Disney, Warner, Comcast, and Paramount Are Contemplating Cuts, Possible Mergers

After losing more than $5 billion in the past year, the world's largest traditional entertainment companies -- Disney, Warner Bros Discovery, Comcast and Paramount -- are contemplating cuts and possible mergers to ultimately help better compete with Netflix. The Financial Times reports (via Ars Technica): Shari Redstone, Paramount's billionaire controlling shareholder, has effectively put the company on the block in recent weeks. She has held talks about selling the Hollywood studio to Skydance, the production company behind Top Gun: Maverick, people familiar with the matter say. Paramount chief executive Bob Bakish also discussed a possible combination over lunch with Warner CEO David Zaslav in mid-December. In both cases the discussions were said to be at an early stage and people familiar with the talks cautioned that a deal might not materialize.

Beyond their streaming losses, the traditional media groups are facing a weak advertising market, declining television revenues and higher production costs following the Hollywood strikes. Rich Greenfield, an analyst at LightShed Partners, said Paramount's deal discussions were a reflection of the 'complete and utter panic' in the industry. 'TV advertising is falling far short, cord-cutting is continuing to accelerate, sports costs are going up and the movie business is not performing,' he said. 'Everything is going wrong that can go wrong. The only thing [the companies] know how to do to survive is try to merge and cut costs.' But as the traditional media owners struggle, Netflix, the tech group that pioneered the streaming model over a decade ago, has emerged as the winner of the battle to reshape video distribution. 'For much of the past four years, the entertainment industry spent money like drunken sailors to fight the first salvos of the streaming wars,' analyst Michael Nathanson wrote in November. 'Now, we are finally starting to feel the hangover and the weight of the unpaid bar bill.' For companies that have been trying to compete with Netflix, Nathanson added, 'the shakeout has begun.'

After a bumpy 2022, Netflix has set itself apart from rivals -- most notably by being profitable. Earnings for its most recent quarter soared past Wall Street's expectations as it added 9 million new subscribers -- the strongest rise since early 2020, when Covid-19 lockdowns led to a jump. 'Netflix has pulled away,' says John Martin, co-founder of Pugilist Capital and former chief executive of Turner Broadcasting. For its rivals, he said, the question is 'how do you create a viable streaming service with a viable business model? Because they're not working.' The leading streaming services aggressively raised prices in 2023. Now, analysts, investors and executives predict that consolidation could be ahead next year as some of the smaller services combine or bow out of the streaming wars.

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