 

Those reasons are potentially incentives for a company with a studio arm to look into purchasing a chain. But I imagine if any one company was going to take advantage of the decree ending in that specific way, it would be an Amazon or AT&T type. 

Here’s my opinion: it doesn't make sense for Disney to own a chain when it can take advantage of block booking in two years and already receives preferential treatment. It’s going to take some time before theaters are back to pre-COVID numbers, and that’s not an investment Disney is going to want to make — especially now when it’s increasing its debt load to just get by. 

Disney also isn’t a telecom conglomerate or tech giant that could acquire a chain and use it for other business strategies. Could AT&T, which owns WarnerMedia, home of Warner Bros. and HBO Max, use theaters to help propel non-entertainment businesses? Anything’s possible in this game of hypotheticals, but AT&T isn’t looking to make any major acquisitions anytime soon — something the executive board has promised shareholders. AT&T is still trying to navigate the substantial debt it took on purchasing Time Warner and DirecTV for a combined whopping $134 billion. It’s also set to reportedly lay off more than 800 people in its WarnerMedia division, the vast majority of which are in Warner Bros. Are theaters really an industry AT&T wants to explore right now or in the next few years? Likely not. 

What about a company like Amazon, which could turn theaters into small mini-malls, adding book stores and other retail opportunities that propels Amazon’s main business? Amazon has a Studios division and a streaming service. Creating a physical homage to Amazon that propels all of the retail giant’s businesses while charging studios like Disney, Warner Bros., and Universal isn’t the worst idea in the world once the pandemic subsides. Especially considering Amazon is one of the few companies rapidly increasing its revenue right now, and the cost of investing would amount to peanuts for the company. Does Amazon want to get into physical spaces across the country? It's certainly been experimented in the past but, again, with the heightened attention from congress on antitrust among tech giants, and this being an option that might not produce much in overall revenue, is that a bet Amazon wants to take?

When Torres’ order came down, I tweeted “the threat seems ehhhh right now.” I still believe that to be true. Too much about what happens over the next 18 months is too uncertain for anyone to make any big moves. Even after that, I don’t see a future where Disney owns a chain of theaters. Maybe the studio buys a couple of landmark theaters like it did with the El Capitan (and like Netflix has done in New York City and Los Angeles), creating physical spaces for its various franchises that also highlights its streaming platform and Parks sector. (Reminder: this is something Disney could have already done.) The bigger concern is how Disney, and every other major studio, takes advantage of packaged licensing — and just how much that will play into promoting digital streaming platforms that are becoming the cornerstone of their businesses. 

Unfortunately, it’s a game of wait and see. 2022 isn’t that far away, even if it does feel like a lifetime right now.


Studio earnings: an Endgame sized hole

  • I thought it would be easier to break down the company’s earnings via its different segments, which is also how I lay out this portion of the newsletter anyway. Before we get into how Disney’s Studios division did, I’d like to point out the general thorough-line this quarter was how poorly Disney did in just about every segment of its operations. 

  • Studios was no exception. Revenue decreased by 55 percent to $1.7 billion. That’s nearly $2 billion less than the same time period in 2019 — a gap made even larger by the fact that Avengers: Endgame came out during this same time last year. 

  • Going from having Avengers: Endgame make $2.8 billion worldwide to having practically nothing playing because theaters are shut down makes for quite a difference. 

  • “No significant titles were released in the current quarter compared to the release of Avengers: Endgame, Aladdin and Dark Phoenix in the prior-year quarter,” Disney noted in its report. 

  • The little growth that Disney did see in the division came from moving titles like Onward and Star Wars: The Rise of Skywalker to Disney+.

    Nia DaCosta set to direct Captain Marvel 2

  • Exciting news for the Marvel Cinematic Universe: director of the upcoming Candyman movie, Nia DaCosta, is set to take on Captain Marvel 2

  • DaCosta is the first Black woman to direct a Marvel movie

  • Richard Newby over at The Hollywood Reporter has a very good breakdown of what DaCosta taking on the character (Captain Marvel grossed $1.2 billion in 2019) could mean for Carol Danvers

  • “Based on DaCosta’s work as a director, and her active Twitter profile, she seems like a filmmaker who enjoys challenging preconceived notions about the relationship between characters and the lore behind stories,” Newby writes. “This could pave the way for a fascinating exploration of Carol and Monica’s relationship, with the film giving both characters an equal spotlight.”

    Tom Hanks in talks for Pinnochio

  • Tom Hanks is in talks to team up with director Robert Zemeckis on Disney’s live-action Pinnochio remake, according to the trades. Hanks would play Gepetto.

  • Hanks and Zemeckis have worked together multiple times in the past, including on Cast Away, Forrest Gump, and The Polar Bear Express.


DTC earnings: a bright spot

  • If most of Disney’s earnings were something executives wished they could sweep under the rug, streaming was where they wanted to direct all attention toward.

  • Revenue for the quarter increased two percent to $4 billion, nice little pocket change for the House of Mouse. 

  • Increase in streaming revenue is a good sign — especially as Disney hit its 2024 base goal of 60 million Disney+ subscribers less than one year after the service launched. It’s also where Disney is planning to invest heavily; making the decision to move Mulan to Disney+ isn’t a light one. 

  • Combined with all of Disney’s other streaming ventures, the company has more than 100 million paid subscribers globally. As Netflix co-CEO Reed Hastings would say, “impressive!”

  • Still, streaming isn’t a profitable sector for the company. So while those numbers are impressive, and the growth trends are largely positive, it’s not enough just yet. 

