5 Questions: Paramount and Warner Bros. Discovery Merger

And so it begins... Following Paramount's recent announcement that it's rebranding its Showtime linear channel, Adweek heard from ad industry experts that more consolidation is on the way. But no one was expecting an Axios report late Wednesday that Warner Bros. Discovery CEO David Zaslav and Paramount Global CEO Bob Bakish had met to discuss a possible merger. A deal between Warner Bros. Discovery and Paramount could have far-reaching implications throughout the media landscape, with Paramount's movie studio and CBS broadcast network potentially coming under the WBD umbrella, not to mention another major streaming rebrand on the horizon. The discussions are preliminary, so nothing may come from it. Warner Bros. Discovery and Paramount haven't commented on the situation. However, as various reports note, tax laws could allow Warner Bros. Discovery to forge a deal before the two-year anniversary of its 2022 merger, which it completed just ahead of the TV upfront. But would WBD, which has around $45 billion in debt, want to take on another $15 billion in debt from Paramount? With several assets hanging in the balance (and the balance sheets), industry insiders took on some of the biggest lingering questions. Warner Bros. Discovery Laments ‘Disappointing’ Linear TV Advertising Market What does this mean for the industry? Two of the five major studios merging will undoubtedly have ripple effects throughout media and entertainment, with each company receiving major benefits. "For WBD, this will be an incredibly valuable and complementary acquisition," Ruben Schreurs, Ebiquity's chief strategy officer, told Adweek. "Together, their content is incredibly vast and diverse, and they may start making more exclusivity plays that would impact the other streaming services currently licensing their content." Experts noted each company's assets, including WBD's studios and cable networks and Paramount's studios and broadcast network, even its Yellowstone franchise, could work well together. "Such unification would also bring together two massive content libraries and distribution networks that complement each other well: WBD’s international distribution footprint could be used to enhance the global reach of Paramount’s franchises," said Tony Marlow, CMO of LG Ad Solutions. "Conversely, Paramount's strong children's programming assets could bolster WBD's streaming ambitions." But wait. How big is too big? Though a Paramount acquisition is all the rage, the ink is barely dry on Warner Bros. Discovery's 2022 merger, which combined WarnerMedia—including Warner Bros., HBO, TNT, TBS, CNN, Cartoon Network and then-streamer HBO Max—with Discovery’s portfolio—Discovery, HGTV, TLC, ID, Food Network, OWN, Magnolia Network and Discovery+. So is there a ceiling on how many assets WBD could take on? According to experts, it's go big or go home. "The streaming wars is ultimately a fight for scale. Bigger, in this case, is better," said Mike Proulx, vp and research director at Forrester. "With fewer, bigger players in the market, users get more content with price efficiencies, and advertisers get mass audience scale with reach." So, is another streaming service on the way? Paramount+ With Showtime to the Max? Following news of the merger, social media networks were flooded with jokes that consumers could soon get a Frankenstein amalgamation of streaming services showcasing some combination of Paramount+, Showtime and Max. It's not out of the realm of possibility. "I would absolutely put my money on a relatively swift merger of streaming services (12-18 months post-completion)," Schreurs said. "Most logical move would be to merge into Max, but this could be a key part of the non-financial negotiations. WBD being two to three times the size of Paramount does not necessarily mean WBD will eat up everything." But just because there's a potential major streaming rebrand following a merger, doesn't mean the consolidation will slow down. "In a way, streaming is headed toward a Big Three moment akin to the networks of early TV," Proulx said. "The fragmentation that ensued is coalescing once again." What about other assets? A potential merger would have a huge impact on the industry's news services, with Paramount holding CBS News and WBD continually tweaking the formula at CNN. Plus, each company has various sports assets, including WBD's TNT being an NBA juggernaut and CBS holding rights to March Madness. "The potential merger of CBS News with CNN could create a news broadcasting powerhouse," Marlow said. "Similarly, combining CBS Sports with WBD's sports broadcasting assets could lead to a more comprehensive sports programming lineup." Meanwhile, what happens to other assets also remains to be seen. "What will happen to Miramax? Paramount owns 49% and beIN Media Group owns 51%," Schreurs said. "Miramax is one of Paramount’s most interesting content assets, but I would imagine a merged WBD/Paramount would pursue full ownership in case they manage to obtain regulatory approval." Finally... is this a good thing? Jeff Goldblum's Dr. Ian Malcolm in Jurassic Park put it best: "Your scientists were so preoccupied with whether or not they could, they didn’t stop to think if they should." Of course, Goldblum was referring to man-eating dinosaurs at the time, but the world of corporate synergy is apparently not dissimilar. How Paramount+ Hit 63 Million Subscribers and Increased Revenue 61% "Whenever media conglomerates consider gobbling up assets to become even bigger, their executives tout synergistic benefits that will result from the deal," said Ross Benes, an analyst at Insider Intelligence. "Media executives with compensation tied to stock and buyouts like these big deals, but in the end, customers and company employees end up worse off." Benes noted that a Paramount and WBD merger would likely result in "increased layoffs, conflicting branding, confused customers and a giant company so beleaguered by debt that it’d stand little chance to thrive." Of course, Warner Bros. Discovery has already made headlines for shelving numerous creative projects and removing content from its streamers in the name of tax incentives, so the creative community (and Batgirl fans) haven't been thrilled with the news on social media. Though WBD could potentially take advantage of other tax incentives with the deal, when all is said and the clandestine lunch meeting merger talk is done, the timing might not be right. "Given the declining prospects of traditional TV, investors should proceed with caution before they cheer on this merger, which would saddle the combined entity with albatross-levels of TV assets," Benes said. "It’s also risky to push a deal of this size during a presidential election year when antitrust legislation is making a comeback."

TV Upfronts

5 Questions Everyone Has About a Paramount-WBD Merger

Adweek asked industry experts everything you need to know about the potential deal

Bill Bradley

About

Subscriptions

Events

Publications

WORK SMARTER - LEARN, GROW AND BE INSPIRED.

Subscribe today!

Bill Bradley