5 reasons Warner Bros Discovery and Paramount are discussing merger

Warner Bros Discovery and Paramount Global are in early talks about a potential merger. But why?

An Axios report on 20 December 2023 revealed that Warner Bros Discovery (WBD) chief executive David Zaslav and Paramount chief executive Bob Bakish had met at Paramount’s New York headquarters to discuss a merger and Zaslav has also spoken to Shari Redstone, who owns Paramount’s parent company, National Amusements.

Share prices in WBD and Paramount dropped as the news broke, with Wall Street and TV analysts citing concerns such as competition and both companies’ high debt burden.

Any merger would “not be of equals” given WBD’s valuation of $29bn and Paramount’s at just over $10bn. So what would be the benefits of merging?

Intellectual property

WBD and Paramount both have a huge library of intellectual property in television and film.

Not only that, but there are news and sports offerings to consider. CBS News could potentially be combined with CNN to create a more global news outlet, while CBS Sports’ footprint could be combined with that of WBD.

Distribution and audience

In the Axios report, it said WBD could use its international distribution to “boost” Paramount’s franchises and Paramount’s children programmes could be “essential” to WBD’s long-term streaming ambitions.

However, some analysts were concerned about potential “cannibalisation” of audiences if the two players were to merge.

Streaming wars heating up

Both companies have streaming services. If Max and Paramount+ merged, it could better rival Netflix or Disney+.

Furthermore, Amazon is entering the advertising-funded video-on-demand (AVOD) space this year, automatically opting in its 200 million Prime users globally to its new ad tier.

Rita Ferro, president of global advertising at Disney, told delegates at the Future of TV Advertising Global 2023 to expect consolidation of streaming services “pretty aggressively” in the next 12-24 months.

Deleveraging

Both companies have significant debt; WBD has around $43bn and Paramount in the region of $16bn.

Needham senior entertainment and internet analyst Laura Martin told Bloomberg Technology that both companies could “deleverage”, meaning reducing debts by selling “much faster together” than either could do alone.

“We think these two companies are worth more than the sum of their parts,” she said.

Who else could buy Paramount?

Another factor to consider is regulation and scale.

Martin explained that, due to competition concerns, Amazon and Apple would not be allowed to buy Paramount, while Disney and Comcast would not be permitted either since they both own a broadcaster (ABC and NBC respectively).

“The number of people that are big enough and could buy Paramount including CBS are limited to Warner Bros,” Martin explained. “It’s sort of the only bidder.”