The Paramount/Warner Bros. Deal (Part 2 of 4): Surely THIS Time Will Be Different!

Mega-mergers are the corporate strategy that never goes out of style — no matter how often (and consistently) they end in disaster. Can David Ellison make his the exception?

When I began my career in entertainment, the big question hanging over the business, as reflected in the themes of countless industry conferences, seemed to be: “The Internet! How do we make money on it?” But as the years passed and the impacts of the new technologies and competitors imported to Hollywood from Silicon Valley began to be felt in earnest, that recurring theme drifted steadily toward a similar but decidedly darker question: “The Internet! How do we survive it?”

To answer that existential question, the industry soon settled upon two new canons of conventional wisdom that appeared to satisfy Wall Street investors: first, that Hollywood’s powers would have to go all-in on streaming, adopting the tactics and strategy of their tech rivals to beat them at their own game; and second, that doing so would require them to quickly consolidate themselves into a few surviving mega-companies with the scale needed to compete on those terms.

These mandates largely defined the course of the industry over the 2010s and into the 2020s, as its traditional powers quickly sorted themselves into one of two categories: potential acquirers and potential acquirees. But in practice, the strategy for both categories was largely the same: get bigger fast. The main difference was whether the purpose of that added scale was to enable them to swallow even more of their rivals, or to make themselves more appealing to the companies doing the swallowing.

Now, more than ten years into this era of relentless corporate consolidation, every rumor of another proposed merger or acquisition reminds me of a scene from a 2004 episode of The Simpsons. Homer is doing some renovation work in his kitchen, gleefully taking a sledgehammer to the cabinets and walls. Through a newly-punched hole in the wall, he slams the sledge into an exposed electrical junction box, receiving a violent shock that throws him across the room so hard that he leaves a man-shaped dent in his refrigerator. He gets up, shakes off the impact, and triumphantly declares, “Man, that hurt! Now to do the exact same thing again!”

For The Business of Television Max(+)’s debut week, I’ll be taking on the story that most of us are already talking about anyhow: Paramount’s victory in the most protracted and exasperating will-they-or-won’t-they corporate courtship since Skydance bought Paramount just a few years ago. And to celebrate this launch, I’m making it a four-part series (after which I hope to never talk about this subject, or write another four-part series about any subject, ever again):

• In yesterday’s Part 1, I gave a short answer to the question “Is this a good deal for Paramount?” (and a much longer answer to the question “Does it even matter?”).

• In today’s Part 2, I look at this deal in the context of Hollywood’s abysmal track record with mega-mergers, and consider what it will take for Ellison to succeed where so many others have failed.

• In tomorrow’s Part 3, I will explain why this outcome is still a win for Netflix — and how they managed to rig the situation so that pretty much any other outcome would have been too.

• And finally, in Thursday’s Part 4, I’ll wrap up by exploring what this deal means for everyone else who didn’t have a seat at the bargaining table (and for one person who did).

Why Do We Keep Acting Like This Works?

In the Conclusion of the second edition of my book, published in 2024, I reviewed nine of the largest and most consequential mergers and acquisitions of the “Peak TV” era:

• AT&T’s acquisition of DirecTV, announced in May 2014 and closed in July 2015, at a reported deal value of $49 billion ($67 billion with debt);

• Charter Communications’s acquisitions of Time Warner Cable and Bright House Networks (retaining the Charter brand), announced in May 2015 and closed in May 2016, at a combined reported deal value of $88.8 billion;

• Lionsgate’s acquisition of Starz, announced in June 2016 and closed in December 2016, at a reported deal value of $4.4 billion;

• AT&T’s acquisition of Time Warner (rebranded WarnerMedia), announced in October 2016 and closed in June 2018, at a reported deal value of $85.4 billion;

• Disney’s acquisition of most Fox assets (excluding the Fox broadcast network, news, and sports assets), announced in December 2017 and closed in March 2019, at a reported deal value of $71.3 billion (plus $13.8 billion of Fox debt);

• T-Mobile’s acquisition of Sprint (retaining the T-Mobile brand), announced in April 2018 and closed in April 2020, at a reported deal value of $26 billion;

• Comcast’s acquisition of a controlling share (75%) of Sky, announced in September 2018 and closed in October 2018, at an implied valuation of $39 billion;

• CBS’s acquisition of Viacom (rebranding first to ViacomCBS, and later to Paramount Global), announced in August 2019 and closed in December 2019, at a reported deal value of $15.4 billion; and

• AT&T’s subsequent spinoff of WarnerMedia into a merger with Discovery (creating the new Warner Bros. Discovery that just sold itself to Paramount), announced in May 2021 and closed in April 2022, at a reported deal value of $43 billion.

Notably, three of those nine deals were direct precursors to the one we’re talking about today. And troublingly, the best I could say for any of them at the time — with the exception of T-Mobile’s acquisition of Sprint, the deal farthest removed from the core entertainment and media industry — was basically “I guess it hasn’t turned out terrible for now?” At least half already looked like outright disasters.

The year and a half since hasn’t made any of them look any better, nor are there any noteworthy success stories among the smaller deals that also took place over that same period.¹ The only possible exception is the deal that created Warner Bros. Discovery in 2022 — and that’s only if you ignore the fact that the company laid off thousands of employees and lost over half of its initial post-AT&T-spinoff value, until the bidding war between Netflix and Paramount turned it into the windfall of David Zaslav and John Malone’s dreams anyhow.

Why Don’t Entertainment Mega-Mergers Ever Seem to Work?

I’m not saying that these kinds of combinations can’t work. But I am saying that experience shows that they virtually never do, and that thinking about what it would take to get one right — especially at this scale and with these stakes — unfortunately reminds me a little too much of a different Homer Simpson quote. Dismissing his wife’s concerns about adopting a pet elephant, Homer confidently declares, “Marge, I agree with you in theory. In theory, communism works! In theory.”