Justice Department Probes Warner Sale’s Impact on Theaters (1)

The US Justice Department has summoned some of the country’s largest theater chains to private conversations about the potential impact of a sale of Warner Bros. Discovery Inc., according to people familiar with the matter.

Government antitrust lawyers are seeking information on how a sale would impact the movie-going public, and whether it could result in fewer films being released in theaters, said the people, who asked not to be identified discussing confidential meetings.

Although the chief focus of the review is likely to be Netflix Inc.’s dominance in the streaming business, the release of Warner Bros. films in theaters has become a concern as well. Netflix has historically put only a limited number of films in select theaters for short runs. Rival suitor Paramount Skydance Corp., will carry a heavy debt load if it wins, which may limit its film production.

Outreach to customers and industry participants are a normal part of merger reviews, according to Justice Department guidelines. A representative for the department declined to comment.

Guests visit a Cinemark movie theater in Los Angeles.

Photographer: Alisha Jucevic/Bloomberg

Warner Bros. has agreed to sell its studio and HBO Max streaming business to Netflix, although earlier this week the company said it would re-engage in talks about a possible acquisition by Paramount. Paramount has argued its offer is superior to Netflix’s, a better outcome for consumers and has vowed to boost film production.

In November, filmmaker James Cameron, who directed Paramount’s Titanic, publicly endorsed the company’s takeover of Warner Bros. and said a sale to Netflix would be “a disaster” for the cinema industry. In a Feb. 11 letter to US Senator Cory Booker, Paramount Chief Executive Officer David Ellison said a Netflix acquisition of Warner Bros. “would not advance competition, but rather extinguish it.”

Netflix Co-CEO Ted Sarandos has sought to quell concerns about the company’s strategy by pledging to put Warner Bros. films in cinemas exclusively for 45 days. He’s also criticized a Paramount acquisition of Warner Bros., saying that a highly leveraged company won’t be able to spend as much making movies.

Sarandos met with some cinema chain CEOs in Los Angeles last week in a bid to address potential opposition to the deal, the people said.

Netflix issued a statement on Tuesday saying a Paramount-Warner Bros. merger would combine two of the five largest Hollywood studios and their distribution businesses.

“Netflix and Warner Bros. will deliver more choice and greater value to audiences worldwide with expanded access to exceptional films and series – both at home and in theaters,” the company said.

Cinema United, the US trade group representing chains including AMC Entertainment Holdings Inc. and Regal Cineworld Group, has said an acquisition of Warner Bros. by Netflix would be “culturally catastrophic,” but that a deal with Paramount would be “no less serious.” With a sale to one of them seemingly inevitable, many theater executives now believe they have to pick a side.

On a private call hosted recently by the Global Cinema Federation, an international group of the world’s 12 largest theater chains and trade associations, some CEOs argued in favor of Paramount’s takeover of Warner Bros., the people said.

The reason was Paramount’s century-old relationship with cinemas and CEO Ellison’s public pledge to release a combined 30 films in cinemas annually from Paramount and Warner Bros. in the event of an acquisition, the people said. As recently as last April, Netflix’s Sarandos said the movie theater model was “an outdated concept.”

Sean Gamble, the CEO of theater chain Cinemark Holdings Inc., said on a conference call with investors Wednesday that he’s still “a bit apprehensive” about Netflix’s commitment to the 45-day “window” for films in theaters.

“I think we’re all looking for much firmer assurances that are longstanding for not only a window, but levels of continued investment and also sustained marketing, which is a critical component of this, too, versus just verbal comments and promises,” Gamble said.

(Adds Justice Department guidelines in fourth paragraph; Netflix comments in ninth.)

--With assistance from Josh Sisco.

To contact the reporter on this story:
Thomas Buckley in Los Angeles at tbuckley25@bloomberg.net

To contact the editors responsible for this story:
Christopher Palmeri at cpalmeri1@bloomberg.net

Rob Golum

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