Last weekend brought the release of Despicable Me 4, which produced a solid $75M in domestic ticket sales (slightly ahead the opening weekend of its predecessor at $72M, not adjusting for ticket price inflation). For reference, Despicable Me 3 went on to a very impressive $1B globally. And so that’s the stretch goal. In recent weeks, we’ve highlighted Inside Out 2. The film continues to outperform precedent, now hitting $1.2B in global box office and $1.4B looking achievable. The same said for Bad Boys: Ride or Die, now hitting $360M in global box, and it's likely to come close to its 2020 predecessor Bad Boys for Life ($426M).
All told, it’s great to see so many films come in better than expected. Despite fewer wide releases, Q2 2024 box office receipts totaled $9.0B, above the 2016-2019 average of $8.8B (i.e., an encouraging showing). Q4 2024 is when the wide release slate really gets cooking (last year’s labor strikes delayed releases into 2024) with films like Joker: Folie a Deux, Deadpool & Wolverine, Smile 2, Venom: The Last Dance, Gladiator 2, Kraven the Hunter, Nosferatu, and The Lord of the Rings: The War of the Rohirrim. It’s not all terror though, as Moana 2 (November 27) and Mufasa: The Lion King should bring song, dance, laughter, and roars.
Flipping the singing and roaring around to quietening, the founding Redstone family of Viacom, which along with Time Warner was the dominant entertainment conglomerate at the start of the 2000s, agreed to pass the company into the hands of the Ellison family (David and Larry, the founder and CEO of Oracle), along with their partners RedBird Capital. For perspective, in 2002 Viacom was comprised of Paramount Studios, CBS, MTV, Showtime, Nickelodeon, BET, Infinity Radio, Viacom Outdoor, Simon & Schuster, Scribner, and Blockbuster. That year, these assets generated $24.6B in revenue and $5.5B in EBITDA. In 2023, Viacom’s successor Paramount Global generated $29.6B in revenue and $2.3B in EBITDA. The 50% decline in EBITDA reflects asset spins and the industry’s disruption, most notably exhibited by Blockbuster’s demise vis-a-vis Netflix.
The presentation announcing the transaction outlines how Viacom/Paramount Global can imitate the Ellison's production/media company Skydance. Skydance is to be merged into Paramount, with a “contemporization” of Viacom looks like, including a rebuild direct-to-consumer platform, a shift from on-premises to cloud-based production for its animation studios, and increased use of generative AI. This would happen after the FCC and FTC approve the transaction, likely mid-2025 at the earliest. Of note, Skydance and Paramount have co-produced and co-own several important franchises, most notably Mission Impossible and Top Gun. As such, Ellison & Co. may have also been motivated to do the deal to keep Paramount from Sony, Warner Bros., or one of the tech behemoths.
Ellison & Co. implicitly made the point that they can materially improve Paramount Global/Viacom's cash generation and financial position, including taking out $2B in expenses (mostly from the TV networks). Assuming savings of $150K per full-time employee and a split 50/50 between people and processes/suppliers, that equates to 6,700 employees being shown the door. (Out of 26,000 at year-end--another dark day in Hollywood.) We’ve argued in the past that one of Paramount Studio’s primary inhibitors to producing all the large break-through tentpole films that its legacy and library had the potential for was because it was starved of capital. Under recent management, that was because of the large demands on capital from its sister businesses, primarily Paramount+. Looking forward, a good portion of the $2B will be redirected into film & content production. The ability to spend large and its new “creative first mindset” are intended to make Paramount the “premier destination for leading storytellers.” The “release” of that investment will not be until late 2026 and beyond given production time frames.
Lastly and back to the start of this story, one of Skydance’s businesses is Skydance Animation, which is led by Pixar’s founder and star producer John Lasseter (Toy Story, Cars, etc.). Ellison said, “Our mission was to aim incredibly high and build a studio that could stand alongside Pixar and DreamWorks Animation.” From newly appointed Paramount Studios head (and former CEO of NBC Universal) Jeff Shell--who also used to head over DreamWorks Animation--“from a theatrical perspective, animation is so important." From Ellison’s comments, the transaction is to afford Animation more IP to work with and more capital is to be invested in the business to increase its production output. Additionally, AI and technology are fundamentally changing how animation content is created, allowing for a much faster and more capital-efficient production process.
We started this Anchor story with the upside surprises of Despicable Me and Inside Out 2. From Ellison/Shell, we hear that animation is still a growth business with attractive returns. In the post-COVID world, the theatrical window for animated films has been the epicenter of concern for the movie studio and exhibitor industries – will families and audiences show up for these films?
While one might logically assume that Inside Out 2 and Despicable Me 4 have a similar audience and impact on the trade areas that benefit from their audiences' spend elsewhere, Placer shows a very different story in terms of spend. The audience for Inside Out 2 at Cinemark theatres had an 8% higher level of cross visitation to some other commerce (community shopping center, fast food & QSR, restaurant, etc.) than Despicable Me 4. Said differently, not only did Inside Out 2 drive more audience (2x more) but that audience were bigger spenders elsewhere as well.
Conventionally, we know that having different films creates a more diverse audience and a stronger box office. Quantitatively, how this looks is shown below where we show the opening weekend’s audience at Cinemark theaters for two very different films, Inside Out 2 versus Paramount’s Killers of the Flower Moon. Note that "Suburban Nightlife" households were 30% more common for Inside Out 2.
