Can a Paramount Sale Break the Mold of Media Mergers?

Just what, exactly, would Sony and Apollo Global Management be getting out of a Paramount Global acquisition? 

Photo illustration of two retro TVs with arms reaching out of them and shaking hands, symbolizing media mergers
Photo illustration by Connor Lin / The Daily Upside, Photos by Rawpixel and Zlatko Plamenov via Freepik

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Hollywood bookkeeping is so distinctive it has its own term. As actress Lynda Carter once reminded her hostess on “The Late Show with Joan Rivers,” it’s called “creative accounting.”

After making a nonbinding $26 billion bid for Paramount Global in April, The New York Times reported last week that Sony Pictures Entertainment and private equity partner Apollo Global Management signed nondisclosure agreements to get a closer look at Paramount’s books, and then promptly cooled on their initial all-cash offer.

Maybe Sony and Apollo changed their vision for the deal. Perhaps National Amusements President Shari Redstone is having second thoughts about selling off a piece of the company that has long defined her family. 

But what would Sony and Apollo be getting out of a Paramount acquisition? 

Paramount Minus

Like most of Hollywood, Paramount Global chased shareholder sentiment straight into the streaming era, launching Paramount+ in 2021. And, like most of Hollywood, the results have been… well, not very good. The service lost the company $1.6 billion last year after losing $1.8 billion in 2022. On the bright side: Paramount says the streamer will turn a profit next year.

Meanwhile, its linear TV business — headlined by the CBS broadcast network and buoyed by cable mainstays like MTV, Comedy Central, Nickelodeon, and Showtime — has suffered under the industry-rocking forces of cord-cutting and rapidly shrinking ad revenue. Luckily, CBS still has the National Football League, a massive driver of ratings and revenue.

Things aren’t much rosier for its film studio, Paramount Pictures: 

  • Last year, only one of the studio’s films, Mission: Impossible – Dead Reckoning, hit the worldwide box office top 10. And even that small win rang hollow, given the movie’s underperformance compared to previous entries in the series. 
  • The diminishing returns extended to two other marquee Paramount franchises last year, with both Transformers: Rise of the Beasts and Teenage Mutant Ninja Turtles: Mutant Mayhem pulling slimmer box office hauls compared to prior entries in their series.

The recent performance across sectors suggests a company in crisis. “The combination of a money-bleeding DTC segment, struggling studio, and exposure to linear TV has made Paramount Global as a whole worth less than the sum of its parts,” industry research firm Parrot Analytics wrote in a recent quarterly report card.

So why the heck would Sony and Apollo want to buy it? Well, maybe for the parts.

Piece and Love: Unlike its legacy peers, Sony has intentionally stayed out of the costly Streaming Wars, opting instead to operate as an independent arms dealer by licensing and selling off content to the highest bidder. While buying Paramount would immediately give Sony a streaming service, industry consensus is that Sony would shutter the struggling operation. 

The real “crown jewel” for Sony is the massive library currently concealed within Paramount+, Jamie Lumley, Third Bridge sector analyst, told The Daily Upside.

Sony is “really focused on that arms dealer approach where they have the content, they license it out, they don’t have to really worry about the operating expense and the marketing costs and everything which is needed in order to make a streaming platform work,” Lumley said. “By having the Paramount assets, they then really increase their options, it can really drive revenue just from licensing.”

Despite its harsh assessment of Sony’s current state, Parrot Analytics concurs. The research firm contends that Paramount’s vast library ranks third-highest in the industry in audience demand. “Paramount Global has a highly valuable, top-tier library, but hasn’t translated this strength into an industry-leading streaming package,” the firm wrote. 

Meanwhile, despite recent woes, franchises remain the oil of the entertainment industry, and given their inherent marketability, Paramount’s properties remain highly valuable, Lumley says. It’s a strategy that’s similar to Amazon’s $8.5 billion acquisition of MGM Studios in 2022, which gave the e-commerce giant instant access to brand-name franchises such as Rocky, James Bond, and Legally Blonde (Amazon also backstopped its Prime Video streaming service with MGM’s library).

