Shari Redstone, president of National Amusements and controlling shareholder of Paramount Global, heads to the morning session of the Allen & Company Sun Valley Conference on July 12, 2023 in Sun Valley, Idaho.
David A. Grogan | CNBC
Shari Redstone may have missed the window.
paramount globalHis controlling shareholders are open to a merger or a sale of the company at the right price, according to people familiar with his thinking. And she has been open about the matter for several years, according to people familiar with the matter who asked not to speak publicly because the discussions are private.
Spokespeople for Redstone and Paramount Global declined to comment.
The problem is finding the right deal for shareholders. Market conditions make transformative deals difficult at best and highly unlikely at worst.
“The market is looking for media companies to restructure and consolidate their portfolios,” said John Miller, chief executive officer of Integrated Media and a senior advisor at Advansit Capital, a venture firm co-founded by Redstone. talk. “However, we are currently against large deals due to pressing concerns about ad sales, number of subscription videos, and cost of debt. At the current market valuations being given to these companies, No one wants to do business with you.”
Paramount Global is the prototype for the media industry’s consolidating challenge. The company owns Paramount Pictures, the CBS broadcast network, 28 owned and operated local CBS stations, streaming service Paramount+, free ad-supported Pluto TV, Star Trek, SpongeBob SquarePants, MTV, Nickelodeon and Comedy Central. It has been constructed. , BET, Showtime. The company also owns the physical premises of Paramount Studios in Los Angeles, California.
From an overall perspective, the company occupies a strong position. Many of Paramount Global’s assets fit well within large media companies.
Guggenheim Museum analyst Michael Morris told CNBC last week that “Paramount has a huge amount of assets in its content library and has some pretty strong sports rights, including the NFL contract, Champions League soccer, and March Madness.” I own it,” he said.
“But they’re still losing money on streaming services,” Morris said. “They need to put this together, right-size the content, and significantly strengthen the top line through pricing and adoption, so we can see investors get excited about this idea again.” Masu.”
Redstone is struggling due to declining revenue from accelerating pay-TV cord-cutting, continued streaming losses and rising interest rates. The company’s market capitalization has fallen to $7.7 billion, nearly the lowest valuation since Redstone merged CBS and Viacom in 2019.At the time, this transaction resulted in the combined company becoming The market value is approximately $30 billion.
It is unclear whether maintaining this policy will lead to an improvement in investor sentiment. Warren Buffett CEO berkshire hathawayOne of Paramount Global’s largest shareholders, he told CNBC in April that streaming “is actually not a very good business.” He also noted that entertainment company shareholders “haven’t really done much over time.”
Paramount Global’s direct-to-consumer business lost $424 million in the second quarter and $511 million in the first quarter. The company will announce its third quarter financial results on November 2nd.
CEO Bob Bakish said 2023 will be the peak loss year for streaming. Paramount Global cut its dividend from 24 cents per share to 5 cents per share to “further strengthen our ability to deliver long-term value to our shareholders as we strive for streaming profitability,” Bakish said in May.
Wells Fargo analyst Stephen Cahall suggested earlier this year that Bakish should shut down the company’s streaming business completely, even though Paramount+ has more than 60 million subscribers. did.
“We believe Paramount Global has far greater value both as a content arms dealer and as a sale story,” Cahall said in a note to clients in May. “Great content, but the strategy is wrong.”
Big tech lifeline
Paramount CEO Bob Bakish speaks with CNBC’s David Faber on September 6, 2023.
CNBC
Paramount Global executives remain hopeful about the following big technology companies: apple, Amazon or alphabetThey see the asset collection as a way to shore up their content aspirations, according to people familiar with the matter.
Paramount+’s 61 million subscribers could help existing streaming services like Apple TV+ and Amazon’s Prime Video supersize, or Alphabet’s YouTube could help the National Football League’s Sunday It could also give subscription streaming a major foothold beyond tickets and YouTube TV.
Although Federal Trade Commission Chair Lina Khan has placed particular emphasis on limiting the power of Big Tech companies, from a regulatory perspective, Apple, Amazon, and Alphabet are actually more likely to be They may be better buyers than media companies. Unlike Comcast (NBC), Fox, and Disney (ABC), they don’t own a broadcast television network. It is highly unlikely that US regulators would allow one company to own two broadcast networks. Selling CBS is possible, but separating the network from the streaming service would be tricky since it’s so tightly intertwined with Paramount+.
