As 2023 began, Covid was waning, Top Gun: Maverick was a billion-dollar Oscar Best Picture nominee, and Shari Redstone’s place in the media firmament felt secure after a years-long quest to reunite CBS and Viacom.
At year’s end, the narrative has dramatically changed.
Paramount Global, which Redstone leads as executive chairwoman and CEO of its controlling shareholder National Amusements, has hit a prolonged rough patch, and speculation is rampant about its future as a stand-alone company. Film and TV production has been hampered by the WGA and SAG-AFTRA strikes, the company’s streaming operation is bleeding cash, and an advertising slowdown is squeezing cable networks already jeopardized by cord-cutting. What’s more, old questions are resurfacing about whether the company has enough scale to compete, with those doubts reflected in the company’s lagging stock price. As of Friday’s close, the share price of $16.27 gave Paramount a market value of about $10.2 billion.
As Deadline reported last week, David Ellison’s Skydance has entered the mix of parties interested in snapping up all or part of the company, likely via a potential transaction with National Amusements. Firms like Skydance or RedBird could potentially do what private money does: try to optimize returns on Paramount’s legacy assets, which include CBS, 28 local TV stations, two-dozen-plus cable networks and the 111-year-old movie studio. With the dealmaking climate expected to improve in 2024 and Paramount needing to pay down debt and meet steep expenses, more than a dozen observers Deadline spoke with both inside and outside of the company expect something to give soon.
“It’s the worst-kept secret in Hollywood and on Wall Street that Paramount is in financial straits and consolidation is inevitable,” media analyst Alan Gould of Loop Capital said in an interview.
“Shari Wants To Sell”
The kickoff to the latest wave of chatter about Paramount came in mid-November, when the company unveiled change-in-control severance protection plans (aka golden parachutes) for CEO Bob Bakish and top executives in the event that the company were to change hands. Some of its peers already have those in place, but Paramount previously did not.
At a Wall Street conference last week, S&P’s top media analyst painted a dire picture of Paramount’s finances. It’s teetering on the lowest rung of investment grade after a downgrade. If it tips over, it will have a tougher time raising cash. That makes a deal attractive.
“Shari wants to sell,” says one insider. The film studio, practically left for dead a decade ago, has rebounded strongly and is seen as the main draw for Ellison and other suitors. Redstone’s family history, though, could make it the trickiest piece in the puzzle. “The studio could be sold in 15 minutes and I wouldn’t be surprised if it’s sold in two years,” the insider added.
In a bid to conserve cash, the parent company slashed its shareholder dividend (to 5 cents from 24 cents). That means greatly reduced payouts to NAI, which holds 77% of Paramount shares. Already last spring, it announced a strategic investment from merchant bank BDT Capital.
NAI’s assets include the National Amusements theater chain, with about 800 locations, and about $200 million in debt, Gould estimates. On the occasion of the BDT investment, Redstone affirmed that NAI “has conviction in Paramount’s strategy and execution, and we remain committed to supporting Paramount as it takes the necessary steps to build on its success and capitalize on the strategic opportunities in our industry.”
The big question now: Is that still the case?
Reps from NAI, Paramount and Skydance all declined to comment.
Breaking Up Is Hard To Do
Paramount is the smallest of the major Hollywood studios. Linear television is in secular decline and CBS and cable networks are highly dependent on advertising. In recent years, the company has unloaded assets including Black Rock, the longtime CBS headquarters in Manhattan; the Radford lot in Studio City; Television City in LA; and book publisher Simon & Schuster. (It tried to sell BET but didn’t like the offers. It also rejected bids for Showtime.) The stock perked up on word of Skydance’s interest, but earlier this year it fell to a multi-year low below $11. Consensus is it should be sold.
To whom it would be sold — and if and how — depends on Redstone. Her father, Sumner Redstone, built a global business out of a Boston theater chain launched by his own father, Michael. Shari and Sumner had their share of conflict and the elder Redstone, who died in 2020, publicly insulted his daughter over the years. Unscripted, a book published in February of this year about the family and its media empire (by James Stewart and Rachel Abrams of the New York Times), detailed their dysfunctional relationship and eventual reconciliation or sorts in his last years. Selling something that took decades to build is not a casual decision, but it also won’t be ideal to wait too much longer, with all of traditional media losing steam.
“She may need to make some decisions out of necessity, not convenience,” one fund manager said.
Ellison — whose billionaire father Larry Ellison, the founder of Oracle, is Skydance’s biggest shareholder — “wants a studio,” said one Hollywood dealmaker. Adds a rival studio chief, “It’s no surprise that David Ellison is interested in a stake in Paramount; he always wanted to be studio boss.”
Of all of the majors, Paramount is the only one that’s affordable for a company of Skydance’s size, especially if it goes through NAI, which Gould called a “clever way to get control of Paramount.” It’s certainly less risky than buying a company “with an enterprise value of about $23 billion if you are only interested in the $7 billion studio.”
As one Wall Streeter sees it, “You mitigate the risk by buying NAI. You are paying less.”
Here’s the catch: an NAI transaction may not the best thing for Paramount’s public shareholders. Gould in fact has downgraded the company to “sell,” saying he doesn’t see “any upside for the public shareholders of Paramount.” In other words, Shari or the Redstone family “would get a premium” for their stake, while others would not.
