Warner and Paramount Merger?

I was reading an article on Variety.

Warner Bros. Discovery and Paramount Global might merge. It is an enormous and dynamic topic.

Well, what’s going on.. Here’s several things beyond this movement.

1. Decline in TV advertising revenue and cable membership: In 2023, both companies experienced a decline in terrestrial TV advertising revenue and a decrease in cable subscriptions.

For Warner Bros. Discovery, the TV division revenue from January to September 2023 was $16.3 billion (¥2.3 trillion), marking an 8% decrease from 2022. (Based on the company’s 2023 IR materials).

Paramount’s TV division revenue also decreased by 6%. Their revenue from January to September 2022 was $15.85 billion (¥2.2 trillion), whereas it was $14.92 billion (¥2.1 trillion) for the same period in 2023.

Paramount owns one of the four major U.S. networks, “CBS.” On the other hand, Warner owns premium cable TV stations such as “HBO,” famous for “Game of Thrones,” and the news-focused “CNN.”

Paramount’s TV advertising revenue from January to September 2022 was $6.67 billion (¥933.8 billion), which decreased by 11% in 2023 to $5.9 billion (¥826 billion). (Based on Paramount’s Q3 2023 IR materials).

Warner Bros. Discovery’s TV advertising revenue for the July-September 2023 quarter decreased by 12% from the previous year to $1.71 billion (¥239.4 billion). (Based on Warner Bros. Discovery’s Q3 2023 materials).

By the way, Paramount’s TV division accounts for 67% of its revenue, while Warner Bros. Discovery’s accounts for 45%.

Due to the decline in advertising and membership, the main TV divisions of both companies have been struggling.

2. Warner Bros.’s Debt: According to the company’s Q4 2022 financial report, Warner’s debt stands at $450 billion (¥63 trillion), while Paramount’s is $179 billion (¥25 trillion).

Given these massive debts, their lucrative TV divisions are struggling.

To address this, it is believed that integrating and streaming both companies’ content catalogs (such as famous movies like Harry Potter and Batman) on their respective OTT (Over the Top: streaming platforms) is necessary.

3. Netflix, of course : The graph below, created on Reuters’ website, shows the stock price trends of Warner (orange), Paramount (blue), and Netflix (green).

The far right represents the end of December 2023. Since 2016, both Paramount and Warner have been significantly outpaced by Netflix.

Netflix has 250 million subscribers worldwide.

Warner Bros. Discovery’s OTT subscriber count is 95.1 million globally (with an ARPU of $7.82), while Paramount has 63.4 million, making a combined total of around 150 million, almost equivalent to Disney+.

With the merger of Warner and Paramount, a second-tier OTT platform will emerge.

The cash points in the visual content market were TV advertising and cable TV subscription revenues.

These two major businesses are being replaced by Netflix’s subscription model.

To counter this, the strategy is to create a subscription-based cash point (OTT platform) to compete with Netflix.

4. Generational Change: Another aspect I imagine is the generational change in American media companies.

Shari Redstone, who dominates Paramount, took over after her father, Sumner Redstone, passed away in August 2020.

Sumner Redstone was the person behind the Paramount-CBS (previously Viacom) empire.

Rupert Murdoch, who founded FOX, announced his retirement in September 2023.

These individuals entered the Hollywood film industry during its decline in the 1970s and 1980s due to the rise of television.

They then expanded Hollywood studios by capitalizing on the rise of video and cable TV, monetizing content across various media.

These moguls who once ruled Hollywood couldn’t keep up with Netflix’s rise.

And I believe the next generation, including Shari Redstone, is searching for new paths.

Reference:
Rock Media: Content Window Strategy Overview: Hollywood Changing Hands in 50 Years (March 2008)
Rock Media: Content Window Strategy Overview 2: Fin Sin rule, Commoditization of Video (March 2008)

About Paramount: Paramount owns Paramount Pictures, which has film catalogs like Top Gun and Mission Impossible, one of the four major U.S. TV networks, “CBS,” and cable channels like “CNN,” “MTV,” and “Nickelodeon,” which broadcasts SpongeBob.

Originally, Sumner Redstone managed both CBS and Paramount together but later separated the TV division, including CBS and ShowTime, into Viacom, while keeping the film division as Paramount.

After several mergers and separations, Viacom (CBS’s TV division) and Paramount (film division) merged in 2019 and renamed the company “Paramount Global” in 2022.

About Warner Bros. Discovery: In 2018, the major U.S. telecommunications company AT&T acquired Time Warner for $85 billion. In May 2021, it merged with Discovery, a company that operates cable channels.

Warner Bros. is a conglomerate with film and cable channels like HBO. In 2001, it merged with the then-largest internet company, AOL. In 2003, it merged with TIME, the publisher of “TIME” magazine, becoming Time Warner.

Then, in 2018, it was acquired by AT&T, and in 2021, it merged with Discovery to become Warner Bros. Discovery.

Reference: AT&T to spin off WarnerMedia, admitting merger mistake (May 18, 2021)

U.S. Media Market Structure: The American media content market is dominated by five players (Disney, Warner, Paramount, Sony, Universal (Comcast)) centered around Hollywood studios.

If Warner and Paramount merge, further monopolization will occur.

Netflix surpassed the membership of Comcast, the largest U.S. cable TV provider, in 2009. As mentioned above, it also surpassed the stock prices of Paramount and Warner in 2016.

Reflecting on this, I feel that it has had a significant impact on the media market restructuring over the past decade.