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Sizing Up Possible Paramount And Warner Bros. Discovery Merger
News that Paramount is exploring a bid for all of Warner Bros. Discovery, just weeks after closing its acquisition of Skydance, has bent a few brains from Wall Street to Hollywood despite recent speculation that something was in motion.
As the industry and investors take stock of the entertainment colossus that could be created, however, the nagging thought occurs: Have we seen this movie before? Disney’s $71.3 billion acquisition of most of 21st Century Fox in 2019 bears a few striking similarities to the current maneuvers, but that deal is largely considered to be a misfire. Yet the new version features the vast wealth of the Ellison family and the tech chops of Oracle in the background, spawning hope of a brighter future for traditional media in a challenging environment.
For starters, Disney-Fox also meant two legacy film studios becoming one. On the TV side, it brought together a large-scale studio known for supplying everyone (20th Century Fox TV) and a TV studio focused on supplying its sister broadcast network (ABC Studios). That would be the case with Warner Bros. TV and CBS Studios, respectively.
Another echo, as one veteran exec who has done deals with both companies told Deadline: “The real play here is the control of a massive amount of IP. It just completely changes the leverage when you have everything from Harry Potter, HBO and DC to Taylor Sheridan, Tom Cruise movies and the NFL.”
Like the Disney-Fox transaction, the potential Paramount-WBD merger also involves just one broadcast network (CBS vs. ABC for Disney-Fox), which would make it easier to get FCC approval for the transaction. While there would be considerable tonnage of general entertainment cable networks, the main difference between the current scenario and 2019 is that CNN would be part of the package. Given President Donald Trump’s long and contentious history with the network (remember, his Department of Justice went to war with AT&T in 2018 over its bid for Time Warner, largely due to CNN), it’s hard to predict how the regulatory process will go.
Streaming Puzzle Pieces
One aspect of traditional media companies that’s different now than it was in 2019 is that they have streaming operations. Several years into the streaming wars, a Paramount-WBD merger could entail the most meaningful elimination of a direct-to-consumer outlet yet, in the name of cost efficiencies. Already, Paramount had dissolved Showtime’s streaming service, and WBD killed CNN+. But those were mere skiffs by comparison with the general-entertainment battleships.
Guggenheim Securities analyst Michael Morris estimates that Paramount+ has about 50 million domestic subscribers and Warner Bros. has about 58 million in the U.S. across HBO and HBO Max. (The global streaming tallies stood at 77.7 million for Paramount and 125.7 million for WBD as of the end of the most recent quarter.) “The amount of overlap (or lack thereof) is critical to the combined business opportunity,” Morris wrote in a note to clients. “A bundled P+/HBO/WBD streaming product that reaches subscribers currently on only a single service should represent the highest incremental margin opportunity.”
Even though HBO Max and Paramount+ have somewhat distinct lanes, “It’s clear that these two separate services would have to come together in order for this to work,” one former Paramount exec said.
There’s also a “chocolate and peanut butter” combination on the free, ad-supported end, as one streaming dealmaker termed it. Paramount has nurtured Pluto TV, which has lagged a bit in recent years but has been a pioneer in the FAST business, while WBD has shown an appetite to use its deep library to drive FAST channels and AVOD license deals. “A combination of these two entities can really drive value in that part of streaming, which is getting bigger as consumers grapple with rising prices,” notes one media veteran.
Bringing the two streamers together won’t be straightforward in terms of executive leadership or on the programming side. Casey Bloys, Chairman and CEO, HBO and HBO Max Content, has steered HBO for almost a decade, successfully transforming the cable network into a streaming brand while keeping it an Emmy juggernaut with shows such as Succession, The White Lotus and The Last of Us.
Meanwhile, Paramount+ is led by Cindy Holland, Chair of Direct-to-Consumer for Paramount, who built Netflix into an original scripted series powerhouse.
It’s hard to imagine either of the two executives reporting to the other. HBO is one of WBD’s biggest assets, so Paramount’s leadership would presumably want to keep one of the company’s crown jewels intact.
