A Warner Bros.-Paramount merger would create a streaming behemoth. But regulators have shown ‘little appetite for media M&A,’ analyst says.

But any merger between the two would follow Warner’s complex merger with Discovery last year — which created Warner Bros. Discovery
WBD,
-1.46%
in the process. The merger would also follow efforts to fold Showtime into Paramount+ and Walt Disney Co.’s
DIS,
+0.82%
absorption of Hulu. Prentiss said regulatory enthusiasm for more was thin.

“From the regulatory point of view, our D.C. contacts have suggested there is little appetite for media M&A,” he said in a research note dated Wednesday.

He said that management at Warner Bros. Discovery — which owns Max and cable channels including CNN, TBS, TNT and Food Network — has “been consistent” in saying it wasn’t up for bigger deal-making at the moment, preferring instead for smaller acquisitions that add to the intellectual property it can leverage to churn out more shows, films and other content.

He also said that presidential-election years — next year being one — could make any deal more complicated. But he said the state of linear TV, or the basic or cable television people watched before the rise of streaming, could work in Paramount
PARA,
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and Warner’s favor.

“However, as the linear TV business continues to decline, concerns may shift from levels of competition to the overall health of the industry, which could help the process,” he said. “Moreover, WBD does not own any broadcast networks or TV stations, which would make the acquisition of CBS much more viable than Comcast/NBC buying it.”

The media industry has been grappling with a migration away from cable TV and movie theaters and more pressure from investors to turn a stronger profit on streaming, after a boom in viewing options — and increased competition — over the past decade. Analysts have said more consolidation within the media industry is likely.

But that consolidation will have implications for the types of chances studios take on new shows and films, amid a proliferation of franchise movies like those from the Marvel and DC universes. Any merger would also follow the Hollywood actors and writers strikes this year that highlighted grievances over AI and the value of artists’ work — or, depending on who you ask, the devaluation of it — in the streaming era.

Shares of Warner Bros. Discovery, which the market values at $28.4 billion, were down 2.8% on Thursday. Paramount, whose valuation stands at $10.3 billion, lost 3.4%.

Prentiss said a merger would help cushion WBD against its exposure to linear TV, adding that 44% of 2024 revenue is expected to come from advertising on that medium and carriage fees. Paramount, meanwhile, has debt and cash-burn to contend with.

Benchmark Research analyst Matthew Harrigan, in a research note on Thursday, said that the best part of the deal for WBD would be Paramount’s studio.

“The Paramount studio remains the crown jewel with only muted interest in more cable networks, although a merger enhances credibility for sports rights renewals in a rapidly changing landscape with competitors Prime Video and Apple TV+,” he said.

He noted the ways the combined company could mix and match.

“Broader sports carriage through combining TNT Sports and CBS Sports enables ‘must have’ fan appeal for an enhanced Max,” he said.

“NFL games can be streamed with Paramount+ subscriptions, while Paramount+ with Showtime subscriptions already allow live streaming of local NFL affiliates,” he continued. “This supports streaming the NFL anywhere from any device, subject to local broadcasting restrictions.”

He added: “Although Paramount’s overall cable network bouquet may have limited appeal, CBS’s NCIS would also mesh well with TruTV.”