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Warner Bros Discovery and Paramount CEOs hold exploratory merger talks

A deal could combine CNN and CBS while letting the indebted media groups cut streaming costs

The deal would combine the owner of HBO and CNN with the studio behind the Mission Impossible films and CBS News.

Thu Dec 21 2023 - 07:48

Warner Bros Discovery and Paramount Global are in early talks to merge, in a media deal that would combine the owner of HBO and CNN with the studio behind the Mission Impossible films and CBS News.

Warner chief executive David Zaslav and Paramount chief Bob Bakish discussed a possible deal over lunch at Paramount’s offices in New York this week, according to three people familiar with the matter. The talks were at an early stage and a deal might not materialise, these people cautioned.

The conversation was more of an expression of interest by Zaslav than an offer, according to one of the people familiar with the meeting between the two executives. Billionaire Shari Redstone, who controls Paramount, has also held preliminary talks with Skydance, the production company behind Top Gun: Maverick, run by David Ellison.

The discussions with Warner Bros, first reported by Axios, come as US media groups are struggling to improve their profitability after waging a costly “streaming war” against Netflix. Big entertainment groups including Warner, Paramount and Disney have been on a cost-cutting mission as they try to shrink losses running into the billions of dollars from their video streaming services.

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Analysts have predicted a shake-out among smaller media companies that compete against much larger tech groups – including Netflix, Apple and Amazon – for a finite number of subscribers.

Warner owns the Max streaming service, which could be combined with Paramount Plus if a deal were to materialise. Max has about 95 million subscribers globally, while Paramount+ reported a total of 63 million subscribers at the end of the third quarter. Industry leader Netflix had 247 million subscribers as of October.

Warner and Paramount had stock market capitalisations of $28 billion and $10 billion respectively, as of Wednesday.

Both companies have significant debt loads, however. Warner’s net debt stood at $43 billion at the end of September, or 4.1 times its earnings before interest, tax, depreciation and amortisation, while Paramount had $14 billion in net debt, or 6.1 times its EBITDA, according to analysts at Bernstein.

They have large stables of cable television networks, which are losing subscribers due to “cord cutting” and are heavily exposed to a weak TV advertising market. Paramount also has the CBS broadcast TV network.

“Adding linear TV to linear TV is not fixing the problem,” said Rich Greenfield, an analyst at LightShed Partners. “They need to scale linear TV down dramatically, not get bigger in linear TV.”

Redstone has long said Paramount was not for sale. But Paramount’s board of directors recently approved “golden parachute” bonuses for Bakish and other senior executives, prompting speculation that she was open to offers.

Warner is limited in its ability to make a deal in the near term. The structure of the deal that created Warner Bros Discovery, which closed in April 2022, has a provision barring the company from doing another deal for two years. That period expires on April 8.

Warner shares shed 5.7 per cent to $11.66 on Wednesday. Those of Paramount fell 2 per cent to $15.50. – Copyright The Financial Times Limited 2023

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