Analysts: Warner Bros. Discovery and Paramount Global merger would benefit ad industry

Warner Bros. Discovery Inc. held talks on a possible merger with Paramount Global in December, according to reports, a deal that would combine two of the largest media companies in the world.

The CEO of Warner Bros. Discovery (WBD), David Zaslav, met with Paramount Global CEO Bob Bakish on Tuesday in New York to discuss a possible deal, Axios reported. 

Zaslav has also spoken with Paramount chair Shari Redstone, whose family company owns a controlling stake in Paramount.

A deal of this size — which would combine Paramount and Warner Bros. film and TV studios, comic book publisher DC Comics, a range of cable channels, news channel CNN Worldwide, pay TV network HBO and broadcast network CBS — would almost certainly face regulatory scrutiny, especially during an election year.

The companies could complement each other, however, by combining their respective streaming services, which are dwarfed by Netflix and Disney+. 

WBD owns the Max streaming service, which has 95 million subscribers, while Paramount owns Paramount+ with 63 million subscribers. By comparison, Netflix has 247 million subscribers and Disney+ has 105 million.

“The streaming wars is ultimately a fight for scale,” said Mike Proulx, research director at Forrester. “Bigger, in this case, is better.” 

Proulx believes consolidation in streaming is positive for both consumers and advertisers.

“With fewer, bigger players in the market, users get more content with price efficiencies and advertisers get mass audience scale with reach,” he said.

“In a way, streaming is headed towards a ‘big three’ moment akin to the networks of early TV. The fragmentation that ensued is coalescing once again,” he added.

Proulx predicted in November that consolidation to achieve scale in streaming will continue in 2024, following Disney’s move to acquire the remainder of Hulu from Comcast and combine it with Disney+.

Ross Benes, senior analyst at Insider Intelligence, agreed consolidating WBD and Paramount streaming inventory would benefit advertisers.

“The combined streaming ad revenues of these services would be several billion dollars annually and among the top providers,” Benes said. “There wouldn't be additional inventory from what exists but it would be centralized, which could make planning, buying and measurement simpler.”

This dynamic would hold for linear TV too, Benes said, but linear “already has several large scaled ad businesses, so that, combined with declining viewers, would make the linear TV impact not as pronounced.”

While the streaming alignment seems to make sense, a challenge facing any potential deal is that both WBD and Paramount are “drowning in debt,” Benes pointed out. WBD has $40 billion in debt; Paramount has $15 billion. 

“It is unclear why combining them would improve their financial viability,” he added. 

Both companies have undergone significant M&A activity over the past few years. Discovery acquired Scripps Networks Interactive for $14.6 billion in 2018 and later acquired WarnerMedia from AT&T Inc. in a $43 billion merger in 2022. Paramount Global was renamed from ViacomCBS in 2022 following the merger of CBS Corporation and Viacom a few years earlier.

Paramount has been separately holding talks about selling the Black Entertainment Television network to a management-led group, according to Bloomberg News.

Any potential merger would likely result in layoffs, which have already been sizable in the media industry in the past year. More than 20,000 media jobs from U.S.-based employers have been slashed this year as of November, according toexecutive outplacement firm Challenger, Gray & Christmas — the highest figure since 2020.

“Ad sales people at these companies may want to freshen up their resumes if the deal goes through,” Benes said.