Yahoo News How a mega-merger could soon shake up the media industry
How a mega-merger could soon shake up the media industry
In a global entertainment marketplace dominated by giants such as Disney and Netflix, smaller streamers just can't compete.
Take Paramount Plus. It's got the "Frasier" reboot, all the "Yellowstone" spinoffs, "60 Minutes" and enough backlogged seasons of "Survivor" to sustain you through a long stay on a deserted island.
Or Max, which has CNN programming, "Friends," "The Sopranos" and "The White Lotus," not to mention both Guy Fieri and the Property Brothers.
Yet in an era when more consumers than ever before are shunning movie theaters in favor of home entertainment options while also cutting off their cable subscriptions, neither streamer is thriving financially.
That's why their parent companies - already two of the biggest players in media - are considering joining forces, in hopes that their combined offerings and audience share can keep them competitive in the streaming era.
This week, Paramount held preliminary talks about a possible merger with Warner Bros. Discovery, itself the product of last year's merger between CNN parent company WarnerMedia and lifestyle channel megalith Discovery Inc., according to a person with knowledge of the situation who spoke on the condition of anonymity because they were not authorized to comment - and who cautioned that discussions were in a very early stage.
Industry analysts say the deal, if consummated, would allow both entities to better compete against Netflix and Disney, both of which boast far more paid subscribers to their streaming services. (Amazon also has a large number of subscribers for its Prime service, which includes digital video as well as shopping.)
"There's need for consolidation for both companies," said Dave Heger, a financial analyst for Edward Jones. "It certainly would at least put them more in the ballpark of the other big players in the industry."
Industry analyst Brad Adgate said that it would make sense to combine WBD's money-losing Max with the money-losing Paramount Plus, reducing costs and potentially increasing profitability.
That's particularly important because traditional television channels are increasingly losing viewers who are canceling their cable packages and instead turning to streaming channels and free content online. And, as viewers cut the cord, cable companies are less willing to pay big bucks to television companies for their content, putting at risk one of the media industry's most reliable sources of funding.
By packaging brands like HBO, TBS and Cartoon Network, the combined company would have more leverage to demand higher fees from distributors like DirecTV and Comcast. It would also have a larger total audience to sell to advertisers, a key piece of the revenue pie.
Increasingly, cord-cutting customers are having to subscribe to multiple streamers to be able to watch all the shows they want. For consumers, media mergers might mean fewer services they need to subscribe to, which could reduce prices while providing more programming options, said Mike Proulx, a research director for market research firm Forrester.
"There are almost too many options at this point for consumers to try to take a fixed budget and spread it over all the different streaming services that exist," he added.
The deal could also have major implications for CBS News, owned by Paramount, and CNN - opening the possibility of a merger. Such a merger would offer substantial opportunities for cost savings on reporting and infrastructure, industry observers said, even though the two would probably continue to live under separate brands. They two have a history: In the late 1990s, CNN and CBS News discussed a joint venture, but the plan ultimately did not come to fruition. There's also some overlap already; CNN anchor Anderson Cooper, for example, is a correspondent for the CBS's "60 Minutes," and CBS anchor Gayle King now hosts a weekly show for CNN.
"Combining the resources of CBS News with CNN would be helpful," Adgate said. "Both news outlets currently rank third in [total] viewing, so there is room for improvement."
The merger would also bring together two of Hollywood's legacy movie studios, Warner Bros. and Paramount, creating a massive catalogue of entertainment programming in the process.
But both companies are saddled with billions of dollars of debt. Warner Bros. Discovery owes $45.3 billion because of last year's merger, while Paramount owes $15 billion.
"You're looking at combining two indebted companies that are not necessarily going have real strong balance sheets right off the bat," Heger said. Both companies have seen their stock prices decline since Axios first reported that a deal was in discussion. (The companies have not commented publicly on the news.)
There are also still hurdles to the deal, such as government approval of the deal. But Adgate guessed that the deal would have a good chance of being approved by the Federal Trade Commission and Justice Department because Warner Bros. Discovery does not have a broadcast television network that would trigger antitrust concerns.
A complicating factor could arise if Donald Trump is elected president. He inveighed against approving AT&T's acquisition of Time Warner in the fall of 2016 and, as a harsh critic of CNN, could protest any future transaction by the network's parent company.
Jeff Zucker, who led CNN at the time, said in 2019 that a Justice Department review of the deal "came from the president." The merger was eventually approved, though AT&T would ultimately spin off the company in combination with Discovery.
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