Warner-Paramount Deal Would Test Appetite for Streaming Consolidation
Merger of two debt-laden media giants would face several hurdles, but the industry’s drive for deals will only pick up
By Dan Gallagher
Heard on the Street
Wall Street Journal
Dec. 21, 2023 11:23 am ET
In the current Hollywood rumor mill, one thing remains certain: Streaming consolidation will be a lot easier said than done.
Warner Bros. Discovery combining with Paramount Global is the latest pitch. The Wall Street Journal and other media outlets reported late Wednesday that Warner Chief Executive David Zaslav met with Paramount Chief Bob Bakish earlier this week to discuss a possible deal. No formal talks are yet under way, and the news comes just a couple of weeks after reports that Paramount’s controlling shareholder, Shari Redstone, was talking about a potential deal with an investor group led by Skydance Media.
Paramount’s share price jumped 11% in the week after Puck News reported those talks, clearly putting the company in play. So it is little surprise that Zaslav—a consummate deal maker—is also kicking the tires.
Combining the owners of the Max and Paramount Plus streaming services also makes a certain amount of sense in a world where every streamer not named Netflix is losing money or owned by a tech giant ( Amazon and Apple) that can stomach the losses. Warner and Paramount combined have about 158 million subscribers, which exceeds those of Disney’s core streaming services and would come second only to the 247 million subscribers Netflix currently boasts.
But such a combination would bring together two companies under a mountain of debt—$61 billion combined as of the end of the third quarter. Meanwhile, the benefits from combining the scale and reach of two media titans would also likely draw the ire of regulators. Warner Bros. and Paramount would have accounted for 24% of this year’s domestic box office and 30% of last year’s, according to the movie industry tracking site The Numbers.
And there are the two companies’ respective TV empires, which include major production studios, a wide base of sports rights, popular cable channels ranging from HBO to Showtime to MTV as well as the CNN and CBS news operations. Analyst Robert Fishman of MoffettNathanson estimates that the two companies would account for about 35-40% of viewing time over so-called linear TV networks. This, he wrote in a note Thursday morning, would represent “a greater share than any single entity has controlled since the pre-cable network era and likely to be among the biggest sources of potential regulatory pushback.”
That pushback could take place no matter who is in office by the end of 2024. “We believe it would face very tough antitrust scrutiny from the Biden administration, including around increased content leverage over pay TV providers and writers/unions,” TD Cowen’s policy analyst Paul Gallant wrote in a note to clients Thursday. And his colleague Doug Creutz, the broker’s media analyst, noted separately that the Trump administration attempted to block the previous deal involving the former Time-Warner empire. “We also note that Warner’s news network CNN has been a verbal target of Trump in the past, and we would guess that he probably still holds a grudge,” Creutz wrote.
Hence, Wall Street is putting long odds on a Warner-Paramount combination. Warner’s stock price slid more than 5% Wednesday after Axios reported the talks, and the stock fell another 4% in early Thursday trading. Paramount’s share price also slipped about 1% Thursday morning.
That reaction is unlikely to cool deal speculation. Paramount is clearly looking to do something; Bernstein analyst Laurent Yoon called the company’s current position “untenable” in a report earlier this month, citing the shrinking cable-TV business, debt and a streaming business that is “subscale with limited new releases to drive engagement and scale.”
Warner also signaled during its third-quarter report last month that it might start looking to do more deals again, given its improving free cash flow. Michael Morris of Guggenheim thinks the lack of NFL rights is a major hole in Warner’s sports portfolio. In a report last month, he named Paramount and Fox Corp.as the most likely acquisition targets that could fill that gap. “No single content property drives U.S. consumer engagement like the NFL,” he wrote. Fox shares common ownership with the parent company of The Wall Street Journal.
Still, most analysts believe Warner is unlikely to do any deal before April 8. That is when the company would be free of any tax penalty that could arise from doing a major acquisition within the two-year window of the merger of WarnerMedia with Discovery. The cable TV market is only going to worsen between now and then, while the streaming and theatrical businesses could face pressure from a lower influx of new content because of the labor strikes that crippled production in Hollywood for much of this year. Those trends will likely raise the impetus for struggling media giants to make deals.
Investors should brace for some drama.
Write to Dan Gallagher at dan.gallagher@wsj.com
Warner-Paramount Deal Would Test Appetite for Streaming Consolidation - WSJ (archive.ph) |
