WBD could have 2nd most streaming subscribers if reported meeting leads to deal.
The CEOs of Warner Bros. Discovery (WBD) and Paramount Global discussed a potential merger on Tuesday, according to a report from Axios citing “multiple” anonymous sources. No formal talks are underway yet, according to The Wall Street Journal. But the discussions look like the start of consolidation discussions for the media industry during a tumultuous time of forced evolution.
On Wednesday, Axios reported that WBD head David Zaslav and Paramount head Bob Bakish met in Paramount’s New York City headquarters for “several hours.”
Zaslav and Shari Redstone, owner of Paramount’s parent company National Amusements Inc (NAI), have also spoken, Axios claimed.
One of the publication’s sources said a WBD acquisition of NAI, rather than only Paramount Global, is possible.
Talks to unite the likes of Paramount’s film studio, Paramount+ streaming service, and TV networks (including CBS, BET, Nickelodeon, and Showtime) with WBD’s Max streaming service, CNN, Cinemax, and DC Comics properties are reportedly just talks, but Axios said WBD “hired bankers to explore the deal.”Advertisement
It’s worth noting that WBD will suffer a big tax hit if it engages in merger and acquisition activity before April 8 due to a tax formality related to Discovery’s merger with WarnerMedia (which formed Warner Bros. Discovery) in 2022.
A union of debts
Besides the reported talks being in very early stages, there are reasons to be skeptical about a WBD and Paramount merger. The biggest one? Debt.
The New York Times notes that WBD has $40 billion in debt and $5 billion in free cash flow. Paramount, meanwhile, has $15 billion in debt and a negative cash flow. Zaslav has grown infamous for slashing titles and even enacting layoffs to save costs. But WBD is eyeing greener pastures and declared Max as “getting slightly profitable” in October. Adding more debt to WBD’s plate could be viewed as a step backward.
Additionally, Paramount is even more connected to old, flailing forms of media than WBD, as noted by The Information, which pointed to two-thirds of Paramount’s revenue coming from traditional TV networks.
Antitrust concerns could also impact such a deal.
WBD stocks closed down 5.7 percent, and Paramount’s closed down 2 percent after Axios’ report broke.
Of course, these details about a potential merger may have been reported because WBD and/or Paramount want us to know about it so that they can gauge market reaction and/or entice other media companies to discuss potential deals.
Benefits of a potential merger
Neither company has confirmed Axios’ report, but an era of consolidation seems likely. Media companies are struggling with declining advertising revenue and customers for traditional forms of media, like cable, and finding profitability and growth with streaming services.
Both WBD and Paramount have said they are open to merger discussions. During WBD’s Q2 2023 earnings call in November, Zaslav noted an openness to acquisitions over the next one to two years and pointed to a lot of “excess players in the market,” as per a Seeking Alpha transcript.
Redstone, meanwhile, had already met with Skydance to discuss selling a controlling stake in NAI, according to a December 10 report from The New York Times.
A merger would help bolster WBD’s streaming portfolio into something more competitive, subscriber count-wise. As calculated by TheWrap, Max, which was created out of a mash-up of HBO Max and Discovery+, would become the second biggest streaming company by subscriber count if it added Paramount+. With Max and Discovery+, WBD has 95.1 million subscribers; with Paramount+, it would have about 158.1 million. King Netflix last reported 247.15 million subscribers.
“[A merger] makes sense for Paramount and probably a little less so for Warner Brothers Discovery, but if [WBD’s] angle is to try to avoid being prey to Comcast or anybody else, it’s probably the best deal for them,” Neil Begley, a debt analyst for risk assessment firm Moody’s, told TheWrap.
With WBD and Paramount’s media portfolios under one umbrella, the unified company could offer a more tantalizing package to cable companies. However, an Axios source “familiar with [Zaslav’s] thinking” said that Paramount’s cable networks “hold little appeal.”Advertisement
Media merger and acquisition talks expected to heat up in 2024
As media companies grapple with their changing landscape and customer and advertiser expectations, 2024 is poised to be a year where mergers and acquisitions are explored as a way to try to build stronger businesses. Even if the WBD and Paramount discussions don’t end in a deal, they indicate what could occur over the coming months.
Media companies with streaming apps are struggling to maintain customers, who suddenly have many options for their monthly streaming dollars. Merging could bring streaming services more content, offering opportunities to bundle services and attempt to offer more value amid rising subscription prices.
Still, the union of media companies could negatively affect viewers, too. Fewer streaming services mean fewer customer options, which could lead to higher pricing.
Media conglomerates also have varying ways of dealing with economic challenges. WBD, for example, has developed a reputation for slashing long beloved content from its streaming platforms and canning virtually completed films before viewers could enjoy them in favor of cost savings and tax write-offs.
A WBD-Paramount merger, for example, would put titles like Star Trek: Strange New Worlds, Picard, Yellowjackets, and Billions under the cutthroat control of Zaslav’s WBD.
There are also reports that the WBD-Paramount talks could encourage discussions between Comcast (which owns NBCUniversal) and WBD, with some suggesting Comcast could spin off and merge NBCUniversal with WBD. Comcast is close to selling its stake in Hulu to Disney in 2024, which could give it flexibility. Other merger and acquisition talks are also fluttering, including Byron Allen trying to buy Paramount Global’s BET Media Group.
As various media companies look to stabilize their place in an uncertain future, expect more M&A discussions to occur in 2024.
