And So It Begins, Paramount Finally Crumbles
I predicted a while ago, along with many others, that there would start being mergers and buyouts in the streaming business, and that game has now started. Really, this is the endgame. The early part of this game was starting a million streaming services; now they begin consolidating, the winners rake in cash for two decades, and then we start again, and in the end, Disney will win (maybe). Disney is not the focus of this article, and Paramount is (that hurt to write).
Paramount is a legendary conglomerate, one of the most storied institutions in anything on a screen, owning properties like Star Trek, CBS, and 60 Minutes. Paramount itself is not legendary, but the two companies- Viacom and CBS- who merged to form Paramount are legendary. They were/are both legacy players who sought each other as the last refuge in a changing world that left them behind. It is almost sad and poetic. They merged, and it has been nothing short of a disaster. The only potentially worse outcome for either company was the world in which they stayed on their own. Since the merger, the only direction Paramount has gone in is down. Their cable channels become less and less valuable by the minute, their streaming service is one of the most horrific abominations of the 21st century (that may be too much, but it’s bad), and CBS is literally only relevant because of football, which is becoming more and more expensive to get the rights to. That last one is very worrying because this group has been underfunded compared to its competitors for over a decade. They are running on fumes. There is now no alternative but to sell, so who are they going to sell to?
First of all, the company will be sold completely as one group. Current ownership does not want to sell bits and pieces away. Shari Redstone is the one who currently owns/runs National Amusements, which in turn owns Paramount, and she only wants to sell all in one go. I heard the WSJ describe Paramount as a mansion with horrible plumbing, a leaky roof, and a boiler in the basement that needs to be replaced. The mansion can be gorgeous, but it will take a significant investment. There are only three groups who both have the resources and also see Paramount as an opportunity. Let’s review those groups, and I will give my pick.
The first in the running is Skydance, run by Larry Ellison’s son. Skydance is a production company that has been crushing it recently with blockbuster slams like Top Gun: Maverick and Mission Impossible. What separates Skydance from other production companies that have been popping up everywhere recently is that Skydance focuses on bringing in those dollars over bringing in those awards. Skydance is only in the conversation with Paramount because they want Paramount Studios. They would probably spin off cable channels like CBS, Nickelodeon, Comedy Central, etc., or sell them directly. Ellison is pursuing an all-cash deal.
Next in contention is Warner Bros. Warner Bros has been pursuing Paramount for a minute, even meeting months ago to discuss a merger. When news of a potential merger came out, the stock plummeted. Warner Bros needs a boost. Their streaming service Max is struggling. The stock price keeps falling, and they are rapidly becoming the third man in a two-man lifeboat. The stock price is down 60% since the IPO a year ago. One of the main reasons investors balked at the rumored deal is that Warner Bros is struggling mightily with debt. When Warner Bros and Discovery merged, they left themselves with $40 billion in debt, which they have barely started paying down. In fact, Warner Bros is rapidly approaching takeover territory themselves.
That leaves us with the third man left standing, Byron Allen. Allen is offering $28.58 per share, over double the current share’s cost. His company would also absorb all of Paramount’s current debt. It all comes out to a $30 billion sale. I would forgive you for not knowing who Byron Allen is, so I will give some backstory. Allen owns The Allen Group, an organization that has been snapping up TV Channel after TV Channel, rushing into the hurricane while every other company flies away. Some people have raised some questions about Allen’s dealmaking ability. CNBC kindly compiled a list of failed deals from Allen.
“In December, Allen renewed an attempt to buy Paramount-owned Black Entertainment Television and VH1 for a combined $3.5 billion.
In November, Bloomberg reported he was weighing a bid to buy television stations from E.W. Scripps.
In September, Allen made an offer to buy ABC and several other networks from Disney for $10 billion after Disney CEO Bob Iger opened the door to selling the company’s linear TV assets.
In 2022, he explored a bid to buy the National Football League’s Washington Commanders.
In March 2020, he offered $8.5 billion to buy television station owner Tegna.”
Every single one of those deals failed. Allen’s strategy is a bit weird. He seems to be trying to gobble up every linear station and channel and be the last man standing. Then, I assume he will leverage those channels into some sort of deal, but the stations he owns suck. The biggest stations he has right now are The Weather Channel, which he bought for $300 million, and Cars.TV. Basically, Allen is hoping to buy the entire company and then scrap everything except for the streaming platform and the TV Channels.
This is a fascinating scenario playing out, and the three big contenders are all going for separate wings of Paramount. One is angling for Hollywood. One is angling for the streaming service. One is angling for the TV stations.
My verdict is that all of these are bad, but Skydance is the best. It would be a big risk, but Skydance has already lined up backers, and they seem to have the most optimal vision for Paramount. Allen has the wrong vision and lacks the capital-there is a reason he has pushed an offer in so early- Warner Bros simply cannot handle Paramount on its books, and Skydance is left standing.
