Big Hollywood studios preparing to merge to take on Netflix

by Mick the Ram

Two of Hollywood’s “big five” studios are said to be in talks over a possible merger to help close the gap on their more successful rivals.

Bosses at Warner Bros Discovery and Paramount Global are believed to have met last week to begin preliminary negotiations on combining their companies to create a powerful challenger to the likes of Netflix, Amazon Video and Apple TV.

Their joint market value stands at a whopping $38bn (£30bn), but that would inevitably increase should an amalgamation take place, although it is still very early and nothing has been released from either camp at this early stage.

Streaming of shows and films has meant that traditional media companies have had to invest quickly to remain competitive, and as a consequence have had to commit to some difficult cost-cutting measures, in an attempt to minimise losses, which inevitably run into the billions of dollars.

Netflix’s are out on their own with a subscription total that exceeds 247 million globally, compared to Warner Bros Discovery with 95 million and Paramount Plus with 63 million, as at the end of November 2023.

Business lunch

Warner Bros. Discovery Chief Executive David Zaslav and Paramount Global Chief Executive Bob Bakish, discussed a possible deal over lunch at Paramount’s headquarters, in New York City’s Times Square, on 19 December.

It is understood that the chief executives discussed how the main streaming services of the two media giants could merge together to create an entertainment and news power force, capable of making a stronger challenge to the main rivals of Netflix and Disney Plus.

The deal would see the owner of HBO channels and CNN team up with the studio behind the Mission Impossible films and CBS News, the BBC’s US partner.

Still in preliminary stages

The conversation was at this very early stage, thought to be more of an expression of interest by Zaslav than any sort of concrete offer. It is known that billionaire Shari Redstone, who controls Paramount, has also held preliminary talks with Skydance, the production company behind Top Gun: Maverick, which is run by David Ellison.

Vast debt for both giants

It is no secret that Paramount is under a lot of pressure to find a buyer or strategic partner, because of the vast levels of debt thought to be around $14bn, which it has accrued in recent years, whilst bulking up its streaming service.

Warner Bros Discovery, whose portfolio CNN, HBO, Cartoon Network and franchises such as Batman and Harry Potter, had a net debt that stood at $43bn at the end of September this year, more than four times its earnings before interest, tax, depreciation and amortisation.

Consolidation likely to gather pace

Analysts expect consolidation in the media business world to continue as a result of the rapidly shifting environment and the need to compete with tech heavyweights in Silicon Valley. 

The advertising market has changed its course towards streaming, but both of the two companies are still shedding huge sums of money as content costs rise. In addition, those services will not be getting any cheaper with expensive new contracts with writers and actors agreed over the past few months.

Nothing can happen until the spring of 2024 at earliest

Should an agreement be reached nothing could happen prior to April 2024. This is the date that an arcane tax statute prohibiting Zaslav from additional acquisitions or mergers ends.

That is the two-year anniversary of WarnerMedia’s $43 billion merger with Discovery, and something that was agreed upon during the deal to secure tax advantages.