Paramount-Skydance merger may lead to excessive consolidation in Hollywood theaters, causing concern among theater owners.

• Paramount and Skydance have struck a merger agreement.
• The consolidation in the Hollywood industry is causing concern among theater owners, who fear that it will worsen the production issues that have resulted in fewer film releases recently.
• Skydance and Paramount have been production partners for many years, collaborating on the financing and distribution of approximately 30 films.

The latest fear in the theatrical industry is that more consolidation will lead to more problems.

Hollywood's cinema operators have expressed concerns about the merger agreement between Skydance and after a monthslong negotiation process.

The ongoing consolidation in the industry will intensify the production issues that have resulted in a decline in film releases in recent years.

The merger that leads to a decrease in the number of films produced will not only harm consumers and reduce revenue, but also have a detrimental effect on individuals working in all areas of the film industry, including creative, distribution, and exhibition, as stated by Michael O'Leary, president and CEO of NATO on Monday.

Skydance and Paramount have been production partners for many years, collaborating on financing and distributing films such as the Mission Impossible, Star Trek, Terminator, and Transformers franchises.

During an investor call Monday, Skydance founder David Ellison announced that Paramount and Skydance have produced 30 feature films together. He stated that the deal would "consolidate the ownership of several of Paramount's most renowned franchises" and "enable us to enhance franchise management."

It is uncertain how this merger will impact production in the future since each company has other producing partners.

"Shawn Robbins, founder and owner of Box Office Theory, stated that the entire industry will closely monitor the evolution of Skydance and Paramount's release slate in the upcoming years. While there is cautious optimism, it is a different scenario than if another major studio had acquired Paramount, which would have likely cannibalized the output of theatrical content significantly. Currently, nothing is certain."

The merger of and 20th Century Fox in 2019 has led to trepidation from groups like NATO, as the combined studio has only released around a dozen films per year since 2021, despite each studio previously releasing around a dozen titles annually, according to data from The Numbers.

In 2024, only three titles have been released by the two studios.

"The fear of mergers is caused by theater owners' worries about the impact of a decreasing number of films on their profits, according to Paul Dergarabedian, senior media analyst at Comscore. The key to success at the multiplex is having a strong pipeline of big screen offerings that keep the industry running smoothly."

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The theatrical industry has faced challenges with a slower influx of titles due to pandemic shutdowns and a dual Hollywood strike that disrupted film production. Despite predictions from box office analysts that the number of films will increase in 2025 and 2026, there is uncertainty about whether production will ever reach pre-pandemic levels.

"Although being a volume-driven business, the success of the releases is determined by their quality and audience appeal rather than sheer quantity, according to Dergarabedian. Having fewer films competing for the same dollars can be advantageous, as long as the average revenue per film is higher in a less crowded movie marketplace, resulting in a more sustainable business in the long run."

The merger between Paramount and Skydance will unite Skydance Animation and Nickelodeon. As per Jeff Shell, the former NBCUniversal CEO who will become the next president of Paramount, the company will become a prominent player in animation following the deal's closure.

During the investor call, he stated that animation is crucial from a theatrical standpoint and Paramount excels in Nickelodeon.

This summer, animated features have experienced strong box office sales, with Disney and Pixar's "Inside Out 2" collecting $1.2 billion at the global box office and a $533.8 million domestic tally, both of which are among the highest ever for an animated film.

Over the Fourth of July holiday weekend, "Despicable Me 4" from Universal and Illumination grossed $122 million in its domestic five-day debut.

"NATO's O'Leary stated that a Paramount that recognizes the importance of theatres in communities and globally will lead to more movie options for fans today and in the future. He added that they look forward to hearing more about the proposal and collaborating with all stakeholders to achieve the vital objective of more movies on the big screen."

Disclosure: Comcast is the parent company of NBCUniversal and CNBC.

— CNBC's Lillian Rizzo contributed to this report.