Warner Bros. Discovery CEO David Zaslav and Paramount Global CEO Bob Bakish held discussions this week regarding a possible merger between their respective companies, according to a source familiar with the matter. The meeting, reported by Axios, has sparked speculation about a potential consolidation of two major players in the entertainment industry.

Warner Bros. Discovery (WBD) currently owns prominent entities such as Warner Bros. film and TV studios, HBO, and the former Turner and Discovery cable channels. Additionally, it operates the Max streaming service. On the other hand, Paramount Global owns CBS, Paramount Pictures, and its robust film and TV studios, as well as the former Viacom cable channels including MTV, Comedy Central, BET, and Nickelodeon.

If the merger were to materialize, it would create a formidable force in the entertainment landscape. The combined entity would bring critical intellectual properties under one roof, including Star Trek, DC Comics, Harry Potter, Mission Impossible, Transformers, Spongebob Squarepants, and Looney Tunes. However, the primary challenge lies in merging the legacy film and TV studios of the two companies.

From a regulatory standpoint, this potential merger is expected to attract less scrutiny compared to others, given that Warner Bros. Discovery lacks a domestic broadcast network and the businesses of the two companies are largely complementary. One major synergy would be the fulfillment of a linear broadcasting void in Warner Bros. Discovery's portfolio through CBS' broadcast network and its local stations. Moreover, the addition of CBS Sports and its rights would bolster Warner Bros. Discovery's sports business, offering broadcast accessibility in tandem with cable and streaming platforms.

Interestingly, in the late 1990s and early 2000s, CBS News and CNN had engaged in merger talks, indicating the complementarity between the broadcast programming of CBS News and the cable programming of CNN.

Another advantage of the potential merger lies in the expansion of the streaming services. Warner Bros. Discovery's Max/Discovery+ and Paramount's Paramount+ have been considered subscale compared to competitors such as Netflix and Disney+. Combining the two services would result in increased scale and the ability to better compete in the streaming market.

Both Warner Bros. Discovery and Paramount have faced challenges in recent years, with their stock prices trading below previous highs amidst the intensifying streaming wars. Warner Bros. Discovery appears to be on track to achieve profitability in streaming, although some cost-saving decisions have stirred discontent within the industry.

Industry experts have identified Warner Bros. Discovery, Paramount, and Comcast-owned NBCUniversal as potential merger targets in 2024. However, due to the Reverse Morris Trust deal that facilitated the merger of Discovery and WarnerMedia, Warner Bros. Discovery is legally incapable of executing any deal until April 2024.

David Zaslav, known for his dealmaking expertise since taking over Discovery Communications in 2006, has expressed interest in pursuing opportunistic mergers. Speculation has mounted that Zaslav and John Malone, a board member of Warner Bros. Discovery, have set their sights on Paramount.

Shari Redstone, who controls Paramount through her family holding company National Amusements, is also rumored to have entertained discussions regarding National Amusements' controlling stake in Paramount. Furthermore, Paramount has been actively seeking to sell non-core brands like book publisher Simon & Schuster and BET cable channels.

In a separate development, Byron Allen, the founder of Allen Media Group, has reportedly offered $3.5 billion to acquire the BET assets, including BET, BET+, and VH1, in a letter addressed to Paramount executives.

As of now, representatives for both Warner Bros. Discovery and Paramount have declined to comment on the merger discussion, leaving industry observers eagerly anticipating any potential developments in this high-stakes negotiation.

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