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The backstory: It's no secret that traditional cable TV has lost its spark and the streaming revolution is in full swing. In 2022, AT&T's WarnerMedia and Discovery merged to create a powerhouse in media – what we now know as Warner Bros. Discovery, a blend of media channels and legendary franchises like “Batman” and “Harry Potter.” Meanwhile, Paramount Global, known for the “Mission Impossible” films and CBS News, grappled with US$15.6 billion debt from its streaming endeavors.
In the world of streaming, Netflix has the lead. To break it down, Netflix holds a dominant position with around 247 million subscribers. Lower in the list is Paramount+ with a little over 63 million subscribers, while Warner Bros Discovery stood at 95 million as of November 2023.
More recently: Last month, Warner Bros. Discovery CEO David Zaslav and board member John Malone hinted that the company was preparing to make big purchases in the next one to two years. While regulators aren’t too keen on dominant media companies merging, there are expected exceptions for bigger media giants scooping up smaller, struggling businesses. Lately, there are more of those since the streaming and advertising markets have been in a bit of a slump. Warner Bros. Discovery market valuation recently fell below US$23 billion, its lowest since the big merger last year. It ended the third quarter with about US$43 billion in net debt.
The development: Recent reports have hinted at potential talks between Warner Bros. Discovery and Paramount Global regarding a merger. If it happened, this deal would combine Warner Bros. Discovery's HBO and CNN with Paramount’s franchises, CBS News network and other channels. It would also bring together two of the “Big Five” studios in Hollywood. Their combined estimated market value would be around US$38 billion.
CEO Zaslav from Warner and President and CEO Bob Bakish from Paramount chatted about merging over lunch in New York, according to Axios. They reportedly talked about how joining their main streaming services, Paramount+ and Max (formerly HBO Max) could help them better compete with Netflix and Disney+. Paramount is feeling the heat to find a buyer or partner because of its growing debt, and both Warner and Paramount need to trim costs to minimize the losses coming from their streaming investments. But, the talks are said to be very early stage, so the deal may not even happen, although rumor has it that Warner has hired bankers to explore the option.
“We’re surrounded by a lot of companies that are – don’t have the geographic diversity that we have, aren’t generating real free cash flow, have debt that are presenting issues,” said Warner Bros. Discovery CEO David Zaslav last month. “We’re de-levering at a time when our peers are levering up, at a time when our peers are unstable and there is a lot of excess competitive – excess players in the market. So, this will give us a chance not only to fight to grow in the next year but to have the kind of balance sheet and the kind of stability ... that we could be really opportunistic over the next 12 to 24 months.”
“I think we’re going to see very serious distress in our industry,” said Warner Bros. Discovery board member John Malone. “There is an exemption to the antitrust laws on a failing business. At some point of distress, right, then some of the restrictions, they look the other way.”
“When it comes to M&A, we’re always open-minded, and we look at potential opportunities through the lens of really how we can maximize shareholder value,” Paramount President and CEO Bob Bakish said on the company’s third-quarter earnings call on November 2.
"It's the one to watch," said Zaslav in April, referring to Max’s tagline, "because we have so many of the world's iconic and globally recognized franchises. It's our superpower."