“While we believe Paramount Global is too small to win the streaming wars, we believe that Paramount Global is too small to win the streaming wars, but we believe it has a deep library of film and TV content, as well as sports rights and news assets, to compete with larger streaming companies. It is large enough to be acquired by a competitor,” Needham & Company analyst Laura Martin said in an Oct. 9 client research note.
A Paramount Global acquisition would be a relatively low price for a major tech company. Paramount Global’s market value was less than $8 billion as of Friday. It also has about $16 billion in long-term debt.
Still, even with huge balance sheets and trillion-dollar valuations, there’s no evidence that technology companies want to own declining legacy media assets like cable or broadcast networks. Netflix has built its business on the premise that these assets will eventually disappear. Paramount’s property and studios may be attractive for content production and library programming, but that would leave Redstone with less desirable legacy media assets.
difficulty of parting
It’s also possible that Redstone could break up the company and sell its legacy media assets to a private equity firm for cash. But Paramount Global’s lower market valuation relative to its debt is likely to make a leveraged acquisition less attractive to potential private equity firms.
Additionally, rising interest rates have led to a general slowdown in go-private transactions across industries as debt interest payments become more expensive.Buyout funds worldwide trading volume According to research by Bain & Company, the population in the first half of 2023 decreased by 58% compared to the same period last year.
If a full sale to Big Tech and a partial sale to private equity doesn’t happen, another option for Redstone is to merge with or sell to another legacy media company. warner bros discovery could merge with Paramount Global, but merging Warner Bros. and Paramount Pictures could be pending U.S. regulatory approval for the merger.
Beyond regulatory issues, recent history shows that major media mergers have not worked out well for shareholders. Recent media mergers, such as WarnerMedia and Discovery, have wiped out tens of billions of dollars in shareholder value. disney and for the most part Fox, comcast/NBC Universal and Sky, Viacom and CBS, and Scripps and Discovery.
Merger partners such as Warner Bros. Discovery may also prefer to sell or merge with another company, such as Comcast’s NBCUniversal, if regulators allow a major media consolidation.
Redstone recently sold some assets, including book publisher Simon & Schuster, and is in talks to sell a majority stake in cable network BET.
But Paramount Global I shelved the idea Percentage of people who sold their BET stock in August after deciding the sale offer was too low to outweigh the value of keeping the network in their cable network portfolio. The company’s total market valuation is less than $8 billion, making it difficult to convince buyers to pay top dollar for parts. A broader shift in investment sentiment that has boosted the company’s valuation could make Mr. Redstone and other Paramount Global executives more comfortable selling assets.
National entertainment facility sales
If Redstone doesn’t find the deal it wants, it could sell National Amusements, the holding company founded by his father, Sumner Redstone, that owns the majority of the company’s voting stock. National Amusements owns 77.3% of Paramount Global’s Class A (voting) common stock and his 5.2% of Class B common stock, representing approximately 10% of the company’s total capital.
Redstone reiterated his belief in Paramount Global’s inherent value earlier this year after receiving a $125 million strategic investment from merchant bank BDT & MSD Partners to pay down debt.
“Paramount has some of the best assets in the media industry, with an incredible content library and IP across all genres and demographics, the No. 1 broadcast network, the leading free ad-supported streaming television service, and a fast-growing “We have paid streaming available on our U.S. platform,” Redstone said in a statement in May. “NAI has confidence in Paramount’s strategy and execution and remains committed to helping Paramount take the necessary steps to build on its success and take advantage of the industry’s strategic opportunities. ”
Selling National Amusement won’t change Paramount Global’s long-term future. But this is an escape route if Redstone can’t find a deal that’s beneficial for shareholders.
Paramount Global is not actively working with investment banks on the sale, according to people familiar with the matter. The company is content to wait for changes in market conditions and regulators before becoming more aggressive with transformative transactions, the people said.
Still, Redstone’s plight aptly sums up the current problems with legacy media. While the industry is hoping for a turnaround in market sentiment, executives are quietly complaining that there is little they can do about it in the short term.
Video: Mad Money host Jim Cramer talks about Paramount Global
Disclosure: Comcast’s NBCUniversal is the parent company of CNBC.
