Paramount Global (NASDAQ:PARA) and Warner Bros. Discovery (NASDAQ:WBD) are reportedly in talks to merge as streaming services continue to dominate the entertainment industry.
Competition has gotten fierce as cloud giants Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), and Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) are outbidding the former entertainment giants for sports and other content. Free content from Alphabet’s YouTube, ByteDance’s TikTok, and social networks like Meta Platforms (NASDAQ:META) are also soaking up audience attention.
PARA stock was trading early this morning at $15 per share, with a market capitalization of just $10.06 billion. WBD stock was at $11.31 per share, a market cap of $28.1 billion.
Shrinking Water Hole
Warner Brothers and Paramount once controlled their distribution through broadcasting and, later, cable.
However, going directly to consumers through streaming has proven difficult since they must rent the storage and bandwidth from competitors.
Despite this, both have managed to attract audiences. WBD’s Max reportedly had 95 million subscribers. Paramount Global has over 63 million.
Despite this, Warners lost $417 million, 17 cents per share, on revenue of $9.98 billion in the third quarter. Paramount earned $295 million, 43 cents per share, on revenue of $7.13 billion.
Even taken together, the market cap of the two “entertainment giants” pales in comparison to rivals. Netflix (NASDAQ:NFLX), which adapted its business model to streaming a decade ago, is worth $214 billion. Comcast (NASDAQ:CMCSA), now one of the largest Internet service providers, is worth $188 billion. Walt Disney (NYSE:DIS), with its theme parks and marketing power, is worth $167 billion.
Each of the Cloud Czars is worth 8-20 times more, with Apple topping the list at $3 trillion.
Any merger for Paramount would have to go through Shari Redstone, whose National Amusements owns 77% of its voting stock. Redstone inherited the stake from her late father, Sumner Redstone, who built Viacom from a former CBS subsidiary and then bought CBS for $35.9 billion in 1999. That’s just $3 billion less than the combined market cap of WBD and Paramount today.
PARA Stock and WBD Stock: What Happens Next?
WBD and Paramount still dominate the attention of the news business. WBD owns CNN, and Paramount owns CBS. But neither may be big enough to compete in the new streaming universe.
As of this writing, Dana Blankenhorn had LONG positions in AAPL, GOOGL, and AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
