The Pros and Cons of a Warner Bros Discovery and Paramount Merger

Imagine being able to choose just one app on your TV, phone, or computer and have access to everything you could possibly want to watch, from live football games to popular TV shows like "Succession," to a wide range of hit movies. This could become a reality with the potential merger of Warner Bros. Discovery and Paramount.

The CEOs of WBD and Paramount Global, David Zaslav and Bob Bakish, discussed the possibility of a merger between their companies on Tuesday, as reported by sources familiar with the matter. However, no offer is currently being planned, and it is unlikely to happen until spring, if at all. The reason for the delay is a tax provision that would result in heavier taxation for WBD if it moves forward with any mergers before April 8, 2024, due to the facilitation of the WarnerMedia and Discovery merger in 2022.

Jack Kranefuss, a senior director at Fitch Ratings who specializes in rating US-based media companies, mentioned that the cost of a combined WBD-Paramount subscription would likely be more affordable than what you'd currently pay for the two services individually.

David Zaslav speaks onstage during The New York Times Dealbook Summit 2023 at Jazz at Lincoln Center on November 29 in New York City.

Slaven Vlasic/Getty Images for the New York Times

CEOs of Warner Bros. Discovery and Paramount are in talks about a potential merger. Consumers are likely to see greater cost savings with ad-tier subscriptions compared to ad-free ones. This is due to the combined subscription's increased appeal to advertisers, who will likely increase their ad spending.

This, of course, assumes that the deal can overcome regulatory obstacles. However, there is also the significant issue of both companies carrying immense debt burdens.

Derren Nathan, head of equity research at Hargreaves Lansdown, suggested that the deal may not result in a perfect marriage if it goes ahead, in a note on Thursday.

Spokespeople for Paramount and Warner Bros. Discovery refrained from commenting on the potential merger.

Warner Bros. Discovery has successfully reduced its debt burden following its merger with Discovery in 2022, impressing Wall Street. However, the company still holds a significant $45.1 billion in debt, down from $49.3 billion at the beginning of 2023.

Acquiring Paramount would not aid Warner Bros. Discovery in reducing its debt burden, as Paramount's debt remains stable at $15.7 billion, barely changing throughout the year.

To alleviate some of Paramount's debt burden, Warner Bros. Discovery and Paramount may consider selling off some of their assets to reduce their combined debt and decrease their overall expenses, Kranefuss suggested. For example, Paramount could potentially sell Black Entertainment Television or CBS. "It's uncertain whether investors would find this sufficient to feel at ease," Kranefuss commented.

Theres even a possibility that a deal could make it more expensive for Warner Bros. Discovery to pay off its existing debt.

So far, investors dont appear to be in favor of a combination.

After the news of the potential deal was revealed on Wednesday afternoon, Warner Bros. Discovery's shares fell by more than 5%, while Paramount's stock initially rose in response to the report but then settled back to its pre-report trading level.