Picture this: You select one app on your TV, phone or computer and everything you could ever dream of watching from live football games to “Succession” to just about every hit movie imaginable is all there.
With Warner Bros. Discovery and Paramount in talks for a potential merger, that could one day become the reality.
WBD CEO David Zaslav met on Tuesday with Paramount Global CEO Bob Bakish, and they broached a potential merger between the two companies, two people familiar with the matter told CNN. But an offer is not in the works, and one isn’t likely until the spring — if it happens at all.
That’s because a tax provision that was used to facilitate the WarnerMedia and Discovery merger in 2022 would tax WBD more heavily if it pursues any additional mergers before April 8, 2024.
The cost of a combined WBD-Paramount subscription would likely be more affordable than what you’d currently pay for the two services individually, said Jack Kranefuss, a senior director at Fitch Ratings who specializes in rating US-based media companies.
Consumers would see the biggest savings for an ad-tier subscription as opposed to an ad-free one, he added. That’s because the combined subscription would become a lot more appealing to advertisers and lead them to ramp up spending.
“Ultimately, the goal is reach. The more reach you provide advertisers, the more they like it,” Kranefuss said.
That’s of course assuming a deal survives the inevitable regulatory hurdles it would face. But there’s another not-so-little problem: both companies are saddled with mountains of debt.
“It may not be a perfect marriage if a deal goes ahead,” Derren Nathan, head of equity research at Hargreaves Lansdown, said in a note on Thursday.
Spokespeople for Paramount and Warner Bros. Discovery declined to comment on the potential merger.
Warner Bros. Discovery, the parent company of CNN, has been cutting costs and impressing Wall Street with its ability to unload its debt burden after it merged with Discovery in 2022. But it still held a stunning $45.1 billion at the end of the third quarter, down from $49.3 billion at the start of 2023.
Buying Paramount would not help Warner Bros. Discovery’s effort to unwind its debt burden: Paramount has $15.7 billion in debt, a total that has barely budged all year.
For Warner Bros. Discovery to share some of Paramount’s debt burden, both parties would likely look to sell some of their assets to reduce their combined debt and lower their overall expenses, Kranefuss said. For instance, he said he could see Paramount selling Black Entertainment Television or CBS.
“Whether or not that would be sufficient enough for investors to feel comfortable remains to be seen,” Kranefuss added.
There’s even a possibility that a deal could make it more expensive for Warner Bros. Discovery to pay off its existing debt.
So far, investors don’t appear to be in favor of a combination.
Since news of the potential deal broke on Wednesday afternoon, shares of Warner Bros. Discovery have dropped by over 5%, while Paramount’s stock rose initially on the report but returned to the level it was trading at before the report came out.
