Warner Bros Discovery and Paramount have been in informal talks about a possible partnership, according to multiple media reports. That could bring together two of the big five major movie studios and their respective television interests. The combination could potentially be worth more than the sum of their parts and lead to further industry consolidation.

Warner Bros Discovery and Paramount have both embarked on expensive direct-to-consumer online video enterprises, but they still trail behind Netflix and Disney Plus. They have started to cut costs to minimise losses of billions of dollars from their online video services.

Their respective chief executives, David Zaslav and Bob Bakish, reportedly met before Christmas to discuss how their online video services might merge to compete with Netflix and Disney.

The Warner Bros chief executive also spoke about the prospective deal to Shari Redstone, who owns National Amusements, the controlling shareholder of Paramount. The talks are said to be in early stages and may not come to fruition, which could face regulatory challenges on competition grounds. In any case, a formal approach will have to wait until April, when a tax provision used to merge WarnerMedia and Discovery expires.

Warner Bros Discovery - Paramount

Warner Bros Discovery is the result of a previous merger between the WarnerMedia unit of AT&T and the Discovery group. It includes major movie franchises like Harry Potter and Lor of the Rings as well as household names from the satellite cable television era, including CNN, HBO, and Cartoon Network. WBD has 95 million online video subscribers, across HBO, Max, HBO Max, and Discovery+. Warner Bros Discovery is valued at $28 billion but has estimated debts of $43 billion. The direct-to-consumer business produced positive earnings before interest, tax, depreciation, and amortisation of $111 million in the most recent quarter, having lost more than $3 billion over the previous 24 months. In the first nine months of 2023, Warner Bros Discovery lost a total of $2.7 billion.

Paramount is another storied studio with major movie assets, like Star Trek and Mission: Impossible, as well as television channels including CBS, with its news and sports operations. The current incarnation of Paramount Global was formed through the merger of Viacom and CBS. Paramount+ has around 63 million online video subscribers. Paramount is now valued at about $10 billion. With its own a debt mountain of about $15 billion, Paramount is under pressure to find a buyer or a strategic partner. In the most recent quarter, the Paramount direct-to-consumer business reported a loss of $238 million, having lost more than $3.5 billion over the previous 24 months. In the first nine months of 2023, Paramount lost a total of $855 million.

So, the obvious answer is to combine their operations and see how much more they can afford to lose. The multi-billion-dollar question is whether in combination they could compete better with Netflix.