OP-ED: The Sale of Warner Bros. and the Future of Hollywood

The media frenzy over Paramount’s hostile takeover bid for Warner Bros. is in full swing and an article in Variety magazine captured a brilliant idea from Evan Goldberg, Executive Producer of the Emmy award-winning comedy The Studio. “I think AMC [the world’s largest exhibition chain] should buy it… I don’t know how, but they should.”  Yes, movie theaters are the only ones that should buy Warner Bros. Here’s how they can do it.

With the termination of the Paramount Consent Decrees in 2020, it’s now legal for a studio and movie theater to be owned by the same entity. Sony Pictures acquired Alamo Drafthouse Cinemas in 2024 while Netflix owns movie theaters in Los Angeles and New York. Vertically integrating a content production engine like Warner Bros. with the direct-to-consumer distribution mechanism of movie theaters would enable total revenue capture on ticket sales and concessions and give movie theaters more control over the theatrical window. 

Although the market capitalization of most movie theater chains is much less than the current valuation of Warner Bros., an Exhibitor Cooperative (i.e., a membership-based entity that includes a large chain, mid-sized regional and independent theaters) could ensure longevity and fidelity to its mission, without being monopolistic, by organizing as a for-profit social purpose corporation (SPC). This legal structure ensures that its statutory mission to revitalize the entertainment industry (through the stable provision of theatrical releases and job creation) legally supersedes the fiduciary duty of short-term profit maximization.

The Exhibitor Cooperative could then propose a leveraged buyout of Warner Bros. and carve out the actual content engine (e.g., the name, facilities, creative departments including marketing and publicity, and its development slates), leaving behind the legacy library and the 30+ Billion dollars of corporate debt tied to its cable networks and streaming division, which Paramount and Netflix can fight over. Using this strategy, the debt raised for the acquisition would be significantly smaller and backed primarily by the Exhibitor Cooperative’s unique ability to guarantee distribution – the single biggest risk factor in filmmaking.

Explicitly positioning this new Warner Bros. as a theatrical first original film studio would be attractive to auteur and emerging filmmakers. However, to truly break the old, costly studio paradigm, the Exhibitor Cooperative would adjust the financial equation for its member theaters. Instead of the usual 50/50 box office split, the Co-op will institute a 70/30 split in favor of theaters, maximizing their immediate cash flow and providing substantial incentive to market the films aggressively. This financial maneuver is the foundation of the core creative strategy.

The Exhibitor Cooperative can afford to take only a 30% variable share because it is not betting on big production budgets and star power. It’s relying on the creativity and authenticity of the story, the quality of talent and the cultural currency of the writer and director -- the original pillars of filmmaking.  The Studio’s true long-term value lies in the Content Licensing Fees paid by member theaters (modeled after the Public Broadcasting System and scaled by market size/screen count) and Secondary Market Residuals (streaming, VOD, foreign sales), which is an ownership stake that can be paid back to member theaters.

To keep budgets under control and to produce a robust slate, the Exhibitor Cooperative can choose value and volume (i.e., producing ten $15 million films) rather than one $150M tentpole or passion projects with no clear audience. This slate will consist of films in the range of $5M (designed to find new voices) up to $50M, and focus on highly commercial genres (i.e., taut thrillers, steamy romances, elevated horror, faith-based, and niche action). To work with auteur directors and leverage their name recognition, the Exhibitor Cooperative can offer profit sharing Executive Producing deals, in which well-known filmmakers serve as Mentors to emerging directors, and continue to develop the talent pipeline. The Exhibitor Cooperative will build highly valued long-term creative relationships that will grow as the new studio becomes more successful.

As for the best long-term financial partner, the solution may lie in Pension Funds. Although, Pension Funds are more apt to invest in infrastructure projects, the Exhibitor Cooperative’s purchase of Warner Bros. could be considered, “infrastructure for the entertainment industry” – world class production facilities in the entertainment capital combined with thousands of physical theaters across the country. While the legacy library is gone, the Exhibitor Cooperative will create a valuable new library of non-encumbered IP, which is the annuity a Pension Fund requires. Lastly, as a social purpose corporation, the Exhibitor Cooperative offers the Pension Fund a unique narrative for today's climate of ethical alignment “Americans investing in America.”

The Warner Bros. sale is an opportunity to completely rethink our business from the ground up. The Exhibitor Cooperative model offers the industry a reliable new buyer and a clear path to financial stability, by creating a studio that is dedicated to theatrical releases, fueled by emerging talent and backed by American pensions. This is the catalyst we need to bring prosperity back to Hollywood.

Innovation is welcome! I would love to hear your thoughts on the future of the industry.

Looking forward...

Sasheen