Analysts: Warner/Paramount Deal Would Get Regulators' Nod After Facing Challenges
A Warner Bros. Discovery/Paramount Global combination will likely receive regulatory approval but could encounter challenges at the FCC or DOJ, said industry analysts, reacting to rumors Warner is eyeing a purchase of Paramount.
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“As the FCC generally follows the DOJ on competition issues, we would usually expect approval,” said New Street researcher Blair Levin in an email to subscribers. “Given the Tegna precedent (see 2302240068), however, approval is not guaranteed, and that precedent suggests that deal will need to be structured to avoid the problems that ultimately resulted in the Tegna deal veto,” said Blair, a former FCC chief of staff. “Media company M&A history isn’t overwhelmed with case study successes,” emailed Rick Ducey, BIA Advisory Services managing director.
Warner CEO David Zaslav and Paramount CEO Bob Bakish reportedly met last week to discuss a Warner purchase, according to an Axios article. Neither company commented on the report. Paramount earned $7.1 billion in revenue in Q3, according to its earnings release, while Warner’s Q3 revenue was $9.9 billion. Since Wednesday's report, shares of the companies have fallen.
Since the companies are relatively small media entities and cable programming’s value is on the decline, they should be able to show federal regulators that the transaction wouldn’t lead to higher prices or antitrust issues, Levin said. The dilution of cable assets' value is a major factor driving companies like Warner to seek consolidation opportunities, a media broker told us.
Compared with tech companies, the scale of a media combination is “tame,” Ducey said. In the Washington, D.C., market in 2023, BIA estimates all TV stations will generate about $315 million in broadcast ad revenue, he said. “By contrast, Google alone will generate about $848 million in WashDC and Facebook another $235 million. Hard to see how any one station or TV group could dominate an ad market with numbers like these.”
Because a deal would involve Paramount Global’s broadcast licenses, it would require FCC approval, but on its face it doesn’t appear to violate FCC rules, Levin said. The agreement would likely be structured to avoid increases to retransmission consent fees and cuts to union jobs, concerns that led to Standard's proposed purchase of Tegna being designated for hearing, Levin wrote. "The Ghost of Tegna will hang over review," he said. If a Republican administration takes over while the deal is pending, it likely would approve it and not share the same concerns, Levin added.
Ducey said the deal could be a trial balloon, similar to Disney CEO Bob Iger’s hinting last year that his company might offload its linear networks. Iger said in November that the networks weren’t for sale. This is a poor time for anyone to purchase Paramount, said LightShed Partners analyst Rich Greenfield on a podcast Thursday. “I just don't have any idea why anybody would step in today looking at how bad the outlook is for advertising right now,” he said. “I don't see any urgency.” Paramount’s stock was at a multiyear low before the M&A rumors, and will likely be lower a year from now, Greenfield said. “So what's the rush?”
Eventually, a deal will be proposed that forces federal regulators to reevaluate their current approach to media ownership, but it's unlikely to be this one, Levin said. “In the current climate in which the key decision makers look with disfavor upon increased concentration in any markets, we don’t think a Warner Discovery/Paramount deal will be the one that causes a major reevaluation of media market and ownership rules.”