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Every year around this time we begin to see story upon story “predicting” what the new year may bring in various fields. One of the more popular is in the world of media where there is no shortage of juicy rumors just begging for coverage. However, this year before half those prediction pieces even go online, the fine folks at Paramount (NASDAQ:PARA) and Warner Bros. Discovery (NASDAQ:WBD) have added a shiny new nugget right to the top of the list… a potential merger.
There’s a lot to unpack here and even more that seems simply unbelievable but tis’ the season so let’s dive in.
First as always, some background.
A lot of readers may know the story about how WBD came to be – at its simplest form, AT&T had previously acquired Warner Bros. and to say it didn’t go well would be an understatement. Eventually AT&T decided to throw in the towel and spun off Warner Bros. into a new company that merged with Discovery, whose head David Zaslav would go on to run the combined companies.
Zaslav’s run has been marked with ups and down, largely due to his penchant for cutting costs and utilizing financial/tax loopholes. Where he has often run afoul of Hollywood was in many cases those cuts were made to projects ALREADY completed… meaning everybody’s hard work was effectively for nothing.
That did not go over well.
Still the understanding was it was early in the company’s lifecycle and the company’s books were worse off than anybody expected – so hard decisions had to be made. Granted you can tell patience was running thin with investors and the entertainment industry as a whole (many of whom were still upset over the whole “2021 Great Streaming Experiment.”)
The story with Paramount though is less about a company trying to unload an asset and more about the lead shareholders forcing a deal to fruition… again.
You can see more here, but really this started a while ago and it really picked up in 2005 when Viacom split its company apart – with CBS going in one direction and Paramount going the other. Basically one side got broadcast and the other got cable/theatrical with a few outliers in the mix.
This continued for years until Viacom’s Shari Redstone, who famously had a falling out with her father Sumner, returned to the fold and became the main decision maker. Sumner, who for decades oversaw the company, was in declining health and Shari eventually took the helm and floated the idea of the companies reuniting.
This was 2016 and the issue was then CBS CEO Les Moonves was famously against the deal. Ultimately, when his terms weren’t met, Redstone had little choice and backed down. That was until 2019 when the “Me To” movement was in full force and Moonves was forced to step down to due to his questionable past.
The door was open – Shari walked through it.
It didn’t take long for the two companies to again be one and here we are today.
And that’s the short version.
So you have a company in WBD that has made no secret it wants to eventually buy up more rivals and a company like Paramount that has not-so-subtly had an unspoken “for sale” sign in place for a while.
And yet this wasn’t the expected combination.
Many were enamored with the idea of Paramount linking up with Comcast – but while it sounded realistic, it is not. Remember Paramount now has CBS under its umbrella and Comcast (NASDAQ:CMCSA) has NBC… in no scenario ever would the government allow two of the big three broadcasters to be owned by the same company.
It would literally be the definition of a monopoly.
So, the solution would be that Paramount sells CBS and that clears a major roadblock – never mind the fact that this would essentially UNDO the last four years’ worth of work to unite the various brands. It would be like 2019 never happened – except a ton of people would have still had their jobs.
This new pairing of Paramount and WBD has less red flags because all of WBD’s TV assets are cable/streaming-centric. That said, the question still remains would the Biden administration or potentially the next one really allow this type of mega-merger to go through because of the giant it would create?
The opinions are split, but personally seeing how much pearl-clutching went on when Amazon bought MGM and Microsoft purchased Activision, I’m not convinced anything can really be a done deal. Amazon buying MGM and Microsoft adding Activision were clear examples of a big company buying a smaller one – here that would not be the case.
This is more like what Disney did when it bought a large amount of FOX’s assets – except it has the potential to cause a wider impact to the field. And that deal only went through because Disney agreed to sell off FOX’s 22 regional sports outlets… so again nothing is as clean and easy as it may seem even if a deal goes through.
Comcast fought the Disney deal every step of the way because it was also making a play for the company but ultimately lost. It is not that different here where multiple suitors are also reportedly in play which could further muddy the waters.
All of this is to say just because Paramount’s Bob Bakish and WBD’s Zaslav met in person to discuss a merger does not mean we are going to get one.
Let’s also be clear – if these two wanted to meet to discuss a merger and keep it a secret, it would still be a secret. This was purposefully put out to the media so reporters could go to town with stories. Whether that was to manipulate a sale price or to send a message to a rival that was dragging its feet, we are only in round one of what could be one of the biggest title-fights we’ve seen in years.
The main takeaway for investors is settle in, this is not going to be an overnight deal. WBD can’t even legally move on anything until April because of rules put in place when WB and Discovery merged. On top of that Skydance Media and RedBird Capital Partners are reportedly linked to Paramount and there are expectations Comcast will again come out of the woodwork and try to play a new version of Let’s Make A Deal.
It is expected that 2024 will see another big mega-merger, but the players involved are still a long way from being determined. There are multiple internal and external factors here and that doesn’t touch on the regulatory ones. On top of that there are others who believe mergers are not the answer at all – which I tend to agree with.
Part of the thought there is that combining companies sounds like a catch-all but it doesn’t solve any of the root problems. One of which being that today’s content isn’t nearly as solid as it used to be and consumers are lot more careful about how they spend their money.
And we know good content still exists – we saw it this summer with Barbie and Oppenheimer – the first of which JUST came to streaming last week. WB didn’t rush it to Max as it would have previously and Comcast’s Universal still hasn’t said when Oppenheimer is coming to Peacock. That’s because Universal made a deal with director Christopher Nolan that they would delay it as along as possible to protect the theatrical experience – which is part of the reason why Nolan left his long-time home of WB.
Hollywood is a small town and everything really is connected. The trick is being able to decipher the real from the illusion and that line is getting more and more blurred.
Expect that to continue in 2024 and that’s less of a prediction, more a fact.
