The streaming wars could be entering a new era as Warner Bros. Discovery and Paramount begin merger talks. The two studios are the last remaining of the original Big Five Hollywood Studios that helped define the nascent industry in the early 20th century, but are lagging rivals both in the streaming business and at the box office.

Should a deal actually happen, WBD would no doubt grow its content IP through acquisition of Paramount's library that it could then stream on its Max platform and grow its subscriber base. Meanwhile, Shari Redstone, President of Paramount's parent company National Amusements, has been open about wanting to sell her controlling stake in the company.

The reported talks also come on the heels of a months-long strike by both writers and actors that froze the industry, cost billions, saw many lose their jobs, and impacted the release date of subsequent projects. Furthermore, as CNBC notes, when the Warner Bros Discovery deal was put together in April 2022 it was executed as a Reverse Morris Trust which allows for a tax-free transfer of a subsidiary by combining it in a reorganization with an interested party. Part of the deal also stipulated that Warner Bros Discovery would then "lay low" for two years following the deal. That window ends in April.

The New York Times does give reason to question the deal, however: "Warner Bros. Discovery has $40 billion in debt and $5 billion in free cash flow, while Paramount has negative cash flow and $15 billion in debt," the Times details. "In other words, the combined company would have a crushing debt load and little money to pay that down or spend on content."

STREAMING WARS

So, could a new platform combining Max (WBD's platform) with Paramount+ compete? Well, the combined total subscribers would put the new platform at about 158 million. That number is still dwarfed by Netflix's 247 million subscribers, and only edges out Disney+'s 150 million…until you add the additional 49 million subscribers Disney also has on Hulu.

The deal would give WBD more than just subscribers. As Variety notes, the studio would acquire several of Paramount's major franchises including Top Gun, Mission Impossible, Terminator, and Transformers. Paramount's TV assets include CBS, MTV, Comedy Central, BET, and Nickelodeon.

THE VERDICT:

It was always clear the streaming wars would shift from an endless growth and competition phase, to a mergers and consolidation phase. Maybe it required the 5-ish month pause of the WGA/SAG strikes to instigate the transition, but even if this deal doesn't go through, we're clearly entering a new era.