It is a basic tenet of business: CEOs of faltering firms often feel pressure to combine with more powerful competitors when hard times arise.
After years of disruption in traditional TV and movies and a particularly turbulent year in 2023, Hollywood’s top media giants are deep in a cycle of merger-and-acquisition mania as the new year dawns. But in the current context, is going bigger really the answer?
Many are beginning to see that dealmaking to acquire distribution and content assets in bulk is no longer the answer to the industry’s problems as it was during Time Inc. and Warner Communications’ 1990 marriage; the threat that streaming platforms pose to Hollywood’s traditional revenue streams is simply too great and too fundamental.
Old habits die hard, though, and the media landscape is once again buzzing with rumors of possible mergers and acquisitions (M&A deals primarily centered around Warner Bros. Discovery, Comcast’s NBCUniversal division, and Paramount Global). Paramount Global, owned by Shari Redstone, is perceived as having reached a grow-or-sell crossroads that could trigger other deals, similar to the pinball effect that occurs when a sizable company posts a “For Sale” sign. (For the record, neither Paramount Global nor Redstone’s National Amusements holding company has commented publicly on the matter.)
The entertainment industry is going through a massive transition in terms of how movies and TV shows are produced, distributed, and monetized, and speculation about Paramount’s future is growing. While streaming services are causing billions of dollars in losses, the more worrying thing is that even if some of the newbie streamers manage to break even, there is no indication that they will generate the kind of profits that the studios once did from sales of successful movies and TV shows.
“No sane company can keep losing billions and billions of dollars,” a seasoned media CEO asserts. This executive envisions a future in which NBCU and Paramount substantially reduce their content investments for the streamers Paramount+ and Peacock, respectively, with or without a game-changing merger.
Though Skydance, a much smaller entity formed in 2010 by a well-heeled entrepreneur with big Hollywood ambitions, is not saddled with the same problem of figuring out what to do with legacy assets, it is highly unlikely that Skydance would pay a premium for everything under the Paramount umbrella, as is typically the case when a smaller entity buys a larger one. A source close to the situation emphasizes that discussions to date have been held at the NAI level, thus removing a layer from Paramount itself.
That being said, John Peters, Accenture’s media and entertainment lead in North America, says that while a merger between two legacy media companies could improve the overall cost structure, it will not solve the endemic problem facing industry players. “You’ve increased the size of the lifeboat, but you’re still heading toward the waterfall,” he adds. Redstone has long since made it clear that she is open to options that will put Paramount Pictures and its corporate siblings in the best position to succeed over the long term in a rapidly changing media universe.
In other words, Hollywood is tired of what one analyst refers to as the “media M&A merry-go-round” of the past few years, which included AT&T and Time Warner in 2018, Disney and 21st Century Fox in 2019, Viacom and CBS (which became Paramount Global) in 2019, and the WarnerMedia and Discovery transaction that was finalized in April 2022. Meanwhile, the accelerating pace of rumors is causing tens of thousands of workers at Paramount and Warner Bros. Discovery to brace for more corporate turnover and potential layoffs, just four years after Viacom and CBS Corp. joined to form Paramount Global and two years after AT&T’s WarnerMedia and Discovery were combined in a complicated transaction.
Since traditional entertainment giants are facing changing times and are now directly competing with tech giants like Apple, Amazon, Netflix, and Google, who have exponentially more resources and stronger balance sheets, more talk of M&A is beginning to feel like a shell game to the rank and file of the industry.
Although some remain pessimistic about the likelihood of another game-changing deal between legacy Hollywood studios, Jessica Reif Ehrlich, senior media and entertainment analyst at BofA Merrill Lynch Global Research, believes that the companies currently involved in the M&A fishbowl should be in communication with each other. “You can argue over who is the best fit with whom and what the deal structure should be, but there are so many combinations you can think through, and some of them could be really interesting. And they may not be what people expect; there could be mergers of some or all of a company’s components, and there are certain combinations that would really create industry power,” she says.
The biggest media conglomerates have written off about $8 billion in content costs over the past 18 months that will never be recouped. Call it the Peak TV hangover. Players across the spectrum, including Disney, Paramount, WB Discovery, and NBCU, as well as Netflix and others, have been through a hard year of cuts as they realign streaming business plans to meet lowered expectations.
Netflix does not seem to need to acquire a studio or production company, especially after building out the infrastructure to commission original series and movies from producers around the globe. However, if the House of Tudum is ever going to pounce on big-time Hollywood assets, now would be a good time to go bargain hunting. Big Tech has not shown much interest in snatching up a marquee Hollywood name, aside from Amazon’s relatively small $8.5 billion acquisition of MGM in 2022.
Paramount Global
is the only media company facing a crossroads this year; the company’s earnings are derived primarily from the most pressured segments of the media, namely ad-supported linear TV channels such as MTV, Nickelodeon, VH1, Comedy Central, BET, and CMT. Broadcast network CBS, on the other hand, is a stronger business overall, largely due to its expensive NFL rights package, but it will be difficult for the Tiffany network to be the main driver of significant growth for the entire company.
In terms of movies, Paramount Pictures has had difficulty, similar to that of its larger competitors, in assembling the ideal slate of theatrical and made-for-streaming releases. While “Top Gun: Maverick” proved to be a box office hit in 2022, such blockbusters are hard to come by. More recently, Paramount Pictures has suffered losses on expensive misfires like “Transformers: Rise of the Beasts,” “Dungeons & Dragons: Honor Among Thieves,” and “Mission: Impossible—Dead Reckoning Part One.”