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Warner Bros. Discovery chief David Zaslav is in deal talks with Paramount, Axios and others reported Tuesday.A deal could create another entertainment giant and kick off more media consolidation.Analysts have questioned the benefits of such a combination, though.
David Zaslav rocked the entertainment industry in 2022 with a historic merger, following it up by slashing costs at the newly created Warner Bros. Discovery to cut debt and set the company up for growth with a new streamer, Max. In the process, he laid off thousands of employees, shelved completed projects like “Batgirl,” made a disastrously ill-fated decision (since reversed) to put Chris Licht in charge of CNN, and generally outraged Hollywood.
Now, with a bunch of free cash flow and the swagger to go with it, plus the need for scale to compete with Netflix and Disney, he’s reportedly in talks to do another big deal for another iconic set of entertainment assets.
Zaslav has met with Paramount Global CEO Bob Bakish and Shari Redstone, the owner of Paramount parent National Amusements Inc., about a deal to acquire Paramount or NAI, Axios reported today.
A deal — which could take different forms and is not guaranteed — would create a new entertainment giant and could kick off more industry consolidation as media companies scramble to find a workable model for streaming and compete with Netflix. WBD declined to comment; Paramount didn’t immediately respond to a request for comment.
The Axios report follows others that Skydance and its backer RedBird Capital have talked to Redstone about a deal for Paramount. Paramount struggles with declining revenue and streaming losses and an acquisition is widely seen as all but inevitable after Redstone has shown openness to a deal after long resisted selling.
Zaslav has laid the groundwork in recent weeks for more dealmaking. He and WBD board member John Malone both made comments in November suggesting the company was paying down debt and building up free cash flow to set up acquisitions in the next two years.
The idea of a Paramount takeover by WBD has lately met with enthusiasm on Wall Street, where mergers of legacy media companies are seen as a foregone conclusion. And WBD doesn’t own a broadcast network, which means its acquisition of Paramount’s CBS wouldn’t be a major regulatory issue — as would be the case if NBC parent Comcast were to make a deal to acquire Paramount, as some media observers have speculated.
Needham analyst Laura Martin for one talked up a Paramount sale to WBD in November, saying its valuable assets could be a good fit with a bigger company. Paramount’s CBS and WBD’s CNN together would make a formidable news organization, and the companies’ streaming services — Paramount+ and Max — have complementary strengths.
But shares of both companies declined today amid news of the talks, Warner by 5.6% and Paramount by 2%, and other analysts threw cold water on a deal being a cure-all.
Consolidation won’t fix legacy media’s streaming woes, LightShed Partners argued in a December 19 note. They’re too late and lack the talent and strategy to build scaled streamers while managing their linear TV declines, and layering on more linear TV assets to a WBD or Paramount “feels like a financial death sentence,” LightShed wrote. LightShed’s Richard Greenfield doubled down on that argument Wednesday in an interview with CNBC, advocating for WBD to exit the streaming wars and focus on being a great “arms dealer” creating content for other buyers.
It’s true that WBD and Paramount could benefit from efficiencies when it comes to content creation, and Zaslav, who has talked up the value of live sports, could be looking at Paramount’s sports rights as a way of boosting that part of WBD’s business, Edward Jones analyst David Heger told Business Insider.
But investors may be gun shy given WBD’s still-heavy debt load (of $45 billion), the time it takes for big mergers’ benefits to be realized, and the potential that Zaslav would need to raise more debt to do another big deal, Heger added.
“Investors might be in that show-me mode of, ‘How are you going to make this work?'” he said.