    Mulan to Disney+

  • I’m going to link out to my piece on the importance of Mulan to Disney+ over at The Verge. But here’s a brief excerpt:

  • “Although the pandemic is to blame for the sudden shift in strategy for three of the world’s biggest film companies — Universal, Warner Bros., and Disney — the outcome seemed inevitable. Home entertainment revenue last year saw massive gains, largely driven by different types of streaming options. The pandemic has accelerated trends that likely would have played out in years to come; what may have happened in a decade occurred in mere months. Disney’s announcement felt like the rope finally snapping, and it has led to a series of existential questions. Will movie theaters survive? Will studios prioritize digital releases as conglomerates try to build their streaming bases?”

  • Ironically, the ending of this essay ended on a note about the subject of this week’s Musings on Mouse essay. Continuity! 

    Keke Palmer is joining The Proud Family reboot

  • In my favorite news of the week, actress and activist extraordinaire Keke Palmer is joining Disney’s new Proud Family series.

  • Disney’s PR team sent out this description of Palmer’s character, Maya Leibowitz-Jenkins:

  • Maya is a “14-year-old activist who relentlessly marches to the beat of her own drum. She is extremely mature for her age and will not hesitate to shut anyone down with her blunt honesty and wisdom. The adopted daughter of mixed race parents, Maya is new to town, and initially disassociates herself from Penny and her crew because she is skeptical about what she perceives to be the superficiality of social cliques. However, Penny eventually gains her hard-earned respect and the two become good friends.”

  • A reminder: The Proud Family has the best Disney Channel theme song. That’s not really related to Palmer’s addition, but I want to stress it. 

    High Fidelity canceled after one season

  • In my least favorite news this week, Hulu and Disney have canceled Zoe Kravitz’s High Fidelity after just one season. It’s a fucking travesty. 

  • The cancelation is surprising considering it was well reviewed and the show’s producers believed there were “many seasons” planned, according to The Hollywood Reporter.

  • Some people may assume the decision came from low numbers, but we don’t know for certain because streamers do not release figures for their series. 

  • What matters most is that High Fidelity, a very good, heartfelt show that focused on a queer woman of color only got one season, and that’s deeply upsetting. 

  • For more, I’ll toss to Kravitz who responded to the situation on Instagram in a true chef’s kiss moment.  

    New Animaniacs hits Hulu this November

  • Hulu’s new Animaniacs season, which will see the return of fan favorite characters including Pinky and the Brain, will debut on the streamer on November 22nd. 

  • Hulu is all in on animation, especially shows targeted at teens and adults. Expect this series to get a big marketing push from the streamer ahead of its premiere. 

    Love, Victor gets a second season



Parks earnings: COVID-19 troubles run deep

  • Parks, understandably, had the worst quarter of all the segments, seeing an 85 percent drop and just under $1 billion in revenue. 

  • Segment operating income affected by COVID-19 was approximately $3.5 billion in the quarter, according to the company’s report. 

  • A big part of that is because the majority of the company’s parks remained closed during the entire quarter. With parks slowly re-opening in the United States, Europe, and Asia, Disney is hoping that revenue will increase next quarter. We’ll see. Attendance rates are still low — especially in Florida, where Disney World operates but is also seeing massive spikes in COVID-19 cases. 

    Bubble Update — someone is stealing food

  • Let’s return once again to my favorite ongoing story, the NBA Bubble. 

  • In this week’s adventure, New Orleans Pelicans’ Derrick Favors is being targeted by a cake thief! Favors teammates bought a cake for the player’s birthday, but when Favors went to the team meal room to enjoy his birthday treat, “there was no cake to be found when Favors arrived,” according to Sports Illustrated, adding that “a sweet-toothed bandit may be on the loose in the NBA bubble.”

  • The story gets even better/weirder! The team tried to cheer him up with an order of special birthday cupcakes, but they disappeared too! 

  • This is what the snitch line was designed* to stop!

  • *it was not designed for this purpose, but I mean, c’mon. 

    Union disputes continue, leading to show changes 

  • Ongoing disputes between the Actors Equity Association (a union that represents about 750 cast members at Disney) and the company has led to the company replacing some of its shows. More from Deadline:

  • The resort [on August 2nd] replaced the long-running Beauty and the Beast — Live on Stage show, which featured actors and dancers in a traditional musical production, with The Disney Society Orchestra and Friends. The new show consists of a 20-minute instrumental concert that ends with non-Equity Disney employees dressed as Belle, the Beast, Mrs. Potts, Lumiere, Cogsworth and Chip taking the stage to silently wave goodbye to the audience.”

  • The Actors Equity Association has gone back and forth with Disney on safety measures the union wants in place for its members, including more frequent testing. Disney won’t meet those demands. The two groups are at a standstill. 

TV Networks

Media Networks earnings: another rough (but not as bad) patch

  • Revenues decreased two percent to $6.6 billion, which is nowhere near as bad as Parks and Studio. That’s in part because people were still watching TV while stuck at home. So while advertising fell, Disney was able to use its various networks (including ESPN) to carry some kind of programming. 

  • For example, broadcasting revenues (ABC, etc) increased 12 percent to $2.5 billion. “The increase in operating income was due to lower network programming and production costs, an increase in affiliate revenue due to higher rates, higher program sales and lower marketing costs,” the earnings report reads. 

  • Extremely low advertising and not having anything substantial or new to show audiences is what affected Disney’s Media Networks division this quarter. The company is looking to the return of sports (and a potentially decent fall television schedule, although so much is up in the air) to help bring in advertising revenue.