In times of corporate hardship, a common instinct among leaders of struggling companies is to seek refuge through mergers with more robust counterparts. As the new year unfolds, major players in Hollywood’s media conglomerates find themselves deeply entrenched in a cycle of merger and acquisition frenzy.
This trend follows years of upheaval in traditional TV and film, especially after the tumultuous events of 2023. However, in the current landscape, does the pursuit of expansion truly hold the solution?
It is becoming increasingly apparent that the traditional approach of pursuing deals to augment content and distribution assets is no longer the panacea for the industry’s woes, as it was since the landmark merger of Time Inc. and Warner Communications in 1990.
The existential threat posed by the ascendance of streaming platforms to Hollywood’s conventional revenue streams is too grave and fundamental to be addressed through sheer corporate enlargement.
Nevertheless, despite this realization, the media marketplace is once again abuzz with speculation about potential merger and acquisition transactions, particularly revolving around the destinies of Paramount Global, Warner Bros.
Discovery, and Comcast’s NBCUniversal division. Paramount Global, under Shari Redstone’s leadership, is perceived to have reached a pivotal crossroads – a moment that could trigger a cascade of transactions in the industry.
This wave of speculation coincides with a seismic shift in the entertainment industry’s dynamics concerning the production, distribution, and monetization of movies and TV shows.
The streaming services, heralded as the future for legacy media companies, are still grappling with substantial financial losses. Even if some new entrants manage to break even, there’s no indication that they will replicate the profits once derived from blockbuster movies and hit TV shows.
A veteran media CEO, expressing a pragmatic perspective, emphasizes that no rational business can sustain continuous multibillion-dollar losses. This executive envisions a scenario where companies like Paramount and NBCU might significantly scale back their investments in content for streaming services, irrespective of any transformative merger transactions.
The revelation that Paramount Global’s leaders have engaged in informal discussions with WB Discovery has elicited a subdued response from Wall Street and internal stakeholders. The possibility of Comcast entering the fray as it explores options for NBCU has added a layer of intrigue but hasn’t generated much enthusiasm.
Paramount Global, NBCU, and WB Discovery, to varying extents, grapple with a shared predicament: the gradual erosion of their once stalwart revenue streams – cable TV channels and box office receipts.
The overarching dilemma of bigger versus better elucidates why Paramount Global has become the subject of discreet talks between David Ellison’s Skydance Media and Paramount Global’s parent company, National Amusements Inc. (NAI). Skydance, a comparatively smaller entity founded in 2010, is unencumbered by the challenge of navigating legacy assets.
However, it seems unlikely that Skydance would pay a premium for the entirety of the Paramount umbrella, as is customary in acquisitions where a smaller entity acquires a larger one.
Discussions to date have taken place at the NAI level, a layer removed from Paramount itself. Nevertheless, NAI’s financial strain, exacerbated by Paramount’s dividend cut in May 2023, has prompted serious considerations about parting with some or all of its controlling stake in Paramount.
Long before the rumors of Skydance’s interest surfaced, Redstone consistently expressed openness to options that position Paramount Pictures and its corporate counterparts for long-term success in a rapidly evolving media landscape.
However, Accenture’s John Peters emphasizes that a merger between two legacy media companies won’t address the industry’s inherent problem. While such a combination might improve overall cost structures, it doesn’t enhance their ability to tap into rapidly growing markets.
In essence, Hollywood appears fatigued by what one analyst describes as the “media M&A merry-go-round” of recent years. The rapid succession of mergers, such as AT&T and Time Warner in 2018, Disney and 21st Century Fox in 2019, and Viacom and CBS (now Paramount Global) in 2019, followed swiftly by the WarnerMedia and Discovery transaction in April 2022, has left tens of thousands of employees across Paramount and Warner Bros.
Discovery bracing for more corporate upheaval. Amid the accelerating rumor mill, industry insiders are questioning the logic of continued expansion, especially when traditional entertainment giants are grappling against formidable tech competitors with substantially more resources and robust balance sheets.