More broadly, “the bigger question is really, is David Zaslav willing to give up his mantle?” wonders one media veteran. “He’s going to go with Warner. He sees what it does what it does for his reputation in Hollywood.” Just prior to the merger news, Zaslav said he expects the split of WBD’s studio-and-streaming entity and its cable networks entity to take effect in April. The motivation for Paramount to swoop in so soon, it appears, is to pre-empt interest from other parties in the studio-and-streaming company.
Amid echoes of Disney-Fox (a deal Disney’s Bob Iger has steadfastly defended, for what it’s worth), reality has been sinking in across the industry, especially with large organizations gathering for Emmy weekend. Facing the prospect of losing major film and studio buyers in a likely post-merger consolidation, one agent lamented Thursday, “I hate it, it’s bad for the business.”
Library And TV Studios
Warner Bros. Television and its deep library of shows like Friends, The Big Bang Theory and ER is another key asset. It’s run by Channing Dungey, Chairman and CEO, Warner Bros. Television Group and U.S. Networks. The studio provides series to HBO Max (The Pitt) but also is a supplier to Paramount’s CBS, primarily with Chuck Lorre comedies (currently Georgie & Mandy’s First Marriage), and has hits on ABC (Abbott Elementary), Netflix (Running Point, Untamed) and Apple TV+ (Ted Lasso, Shrinking).
In addition to doing business with CBS, Dungey has an existing relationship with Holland, who hired her as a senior executive at Netflix. (Dungey left Netflix for WBTV shortly after Holland’s fall 2020 exit.)
There is little overlap between WBTV and Paramount’s largest TV studio, CBS Studios, run by President David Stapf, which, under the post-Skydance merger strategy, is prioritizing programming for CBS.
Meanwhile, the newly launched Paramount TV Studios, headed by Matt Thunell, is focusing on streaming fare for Paramount+ and third-party platforms.
In a united Paramount-WBD, the three production units could remain separate but their fate would likely follow the Disney-Fox scenario, which also started with 20th Television, ABC Studios and then-cable-focused Fox21 as stand-alone entities. In the first step, Fox21 was folded into 20th TV, with ABC Studios (rebranded as ABC Signature) eventually merged into 20th TV last fall, more than five years after the merger.
Disney has kept Searchlight TV, an extension of the movie label, alive; it’s possible the same happens to PTVS, which is also part of a film studio, Paramount Pictures.
Linear Networks
The day before the news broke about Paramount, Dungey moderated a WBD town hall, set in the Food Network Kitchen. Participants included Gunnar Wiedenfels, the WBD CFO who has been set to take over as CEO of a spun-off TV networks division.
The timing of the event was ironic given that it was a spiritual “passing of the baton” between Dungey, who has run the networks business since the retirement of Kathleen Finch at the end of last year, and Wiedenfels. Now it seems that the latter may never receive said stick.
The two discussed the viability of the linear networks in a streaming world, talking up the value of its brands, which include CNN, Discovery Channel, TNT and HGTV.
Paramount has also been recently talking up the value of its linear networks, particularly MTV. Ellison and his top lieutenant Jeff Shell have explored how to revive the former music video network as well as Comedy Central and Nickelodeon with more investment and an increased digital presence.
There is strength in numbers, as recent carriage battles have shown, but it also raises many questions. Does Paramount need another kids network in Cartoon Network? Comedy Central doesn’t have a great deal of original programming, but it does have more than the similarly focused TBS.
One would imagine broadcast network CBS would be largely unaffected by such a move, as would HBO, although if this had happened before Showtime was essentially put out to pasture, there may have been even more questions.
The main issue is whether the combined group of cable networks, which also include Animal Planet, Food Network, Investigation Discovery, TLC, TruTV, Turner Classic Movies on the WBD side and BET, Paramount Network and VH1 on the Skydance side, can withstand more months and years of underinvestment as a deal goes through.