Not that business would go on as usual at Paramount Studios, however. According to a Bloomberg report earlier this month, Sony intends to sell the Paramount Studios lot in Los Angeles should it close the acquisition. After all, Sony already has a massive filming lot of its own in the city — why pay for extra facilities? Paramount already embarked on its own mission to slim down, perhaps to make itself a more appealing target; in February, it announced layoffs of more than 800 employees, citing an effort to cut costs.

Channel Surfing: Paramount’s declining cable stations, meanwhile, are the most likely candidates to flip. Money from ads and carriage fees is still flowing in, despite increasing weakness. Media companies probably don’t want to add to their own shrinking cable portfolios, but someone — private equity, being the obvious candidate — might. It makes MTV and Comedy Central potential candidates for PE players to swoop in, cut costs, and earn some recurring, though diminishing, revenue. It’s cable TV’s newspaper moment.

Although CBS remains relatively strong — Super Bowl LVIII was the most-watched single-channel broadcast in US history earlier this year — its status as a major broadcast network means regulatory scrutiny. It’s likely why Tokyo-based Sony roped New York-based Apollo Global Management into the deal. Still, most analysts contend that even CBS is likely to be sold off again following any Paramount sale.

Redstone is reportedly not enthusiastic about her family’s media empire being stripped to pieces, which is why she waded deep into a rival bid from David Ellison’s Skydance Media before engaging with Sony. That deal would likely have kept the company more or less intact, though its complex structure would’ve essentially seen control of the Redstone family holding company pass directly to Skydance. A sale would enrich Redstone and other Class A shareholders while leaving regular Class B shareholders out to dry. The deal’s rumblings triggered a shareholder revolt, and Redstone has backed away from it, for now.

History 101: And so we’re still left to wonder: Are legacy media deals worth the price tag? The dust is still settling on Amazon’s purchase of MGM, but it barely moves the needle in the shadow of the company’s massive e-commerce, advertising, and cloud computing businesses. The same could be said for Discovery’s merger with Warner Bros. While the reality TV empire has successfully maintained Warner’s prestigious cable TV and studio assets, the combined firm remains riddled with debt, and leadership constantly teeters between buying and selling off properties.

It’s been five years since this age’s biggest media merger: Disney’s $71 billion acquisition of 21st Century Fox in 2019, which might be the most apt comparison for any Paramount sale. Did this deal work out? It depends on who you ask. 

“You know, you can’t say [the acquisition] hasn’t worked” for Disney, Jessica Reif, entertainment analyst at BofA Securities, told The Daily Upside. “But it’s been sort of blood, sweat, and tears to integrate it.”

Lumley agrees, saying it again comes down to the intellectual property: “What the Fox acquisition brought was effectively all the content over on Hulu, which definitely broadens [Disney’s] reach in terms of the audience that they can target” beyond just family-friendly fare.

It also allowed Disney to bulk up for a global direct-to-consumer battle with Netflix and the tech giants. Plus, it brought in key executive talent, like FX president John Landgraf and TV executive Dana Walden, now a leading candidate to succeed Bob Iger. 

Still, one could argue that $71 billion would have been better spent elsewhere — like video games or social media, rather than on more production and distribution capacity within traditional Hollywood’s decline. And the hefty price tag invited plenty of criticism — including a lengthy, expensive, and distracting battle with activist investor Nelson Peltz.

On the flip side, it’s clearer than ever that Fox magnate old Rupert Murdoch cashed out at the tippy-top of the major media business, Reif told The Daily Upside, perhaps confident his firm was too small to compete in a landscape that became defined by titanic tech players and emerging forms of highly engaging digital media. 

Redstone, it seems, could’ve followed Murdoch’s example. Instead, five years later, Paramount is for sale, hoping for a cashout that can scratch at least a third of what Fox scored. In today’s day and age, it may just be Mission: Impossible.