Welcome (Possibly) A New Multimedia Empire/Overlord: Warner Bros. Discovery In Early Talks To Merge With Paramount

As first reported by Axios, Warner Bros. Discovery CEO David Zaslav had lunch with Paramount Global CEO Bob Bakish and the topic at the heart of their lunch is the viability of the two companies merging. Multiple sources told Axios that the talks went on for several hours and the meal took place at Paramount's HQ in Times Square. Reportedly, one of the topics involved a merger or at least strategic partnership between Paramount+ and Max in hopes of creating a streaming platform that better rivaled Disney+ and Netflix. Axios reports that Warner Bros. Discover (i.e., WBD) has hired its banking team to explore the financials of the deal and that it is not clear if WBD is interested in just Paramount Global or its parent company National Amusements. That said, they did say in regards to the latter of those two points that a source tells them that "both options are on the table."

While the talks are definitely in the early phases and not at all guaranteed to result in another monolithic media empire, it does seem like both parties are willing to move forward. That said, The New York Times raised a handful of reasons why a merger might not transpire or happen. First, Warner Bros. Discovery has $40 billion in debt and only about $5 billion in positive free cash flow, the money a company has after deducting capital expenditures from its cash flow and often distributes to creditors and securities holders. Paramount, on the other hand, has been consistently reporting a negative cash flow and has a gross debt of $15 billion. If these two merged, they would create an empire founded on a mountain of debt and would likely trigger massive spin-offs and sell-offs to lower that debt burden.

Also, it is unlikely this deal will happen any time soon as WBD is under a Reverse Morris Trust lock-up until April 8th 2024 due to WarnerMedia's spin-off of AT&T into a separate company. Until that date, any attempted mergers or acquisitions would incur massive fees and taxes through the IRS. This is also ignoring the fact that the FTC under the Biden administration and under the leadership of Lina M. Khan has taken a much more aggressive stance on what it defines as an anti-trust violation.

Finally, while Disney fans love to complain about Robert Iger, David Zaslav actually seems like the true worst CEO in entertainment. Lest we not forget that he said cancelling films and scrapping television and movie projects to get tax write-offs "took courage" on his part. He also credits himself as being a figurehead in ending the Writer's Strike and his interview on the matter included these tidbits:

“The writers, the actors, were saying, ‘look at this guy, he’s getting paid tens of millions of dollars a year and we’re over here.’ How do you deal with that personally? And how do you think about that?” asked Sorkin.

“My focus was we need to settle this strike. This is really hurting people. Every day that we were on strike, that people weren’t working was a bad day,” replied Zaslav.

“I did fight, and Bob Iger. There was a bunch of us” trying to end it, he added of the strikes.

Zaslav was compensated in 2021 with $247 million worth of stock options. His compensation package in 2022 was $39 million.

...if WBD wanted something that could compete with Netflix or Disney+, couldn't they just, I dunno, utilize their existing treasure trove of properties they own instead of killing off everything or licensing it to Netflix? I mean, I'm happy Batman: TAS is available somewhere, and at a service that seems to mandate proper subtitles even (so Netflix, Max sucks in this regard), but how about putting that shit on the service you own!?

Zaslav continues to be the dumbest guy in entertainment, and that's a ridiculously high bar!

@cozmicaztaway: Right? What a concept!

These stories are annoying as shit, if only because anyone even half awake saw this coming. It's ABSURD that there are so many streaming services in general, but it's even crazier that so many of them are so bad. Anyway, this is going to end in having 3 major streaming services and we are going to be right back in Cable TV hell, at best; a la carte hell where you pay per viewing at worst.

This merger is bad for consumers and would probably be bad for the companies involved. One big problem here is that WBD is so big that it would need a mega company to buy it to bail it out from the debt it took on in its original stupid merger. A bunch of financially unhealthy companies merging with one another is not going fix things. You'd need like an Apple or an Amazon to step in and buy WBD to solve its debt woes. Or if it were just managed better and spent time digging itself out from debt, but that's not how Wall Street works.

Streaming services run into issues that cable never had. One big one is that it's hard to lock people in and impossible to get the monopolies the cable companies relied on. People forget that a big reason cable got so expensive is that in most cities you only had a couple choices if not just 1. Cable costs infrastructure money to provide and often got sweetheart deals from the local government. Streaming doesn't have that. We can all just cancel services whenever we don't want them and service hop. They're never going to be able to extract the same levels of rents.

That means streaming services have to provide value for money and a lot don't. You could probably be fine just watching Amazon Prime stuff if you're a Prime member and you can add a channel here or another service there but nobody needs them all at the same time because who has time to watch all that? And raising the prices will just make it worse.

This situation is not sustainable. And merging Paramount and WBD will just make it worse. Spin offs and sales would actually probable improve things. More, smaller, more agile media companies licensing stuff to the larger streamers is the structure that probably makes the most sense (much like how the video game industry operates with platform holders) but nobody wants to be the smaller fish so everyone's eating one another.

100%. The most frustrating thing about all of this is that a decade ago analysts were warning of this exact situation happening when all of the big media companies were openly pondering making their own streaming services. They warned that every media company making their own streaming service would oversaturate the market and probably fail for the majority of them.

But as always, hubris knows no bounds. A bunch of media companies saw how much revenue Netflix was bringing in and went "I bet we can out-Netflix Netflix". It didn't work in most cases. They forgot that they need to provide a reason for people to subscribe and that can cost a lot of money.

Had they instead done the safe and easy thing of inking content licensing deals with the Netflixes and Hulus of the world they probably would have made a lot more money rather than pissing away millions/billions of dollars making their own worse streaming services and cranking out a bunch of mediocre content just to say "Hey we have new content on our service too!". We're already seeing some media companies starting to make these licensing deals now after their services fail but they could have saved themselves millions or billions and just done this in the first place. But that's now how modern business works. It's all Hail Mary plays all the time since that's what poison-brained investors demand.

@ben_h:

Must make line go up by not paying employees and charging them more for everything! It'll work, I promise!

Is Netflix even sustainable yet? Or are they gonna cut their animation division some more and throw another 100 million at a movie that reviews worse than Jupiter Ascending?

What residuals can Warner Bros get out of by destroying content forever?

The entire industry seems completely screwed, in large part because maybe streaming doesn't actually make business sense, but now they can't put that genie back in the bottle either.

So, the idea that Netflix isn't profitable doesn't entirely hold water anymore. Apparently, the ad-tier subscription plan was a complete game changer and their password crackdown actually worked. After everyone predicted that their subscriber growth would plummet or decline in response to their new rules regarding password sharing, the opposite actually happened and they exceeded growth targets. Also, streaming now is their only business plan, and unlike Disney, Paramount, and Discovery, they have honed it to a science to where it does indeed generate profits and a sustainable business model. What was not sustainable was them signing big labels and industry names that required millions upon millions. Even then, Netflix realized quickly that if they release movies to theaters, even if they don't break even on the big screen, they should treat it as an early dessert before they launch it on streaming.