A Paramount–WBD Merger Would Be Good

Reports indicate that Paramount is looking at acquiring Warner Bros Discovery. I thought I would briefly make the case that this is much to be cheered. 

The combined company would have a strong IP portfolio: DC, Harry Potter, Game of Thrones, Friends, Mission: Impossible, Top Gun, Transformers, Star Trek, South Park, the Yellowstone/Taylor Sheridan universe, SpongeBob, Paw Patrol, Looney Tunes, Cartoon Network, Nickelodeon, and the entire CBS library. Few media companies in history have ever had such breadth.

But aa independent companies, Paramount and Warner Bros. have the same problem. They make a lot of money in the traditional television business, but that is declining. They make very little money in streaming. The streaming money has to grow to replace the TV money. But their assets, while considerable, are in both cases not quite enough to achieve critical mass and build a successful business in streaming.  

What to do?

Why This Is Good

Right now, both Paramount and WBD are stuck in the “gulf of death” — spending enough to lose money but not enough to win. Here is the chart I used in December 2023 (“Why Paramount-WBD Makes Sense”) to illustrate this point. Take the X axis to represent how much you spend per year on your service (including licensing your own content), and take the Y as the annual cash flow. As you build a subscription video business, you have to go through this valley where your selection is subscale. Generally that period is not rewarded with massive profits. This is because subscription video is essentially a fixed cost business and you are waiting for your variable revenue to catch up with (and exceed) your fixed costs. To get better results, you need:

• More customers

• Who stick around

• At the same or higher prices

Which is to say that lots of people have to like and value the service. 

Paramount and Warner Bros are basically both in the valley of death. Some people like the services, but not quite enough or not always. At their current scale, it’s just hard to get the customer stickiness that would cause revenue and cash flow to consistently rise and take everyone to the right side of the chart where one wants to be. What we have seen a lot of is services that become barely profitable and then they squeeze every nickel — until the buffaloes jump off, as they say — to stay slightly profitable. This is not great for customers; for the operators, it’s a trap. You can’t cut your way to success. It might avoid embarrassment to be able to say you aren’t losing money on your SVOD service, but people who are stuck in the valley of death and who are incapable of escaping generally don’t do interesting things or create value or escape. They under-invest, avoid bold creative bets, and drift.

A combined Paramount–WBD would escape this trap. It could:

• Invest in premium content and match Netflix, Disney, and Amazon in budget and ambition.

• Experiment with new formats — faster sequel cycles, year-round franchises, hybrid film/TV storytelling. (See “4 New Formats to Expect," here.)

• Build platform-level innovation, from social and interactive features to AI characters and commerce layers, competing not just with other streamers but with TikTok and Facebook for daily attention. (See “Welcome to the SVOD Super App Era,” here.)

Five scale players (Netflix, Disney, Amazon, Apple, Paramount–WBD) will be healthier for Hollywood than three giants and a couple of stragglers.

Oops, I forgot Comcast/Peacock! (But I’m not alone in that, am I?)

Criticisms

Some argue consolidation will reduce output. I would expect the opposite to be true. The whole point is to combine scale, not to merge and then have the same scale as before. 

A strong Paramount–WBD would probably mean:

• More budget for creators.

• The ability to pay top-tier talent competitively.

• A broader slate of better projects.

That’s my basic argument. 

A couple of further observations on the challenges associated with the deal if it goes through — 

Organization

The largest integration challenge is probably not financial but organizational. Who does what? Who owns what?

The merged entity should have a single leader responsible for the platform, or at minimum, a content head and a product/business head. This works for Netflix. It worked for Amazon when I was there. The whole idea of having three CEOs at the old Paramount was not good.

Movie Org

Here the merger is uncomplicated. Paramount Pictures currently lacks a top leader. Warner Bros. can absorb Paramount’s assets and team smoothly, creating one unified film studio.

TV Org

Television presents the opposite challenge: two highly capable leaders, Casey Bloys (HBO) and Cindy Holland (Paramount). One could become global head of content, the other head of global original TV. Done right, this would give the new entity the best TV leadership in the industry. 

Pick a Name 

Branding matters. WBD has lurched from HBO Go to HBO Max to Max. Paramount has its own “+” spinoffs. A merged service needs one clear name.

I think the best choices build on HBO or CBS. HBO carries premium cachet; CBS is broad and accessible. 

Either way, the name of the streaming service should also be the name of the parent company. If the future depends on the consumer platform, that’s the brand employees and customers should rally around. It should be in everyone’s email address and it should be the name of the company. 

Amongst groups within the company, any false sense of autonomy or independent mission is unhelpful. 

Recommendations In Brief

1. Unify Leadership: A single global head of the service (or at minimum, one content head and one product/business head) will ensure clear governance. Avoid “fiefdoms”.

2. Leverage Film Strength: Allow Warner Bros. Pictures’ existing structure to absorb Paramount’s slate and team.

3. Empower Television Leaders: Use the Casey Bloys / Cindy Holland overlap as an opportunity to build the industry’s strongest TV leadership team with complementary roles.

4. Simplify the Brand: Pick a name (HBO or CBS). Apply it company-wide.

5. Serve the Mass Market: Above all, the new HBO/CBS must aim squarely at the broad American audience. Hollywood thrives when it entertains everyone, not when it preaches or narrows itself to one cultural faction. Top Gun, Yellowstone, South Park, SpongeBob — these succeed because they entertain across lines. (See “Cheeseburgers and Fois Gras,” here.) 

6. Pursue Targeted International Acquisitions: it is a weakness that neither Paramount nor WBD have take the opportunity to build much overseas. At this point the combined entity should prioritize acquisitions of subscale SVOD services in markets like India (Alt Balaji), Japan (U-Next, Fuji), and Korea (Wavve). 

The Path Forward

Paramount–WBD could be strong enough to take risks, innovate, and compete for the future alongside Netflix, Disney, Apple, and Amazon. That’s good for creators, good for audiences, and essential for Hollywood’s future. 

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Roy Price was an executive at Amazon.com for 13 years, where he founded Amazon Video and Studios. He developed 16 patented technologies. His shows have won 14 Best Series Emmys and Globes. He was formerly at McKinsey & Co. and The Walt Disney Co. He graduated from HarvardCollege in 1989.