Illustrating the conundrum that is Paramount right now, Citi’s Jason Bazinet has a “buy” on the company. He said the downside in Ellison buying NAI instead of Paramount directly is “tax leakage.”
“If Paramount was going to sell the entire company, they might do that with equity. So there would be no check back to the IRS,” he said. But if Ellison buys NAI, then sells CBS for cash, for instance, “he’d have to pay capital gains tax [so] there is less value for shareholders.”
What happens if Ellison can’t sell the linear TV assets and just ends up running all of Paramount? “Could they make better decisions and operate it better?” wonders one fund manager.
Others say Ellison wouldn’t do a deal unless he was sure he’d only end up with the studio.
Turn Off TV?
Unloading the TV assets would be a complicated process, especially because they continue to generate considerable free cash flow in decline. Securing distribution, however, is a more complicated task than ever for network owners. Paramount faces major carriage renewal deadlines with Comcast and Charter, the two largest U.S. cable operators, over the next several months. Comcast and ViacomCBS signed a renewal in 2022, but insiders have confirmed the companies are facing another one at the end of this month.
Charter, for its part, has drawn a clear line in the sand with programmers. It recently squared off with Disney and after a 10-day blackout of ABC, ESPN and other networks, a renewal was reached that will have broad implications for the industry. In exchange for promoting and bundling streaming services like Disney+, long-established networks like Freeform and FXX were permanently dropped, a major disruption to the traditional dual revenue stream of pay-TV.
“Anyone interested in buying Paramount will have to reckon with the outcome of these two deals,” one high-level media executive told Deadline.
Linear TV is in something of a limbo state after defining many of the top media companies and filling their coffers for more than two decades. Disney recently reversed course after exploring a potential sale of local TV stations and linear TV networks, with CEO Bob Iger concluding that they remain valuable as promotional tools.
For a major cable brand like Nickelodeon, the stakes in the distribution negotiations are significant. Even in a diminished pay-TV landscape, the kids powerhouse collects about $1 billion in affiliate fees annually, sources estimate. As Nick brands like PAW Patrol have shown, there is also huge merchandise potential tied to various Paramount properties. Over the summer, Teenage Mutant Ninja Turtles cleared $1 billion in global retail — and that’s just for the year alone. This was all stemming from the $180.5 million global gross of Paramount’s animated Teenage Mutant Ninja Turtles: Mutant Mayhem. Paramount Consumer Products’ Turtles theatrical program was its most ambitious yet, counting north of 400 licensees for the film and 1,100 total for the franchise.
And yet, whither Paramount+, which lost $238 million last quarter? The streaming service, rebranded after the merger of the former CBS All Access and Showtime, has hit peak losses, but there’s no indication of when it’s expected to turn a profit. It could bundle more aggressively, in line with a growing industry trend. Paramount has recently explored a potential bundle with Apple TV+, done “hard bundles” internationally to drive adoption and even struck a pact with Delta Airlines. Overshadowed by the angst over the fate of Paramount+ has been the breakout success story of free, ad-supported streamer Pluto TV. Acquired for $340 million in 2019, Pluto now racks up billions in annual ad sales and spends a small fraction what its streaming siblings do on programming given it has stayed out of the originals race.
While there are clear signs of change at the House of Redstone, not everyone on Wall Street sees a dealmaking frenzy in the near term.
“What is the rush to buy Paramount now?” Lightshed Partners’ Rich Greenfield wrote in a recent blog post, saying it “undoubtedly will be sold.” But he believes this is a buyer’s market. “All signs point to legacy media worsening as we move into 2024 with executives finally realizing that linear TV advertising is never getting better.”
One other scenario, a hook-up with a media rival like Warner Bros. Discovery or Comcast’s NBCUniversal, could face a storm of regulatory objections, not to mention skepticism about the strategy of piling declining legacy assets on top of other legacy assets. “Disney-Fox and WarnerMedia-Discovery made some sense at the time,” one dealmaker told Deadline, “but this is a very different market now.”
Comcast President Mike Cavanagh, who oversees NBCU, was asked about acquisitions at recent Wall Street conference. “The bar is really high,” he replied, “unless there is a strong, compelling reason to do it. Our job is always to look at things, but … I like the hand we have.”
Of course, execs are not likely to show their cards in public. And Comcast is now sitting on $8.6 billion from Disney in exchange for its one-third stake in Hulu.
WBD chief David Zaslav, who has been prone to talk about bulking up, was a bit more restrained at the New York Times DealBook Summit last month. “I think we have everything that we need,” he said, at least for the near future. WBD, whose stock has steadily sunk since the April 2022 close of the $43 billion WarnerMedia and Discovery merger, has been paying down its massive debt but still has a ways to go. The company also could be a target itself starting in April, due to an arcane clause in the merger set to expire two years after the close. “Every public company is technically for sale,” Zaslav said, with boards obligated to consider the best interests of shareholders. “But our perspective is, we are positioned for growth next year. To invest in more content. To position ourselves so we have options.”
Anthony D’Alessandro contributed to this report.