Paramount-Warner Bros. merger buzz rattles Wall Street

The media industry may be ready for the next seismic change, and it won't just appear on your screen: It will also unfold in the boardroom. As two of Hollywood's heritage titans circle each other for a possible mega-merger, Wall Street is hedging its bets.

At the Royal Television Society's Cambridge Convention, FX Networks Chairman John Landgraf was forthright. He described a fusion of Paramount Skydance  (PSKY)  and Warner Bros. Discovery  (WBD)  as "inevitable" and said the streaming situation is inherently unsustainable.

"Some of the great legacy majors don't really have enough scale," Landgraf said, adding that studios must merge to compete with global behemoths like Netflix and YouTube.

Landgraf's timing could not have been more precise. Just as talk grew about a Paramount-WBD merger, TD Cowen cut WBD to "hold" from "buy," citing transaction uncertainty; the stock fell 4.2%.

Landgraf's comments came amid renewed speculation that Paramount Skydance might pay more than $20 per share to purchase Warner Bros. Discovery. But Wall Street is not persuaded.

TD Cowen analyst Doug Creutz cautioned that if the sale fails, WBD may fall below $11 or $12. He established a $14 price objective.

"Sometimes the best move is to admit you don't have a particular edge on a situation and move to the sidelines," Creutz stated in an email.

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Other contenders, such as Sony and Comcast, are facing regulatory or financial barriers, leaving Paramount Skydance as the only plausible bidder for now. However, the way ahead is anything but clear.

Paramount Skydance-Warner Bros. Discovery merger: "Inevitable" may not mean "imminent"

What Landgraf says is important. He is known for guiding FX through the period of premium TV with blockbusters such as "The Bear" and "Shōgun," although he doesn't often make big public predictions. That makes his use of the word "inevitable" even more surprising.

He remarked, "We can't have as many global streaming services as we do now," pointing out that to compete globally, they need to have a lot of subscribers.  "Consolidation means greater efficiency," Landgraf added, which means fewer purchasers and larger stakes for investors and creatives.

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FX is already changing. Landgraf said Disney  (DIS)  is changing its approach to sponsor programs that appeal to a wide audience throughout the world instead of just a few specialist viewer segments. He noted that series like "Shōgun" are now doing well even in markets outside the U.S. 

This is a sign of things to come.

Reported Paramount Skydance deal is risky business

Reports say the Ellison family is behind Paramount Skydance's plans for a cash deal that would be the majority. Warner Bros. Discovery has around $35.6 billion in debt, which would make the company's total worth close to $70 billion.

But it won’t be simple:

• TD Cowen warns WBD stock could crater if the bid fails.
• Regulatory scrutiny is likely due to CNN, HBO, and CBS potentially falling under the same roof.
• WBD is reportedly preparing to spin off its cable networks to streamline operations ahead of any deal.

It’s also unclear whether the bid will satisfy shareholders without exposing Skydance to financial overreach.

This isn’t Disney's Fox acquisition — it’s survival mode

This would not be the first time media moguls attempted to scale up. However, unlike Disney's purchase of 21st Century Fox in 2019, this transaction seems to be a final stand rather than a power move.

Whereas Disney played attack to sustain Disney+, Paramount and Warner Bros. are now playing defense to remain alive. And unlike the AT&T-Time Warner merger in 2018 that imploded under its own weight, this one confronts tighter loan markets, fiercer competition, and a considerably more cautious regulatory environment.

Yet there’s an upside:

• Combining content libraries could improve global reach.
• Cutting overlaps may unlock cost synergies.
• The merged entity could better compete for ad dollars and licensing deals.

For investors, Paramount Skydance-WBD transaction is binary

Landgraf's warning was more than simply a media tactic; it was a signal to markets. If consolidation is the only way ahead, enterprises like Warner Bros. Discovery have two choices: scale up or be left behind.

For shareholders, this results in a transaction with binary risk. If the Paramount Skydance offer is successful, WBD might surge. If not, the floor falls out.

Regardless, the days of waiting are past. The next move is coming quickly.

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