What a Warner Bros-Paramount colossus would look like

Should the deal be consummated, it will create a colossus that includes streaming networks HBO Max and Paramount+, news channels CBS and CNN, and the rights to film franchises from “Harry Potter” to “Transformers”. What would have been a nice addition for Netflix—which coveted Warner’s catalogue and its ability to churn out Oscar-nominated content—is existential for Paramount, notes Robert Fishman of MoffettNathanson, a firm of analysts. On its own, Paramount lacks the scale to survive the streaming wars; with Warner, it stands a much better chance. The combined company will have around 210m streaming subscribers—still far fewer than Netflix, which boasts some 325m, but more than other competitors such as Disney.

Even so, it is a bold gamble by the Ellisons and their investment partners. They are shelling out around $111bn to buy Warner, including its debt and a $2.8bn fee owed to Netflix, with which a deal had previously been agreed. That will be funded in part by borrowing $58bn. Adding in the debt already on Paramount’s balance-sheet brings the total pile to more than $70bn. Last year the two companies generated a combined operating profit (before depreciation and amortisation) of just $11bn.

That amount of leverage was partly why Warner was initially reluctant to accept the Ellisons’ advances. Raising the price, and offering various guarantees, helped get a deal over the line. Paramount’s promise to release at least 30 films a year in movie theatres didn’t hurt either, given Tinsel Town’s fear of a Netflix-led annihilation of traditional cinema. Nor did signals from Washington that a Paramount takeover, unlike one by Netflix, would be waved through with little objection from trustbusters, thanks perhaps to the Ellisons’ chumminess with Donald Trump. The president recently declined to meet with Ted Sarandos, Netflix’s co-chief, during a White House visit, sending an aide in his stead, and has called on the streaming giant to fire Susan Rice, a board member who served in the Biden administration.

The closure of the deal now seems likely, though not certain. Warner’s shareholders will have to approve the takeover at a meeting in April. Attorneys-general in California and other states may put up a fight if they feel that federal regulators failed to do their job. The antitrust police in Europe and elsewhere will also have to give the nod.

If the Ellisons prevail, the real work will begin. Paramount Skydance Warner Bros Discovery will be indebted and unwieldy. The Ellisons have already foreshadowed a $6bn “cost-synergy opportunity”, which has Hollywood bracing for job losses. Assets may need to be sold off, too. Laurent Yoon of Bernstein, a broker, reckons that the deal gives the combined company “a shot at greatness”. But history suggests that media mergers often end badly—especially those that involve the studio behind Looney Tunes. This franchise may have another instalment yet.