Monday, April 22, 2024

Warner Bros. Discovery CEO David Zaslav’s lifeline to Paramount’s Shari Redstone not sufficient amid merger speak

Merger talks between David Zaslav of Warner Bros. Discovery and the folks over at Paramount are at a “very early stage,” I’m informed. So is the air of desperation for each events and the media trade generally.

If you happen to haven’t seen, this isn’t a good time to be operating a media firm. For now, Comcast makes some huge cash, combining cable and broadband with NBCUniversal’s varied programming. However its inventory is effectively off its highs.

Buyers are calculating weak earnings progress from crappy advert revenues, cord-cutting and much more. Comcast’s cable enterprise is sputtering. Folks aren’t going to the flicks, and its streaming service, Peacock, misplaced $3 billion this 12 months.


Disney is an excellent larger practice wreck. CEO Bob Iger most likely needs he was again on the seaside as an alternative of pitching his studio’s more and more insipid programming. Likewise, his streaming service is equally a catastrophe, and nobody believes his wokeness (transgender greeters at Disney parks and same-sex kissing scenes in animated films) goes to assist the underside line.

Disney+ has misplaced $11.4 billion since inception in 2019.

Double yikes!

As CEO of Warner Bros. Discovery, the aforementioned “Zas” is doing an important job (underneath troublesome circumstances) of mixing WarnerMedia and Discovery. He’s streamlining and eliminating merger debt. He has $5 billion in free money stream to purchase stuff. His inventory is up properly from its post-merger lows when traders guess Zas can be drowning in crimson ink.

But some crimson continues to be there within the type of debt — $40 billion of it. His streaming service barely breaks even (as if that’s factor), that means he is likely to be operating a enterprise slowly on the verge of doomsday.
One already there’s Paramount, or course. It’s troublesome to know the place to start in describing this mess. If present traits proceed, the corporate’s streaming service might lose near $2 billion this 12 months on a market cap of round $10 billion. (By comparability, Comcast’s $3 billion in streaming losses comes on a market worth of $177 billion.)

Paramount’s programming has been described as a “melting ice dice.” CBS has an NFL rights deal, however the prices are big, and in an period of cord-cutting, even Sunday soccer is a scores problem as a youthful era watches video games on their telephones as an alternative of TV.

It has a big studio in Paramount, but it surely loses cash. It additionally has $15 billion in debt and scrounges to generate money to pay bondholders, in line with the scores company S&P.

So why does Zaslav (allegedly) need this POS? He’s a dealmaker at the beginning. He’s thought of notably adept at integrating companies, a ability honed as a long-time govt of NBCUniversal, then owned by Basic Electrical.

Then, GE was led by Jack Welch, also called “Neutron Jack.” Zaslav, a Welch protégé, has reduce numerous prices and he’s not completed. He additionally likes elements of the enterprise (Paramount Studios and its library amongst them) and Paramount is determined to promote.

Skepticism abounds

Most analysts, like LightShed’s Wealthy Greenfield, are skeptical. “That is bulls–t,” he tells me, noting that Zas would nonetheless be paying billions for that melting ice dice. Greenfield factors to weeks of leaks about potential suitors — presumably from Paramount’s determined bankers — with no concrete deal on the desk.

In the meantime, Zas has held solely very preliminary talks, which additionally exhibits some hesitancy. A lot of it’s centered on shopping for the curiosity of Shari Redstone, who controls Paramount and its varied belongings (CBS, MTV, a studio) by way of Nationwide Amusements, the holding firm created by her late father, media mogul Sumner Redstone.

Her stake is price at most $2 billion, which is lower than the deal worth for the entire thing, although it’s unclear how that interprets into shareholder worth.

If he does pull the set off, Zas will likely be fixing Redstone’s and Paramount’s long-term issues — she clearly must unload the melting ice dice to protect some semblance of her inheritance — however not his personal.  I’m informed he is aware of the media enterprise is coming aside, for all the explanations I outlined.

Zas additionally is aware of shopping for Paramount and efficiently integrating it inside Warner Bros. Discovery is simply delaying the market response to his (and Large Media’s) personal inevitable second of reality.

Individuals who know Zas say his endgame is one thing grander: To finally group with Large Tech, which has the cash and is turning into the final word distributor of programming.

However first he wants to purchase a while — possibly shopping for Paramount with a profitable integration does that — after which praying for a change in DC, from the deal-hating Biden lefties who would block Large Tech from getting larger.

Donald Trump, if he’s the subsequent president, wasn’t so deal-friendly both (recall his unsuccessful lawsuit to dam the AT&T–Time Warner tie-up). However the regulatory sorts appointed by Trump will likely be way more free market than any of the apparatchiks within the Biden administration. And any free-market sort will inform you the media enterprise’s solely actual long-term answer is Large Tech.

“Warner Bros. Amazon” right here we come — or so Zas hopes.

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