Thursday, May 23, 2024

Warner Bros. Discovery has expressed interest in a possible merger with Paramount, according to two sources familiar with the discussions.

David Zaslav, the CEO of Warner Bros. Discovery, met with Bob Bakish, Paramount’s CEO, for lunch and discussed the potential merger of the two companies, the sources said.

During the lunch, which took place at Paramount’s Midtown Manhattan headquarters on Tuesday, the idea of a merger was brought up in a wide-ranging conversation between Mr. Bakish and Mr. Zaslav, according to the sources.

News of the deal caused Warner Bros. Discovery’s stock to fall, as reported earlier by Axios, while Paramount’s stock dipped slightly in after-market trading.

Shari Redstone, who controls Paramount through her stake in its parent company, National Amusements, has recently shown a willingness to part with her family’s media empire. National Amusements has held talks about selling its controlling stake to Skydance, the movie studio with production credits on Paramount franchises like “Top Gun” and “Mission: Impossible.”

A potential tie-up between Warner Bros. Discovery and Paramount makes business sense. Paramount’s bundle of TV networks, including MTV, Nickelodeon, and Comedy Central, could provide Warner Bros. Discovery with more leverage in negotiations with cable distributors like Comcast and Charter.

The companies could also save costs on producing and marketing shows and movies on their networks and from their movie studios. Additionally, Paramount’s CBS broadcast network would give Warner Bros. Discovery another platform for airing National Basketball Association games, a selling point in its negotiations with the league on a renewal of rights.

However, there are significant hurdles to any deal. Despite paying down much of its leverage from the 2021 merger with AT&T’s WarnerMedia, Warner Bros. Discovery still has over $40 billion in debt. It is also unclear whether tax laws would allow Warner Bros. Discovery to strike a deal before the two-year anniversary of the completion of the merger in April.

If a deal for Paramount were to happen, it could lead to further consolidation among media companies, which have sought partnerships in recent years as the TV business has declined. TV companies like Paramount and Warner Bros. Discovery have relied on cash from cable distributors, but as viewers cut the cord, the pay-TV ecosystem has become increasingly unstable.

With the exception of Netflix, most streaming services are also facing challenges. Traditional TV programmers like Warner Bros. Discovery and Paramount have invested billions in streaming services like Max and Paramount+, but have struggled to replicate the cash-rich business model of cable TV.

Ultimately, the outcome of the negotiations may depend on Ms. Redstone’s relationship with Mr. Zaslav. The two are well acquainted in the world of media executives and share many powerful friends, including the owner of the New England Patriots, Robert Kraft.

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