Paramount-Skydance Merger Sparks Media Industry Shake-Up

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Paramount Global’s plans to merge with production studio Skydance Media could ignite a dealmaking frenzy in the media industry as it wrestles with the decline of traditional television. On Sunday, Paramount announced its intention to merge with Skydance, following years of struggle to make streaming profitable while stemming losses in its linear network business.

The dilemma facing legacy media is clear: fewer consumers are subscribing to pay-TV bundles, which adversely affects revenue from ad sales and affiliate fees paid by distributors for their content. At the same time, streaming remains unprofitable for most players as costs rise and subscriber growth slows. This environment points towards an era where only a handful of media giants may remain.

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Rumors have suggested potential mergers or spin-offs involving Warner Bros. Discovery and Comcast’s NBCUniversal. According to David Wisnia, managing director at consulting firm Alvarez & Marsal, if media companies cannot make streaming profitable, they will inevitably seek buyers.

The merger between Paramount and Skydance has been a hot topic at the annual Sun Valley conference, an event that gathers top media moguls and CEOs and often serves as a breeding ground for major deals. Warner Bros. Discovery CEO David Zaslav praised the deal, suggesting it is beneficial for the industry.

Anticipation of further consolidation has been brewing, with bundles and partnerships becoming increasingly common as companies look to create value for subscribers. Warner Bros. Discovery and Disney will roll out a streaming bundle later this summer that combines Disney+, Hulu, and Max. Earlier this year, Comcast introduced a StreamSaver bundle that packages Peacock’s ad-supported tier with Netflix’s basic ad tier and Apple TV+. Warner Bros. also announced a sports streaming partnership with Disney’s ESPN and Fox, set to launch this fall.

“The push for efficiencies and opportunities for growth is evident,” said Wisnia. He noted that the Paramount deal underscores the need for traditional media companies to improve their fundamentals.

The buyers in these deals are more likely to be traditional media firms or private equity, rather than Big Tech. Sony, for instance, had submitted a bid for Paramount alongside private equity firm Apollo, and WBD also showed interest in a merger.

Wisnia highlighted that regulatory challenges have made it difficult for Big Tech to pursue such acquisitions. He cited Amazon’s prolonged effort to close its $8.5 billion deal with MGM due to regulatory hurdles. Moreover, tech giants have shifted focus from original content to sports rights and live content, reducing their need for the intellectual property libraries held by traditional media players.

This leaves the race to consolidate largely in the hands of traditional media firms. Comcast, led by CEO Brian Roberts, has expressed high standards for potential deals, while Lionsgate might emerge as an acquirer as it prepares to spin off its film and TV studio from Starz. Japanese conglomerate Sony, following the Paramount negotiations, is clearly looking to scale.

Wisnia believes that the industry is not in dire straits but undergoing a significant transition. Despite a dip in the business models, content consumption and production are at historical highs. He compared the current period to past transitions in the industry, suggesting that clarity and efficiency will eventually emerge, smoothing the environment once again. Until then, the industry remains in a state of flux.