A takeover would indeed be the best thing that could happen to them. Last month, influential magnate John Malone, who owns 0.7% of the capital, welcomed such a move, pointing out that only consolidation would enable venerable media groups to survive, by merging both their production and streaming activities, which still lack scale compared to Netflix.
Together, Warner Bros. and Paramount would have unparalleled catalogs of blockbusters. On the streaming side, they would have a total of more than 200 million subscribers to their various services, HBO Max, Discovery+, and Paramount+. In terms of traditional television channels, the merger would bring CBS News and CNN under one roof, giving the combined entity considerable influence.
Last year, in Warner Bros. Discovery, Inc.: Race Against the Clock, we pointed out that the group led by David Zaslav was facing three painful realities: first, a streaming business that was not yet profitable, if not very mediocre; second, a linear television business in rapid structural decline; and third, colossal debt, the repayment of which was jeopardized by the combination of these prospects.
The news therefore comes at an opportune moment for Warner Bros Discovery, which reported cash flow pressures in the last quarter. The group, as we recall, recently announced its intention to separate its linear TV business from its studio and streaming activities. Potential buyer Skydance has not yet revealed its intentions regarding this strategy; it is possible that it will pursue it selectively.
However, rumors are swirling that a change of direction is on the table—which would be a clear rejection of David Zaslav. Despite communications highlighting its streaming activities, Warner Bros. remains highly dependent on its linear TV business, which still accounts for half of its revenue and three-quarters of its adjusted operating profit.