The Paramount networks have largely been underfed since Ellison took an interest in the company, while the WBD networks faced their own challenges after the merger between Warner Bros. and Discovery and both have faced severe layoffs and budget cuts. The $43 billion WarnerMedia-Discovery merger, which closed in 2022, followed an unsettled three-year stretch when AT&T also had turned things upside-down and let waves of talented execs walk out the door.
“How long are we going to be treading water again?” one WBD executive asked Deadline.
Instability doesn’t have to be a creative death knell, of course. Less than five years after the Disney-Fox deal redrew the Hollywood map, FX broke records at the Emmys with series such as Shōgun and The Bear.
Movie Moves
A union of the Burbank studio behind Harry Potter, Dark Knight, The Conjuring and Superman with the Melrose lot known for Mission: Impossible, Star Trek, A Quiet Place and Transformers would challenge Disney’s grip on the No. 1 spot at the box office. But there are more questions than answers about the notion of Disney and its Marvel, Lucasfilm and Pixar stable suddenly being on the back foot.
It would be in the new merger’s benefit to keep Peter Safran and James Gunn as DC Studios heads given how they just revitalized the brand with the $614 million-global grossing Superman. The duo has a long-term, world-building plan for DC across movies and TV series.
Although DC is a constant, there are many other variables in the equation. Would the new merger keep the Paramount, Warner Bros and New Line brands intact in a way that Disney has its own label alongside 20th Century Fox Studios and Searchlight? In 2024, Disney, with 20th Century Fox Studios and Searchlight, counted 30 theatrical releases (that includes previous year carryover titles) and commanded 25% of the domestic box office share with $2.2 billion and $5.45 billion worldwide.
Had Paramount-Warner Bros been a combo last year, they wouldn’t have been far behind at $2 billion domestic and $5B global. If Paramount-Warner Bros maintained a similar feature output and market share as Disney, sources say it will indeed put the conglomerate in a position to strong-arm exhibitors on rental terms.
Furthermore, there is cause for concern that Paramount-Warner Bros would release fewer films together than if they remain separate. A smaller total slate means fewer people employed in the movie business. A source close to the studio operation says the merger would bring about “a complete transformation of the motion picture industry landscape and a ripple effect.”
As far as the executive suite, the new Paramount under motion picture bosses Josh Greenstein and Dana Goldberg has yet to find its new identity and make its mark. Early maneuvers include multi-picture deals for Will Smith, and a first-look exclusive deal for Stranger Things creators the Duffer Brothers, as well as a big-screen version of Activision video game Call of Duty going into development. They currently have a goal to increase theatrical output to 20 movies annually.
At WB, the Michael De Luca and Pam Abdy administration countered pessimism early this year amid reports that Zaslav was interviewing their potential successors and before the studio has shined at the box office with original fare such as Sinners and Weapons. It found its groove by distributing Apple Original Films’ F1 and launching a new franchise with A Minecraft Movie, which remains the No. 2 grossing MPA title of the year with $957.8M worldwide.
In addition to coursing toward a 2025 that’s in the black, De Luca and Abdy have cultivated excellent relationships with filmmakers like Paul Thomas Anderson, Ryan Coogler and Alejandro González Iñárritu. Tom Cruise’s next movie, in which he reportedly plays the most powerful man in the world, is in the works with González Iñárritu.
Speaking of the Mission: Impossible star, his current deal at Warners could wind up being absorbed by Paramount if the merger happens in due course. The Ellisons’ financial resources are never far from consideration and have been noted in the instance of Warners having to pass on a potential Cruise project as it was coming in at too high a budget.
The Ellison fortune is a factor on the broader level, and Oracle’s haul from AI recently made Larry Ellison the world’s richest person. Bernstein Research analyst Laurent Yoon factored it into his thinking in a recent note to clients.
“Could there be another bidder? We wouldn’t rule that out just yet,” he wrote. “However, the backing of the Ellison family — with a war chest that just got bigger by $100 billion … might make others hesitate. No one else may show up, but everyone’s thinking.”
Jill Goldsmith contributed to this report.
