Warner and Paramount CEOs discussed possible merger of companies

Executives broached the idea of a deal in a meeting this week; no formal talks under way between media giants.

Warner Bros. Discovery CEO David Zaslav met Paramount CEO Bob Bakish this week and discussed a possible merger. Picture: Mario Tama/Getty Images

Warner Bros. Discovery chief executive David Zaslav met Paramount CEO Bob Bakish this week and discussed a possible merger between the media giants, people familiar with the matter said, a deal that would unite some of Hollywood and cable’s biggest brands.

The executives broached the idea of a deal, but no formal talks between the companies are under way.

Warner owns its namesake studio, cable networks like CNN, TNT, HBO and HGTV, and a streaming service, Max, that features much of that content. Paramount has its own major studio and bouquet of cable channels like MTV, Nickelodeon and Comedy Central, as well as the CBS broadcast network and the Paramount+ streaming service.

Inside Warner, Zaslav has made no secret of his interest in exploring a deal with Paramount, which could add more programming to the Max service and bring in major NFL sports rights. A deal between Paramount and Warner could face significant regulatory challenges.

Warner’s interest comes as Paramount Global parent National Amusements has been exploring a sale and has had discussions with Skydance Media and investor RedBird Capital.

The talks between Warner and Paramount’s executives were earlier reported by Axios.

Warner Bros. Discovery stock closed down 5.7 per cent at $US11.66 ($17.28) a share Wednesday, and fell 1.4 per cent in after-hours trading following the Axios report. Paramount stock closed down 2 per cent at $US15.50 and fell nearly 1 per cent in after-hours trading.

The media and entertainment industry has been through several waves of consolidation in the past decade, with Warner and Paramount each participating in some of the biggest mergers. For years, CEOs in the industry have talked about the need for scale. They wanted to be big enough to demand high fees for carriage of their channels on cable systems and, more recently, big enough to create streaming services that could compete with Netflix.

But some executives say even more consolidation is necessary to simplify a streaming ecosystem where consumers have too many options—making it hard for streaming companies to find and hold on to customers. To turn profits, streaming companies have been raising prices. Paramount+ would likely be shut down as a stand-alone service and merged into Max if a deal were reached between the companies.

An acquisition of some or all of Paramount could be a challenge for Zaslav. Warner Bros. Discovery still has a significant debt load, stemming largely from the massive 2021 merger between Discovery and WarnerMedia.

Warner’s stock has since floundered, and the company has laid off thousands over the past 18 months and killed several high-profile TV and movie projects to save money. The Max service is still trying to establish itself, and Warner’s core cable networks, including TNT and CNN, are dealing with rating declines and a soft advertising market.

Paramount’s cable networks hold little appeal to Zaslav, according to a person familiar with his thinking. Cable networks have lost value as consumers have migrated to streaming services and cut the cord to their pay-television services.

For Zaslav, pursuing another big deal is in keeping with his strategy of growth through acquisitions. After taking the helm of Discovery nearly 20 years ago, he began gobbling up companies and restructuring them to save on costs, including through layoffs. The overlapping businesses of Paramount and Warner Bros. Discovery would probably lead to major cost savings and a dramatic reduction in staff.

The Warner CEO said on a November earnings call that the company could be on the hunt for deals soon. “We could be really opportunistic over the next 12 to 24 months,” Zaslav said.

The regulatory environment for mergers and acquisitions has been tough under the Biden administration. The combination of two large movie studios and the Max and Paramount+ streaming services would likely face scrutiny from antitrust enforcers.

“We have a very hard time believing the current FTC/DOJ, which has been very aggressive in combating industry consolidation, would give this deal a pass,” TD Cowen analyst Doug Creutz said in a research note that threw cold water on the prospects for a deal.

Disney acquired Fox entertainment assets in 2019—a transaction that also united two major studios under one roof—but that deal happened under a more deal-friendly Trump administration.

Shari Redstone, whose family’s company, National Amusements, is the controlling shareholder of Paramount, is willing to give up control if there is an offer that is a good deal for shareholders, according to people familiar with the situation. Redstone has had discussions with Skydance CEO David Ellison about a potential deal.

Redstone took control of the media empire built by her father, Sumner Redstone, after a yearslong power struggle. On her watch, Viacom and CBS merged to become Paramount in 2019. Since then, Paramount’s stock has dropped more than 60 per cent as the entertainment company was hit hard by cable TV’s decline. Its streaming business is growing quickly but not yet generating profits, like much of the industry.

To raise money, Paramount has sold off some noncore assets, such as its publishing arm, Simon & Schuster, which was unloaded to KKR for $US1.62bn earlier this year. Paramount has declined offers for other assets, including a $US3bn offer for Showtime in 2021.

Two of Paramount’s big distribution deals—for carriage of its TV channels on cable systems—are coming up for renewal. Comcast’s deal with Paramount is up at the end of this month, while its agreement with Charter Communications is set to end in the spring of 2024. Renewing those deals is critical for Paramount to continue to have its TV networks beamed into households across the US.

The Wall Street Journal