Media Needs To Consolidate, But Market Conditions Make It Tough

Shari Redstone, Paramount Global’s controlling shareholder is open to a merger or selling the company at the right price, according to CNBC citing people familiar with her thinking. And she has been open to it for several years, said the people, who asked not to speak publicly because the discussions have been private.

The problem has been finding the right deal for shareholders. Market conditions have made a transformative transaction difficult at best and highly unlikely at worst.

“The market is crying out for reshaping media company portfolios and consolidation,” said Jon Miller, chief executive at Integrated Media and a senior advisor at venture firm Advancit Capital, which Redstone co-founded. “But the deck is stacked against large-scale transactions now because of both immediate concerns in terms of ad sales, subscription video numbers and the cost of debt. No one wants to transact at the current market valuations that these companies are given.”

Shari Redstone

Paramount Global is an archetype for the media industry’s consolidation conundrum. The company consists of Paramount Pictures, the CBS broadcast network, 28 owned-and-operated local CBS stations, the streaming service Paramount+, free advertising-supported Pluto TV, “Star Trek,” “SpongeBob SquarePants,” MTV, Nickelodeon, Comedy Central, BET and Showtime. It also owns the physical Paramount studio lot in Los Angeles, California.

From a sum-of-the-parts perspective, the company holds a strong hand. Many of Paramount Global’s assets would fit nicely within larger media companies.

“Paramount has a tremendous amount of assets in its content library and they own some pretty powerful sports rights in the form of the NFL contract, Champions League soccer and March Madness,” Guggenheim analyst Michael Morris told CNBC last week.

“But, they are still losing money on their streaming service,” Morris said. “They need to pull these things together, right-size the content, super charge that topline through pricing and penetration, and then we can see investors get excited about this idea again.”

Declining revenue from the acceleration of pay-TV cord-cutting, continued streaming losses and rising interest rates have put Redstone in a bind. The company’s market capitalization has slumped to $7.7 billion, nearly the company’s lowest valuation since Redstone merged CBS and Viacom in 2019. At the time, that transaction gave the combined company a market valuation of about $30 billion.

It’s unclear whether staying the course will help turn investor sentiment. Warren Buffett, CEO of Berkshire Hathaway, one of Paramount Global’s biggest shareholders, told CNBC in April that streaming “is not really a very good business.” He also noted that shareholders in entertainment companies “really haven’t done that great over time.”