Paramount Universal (PARA.US) is reportedly in talks with other entertainment companies about merging its "Paramount+" streaming service with existing platforms. If an agreement is reached, it could usher in a wave of new streaming partnerships that may help solidify the entire media industry. According to informed sources, the leadership of Paramount Global is actively discussing with executives of other media and technology companies to determine whether a possible merger of Paramount+ with another streaming entity would be meaningful to both sides.

Warner Bros. Discovery Company (WBD.US) is one of the companies expressing interest in reaching an agreement. The merging of Warner Bros. Discovery Channel's Max and Paramount+ streaming services could strengthen both services, making them better able to compete with the platforms of Netflix (NFLX.US) and Disney (DIS.US) (Disney+, Hulu, and ESPN).

Max has about 100 million users worldwide, with 52.7 million in the United States. Paramount+ had 71 million users at the end of the first quarter. Earlier this year, Warner Bros. Discovery Film Company conducted preliminary merger negotiations with Paramount Global, but the talks did not progress further.

As previously reported earlier this year, NBC Universal, a subsidiary of Comcast (CMCSA.US), has also expressed interest in forming a joint venture with Paramount+. Informed sources revealed that the talks did not progress or achieve any significant progress.

Chris McCarthy, co-CEO of Paramount Global, said at an employee meeting on June 25th that the company is also considering partnering with a technology platform. According to the meeting minutes, McCarthy said of a potential tech partner: "What they don't have is our scale of content, and we will create a very powerful combination to gain more time and greater profits together."

"The popular content we can jointly offer will have a huge impact in the TV, film, and sports sectors, and will attract millions of viewers. In addition, we will share all other non-content costs." McCarthy also commented on potential collaborations with existing subscription streaming services like Max or Peacock.

The merged streaming service will provide customers with more diverse programming, reduce reasons for cancellation each month, and reduce customer churn. By giving Paramount Universal new ownership, it can erase the losses of Paramount+ ​​from Paramount Global's balance sheet.

After losing $2.1 billion in their consumer-facing business last year, Warner Bros. Discovery Channel achieved adjusted earnings before interest, taxes, depreciation, and amortization of $103 million in 2023. Paramount Global reported that its direct-to-consumer operating income before depreciation and amortization was a loss of $1.67 billion in 2023, lower than the $1.8 billion loss last year.

Although no detailed discussions have been held about the structure of a hypothetical joint venture with Warner Bros. Discovery Channel, considering the existing nature of streaming assets and their financial situation, ownership may not be split 50/50.

Streaming services 2.0

Since the end of 2019, traditional media companies, including Paramount Global, Disney, NBC Universal, and Warner Bros. Discovery, have launched streaming services that have lost billions of dollars. For a long time, the industry has unanimously believed that there are too many streaming services relative to the total number of paying users. Many executives speculated that only four to five global services may survive and thrive. Other platforms will need to merge or be merged into existing platforms.

Former CEO and chairman of Fox Group, Peter Chernin, said in an interview last year: "Paramount, Peacock, and Max may have some combination."

If Paramount reaches a joint venture agreement with Max or Peacock, any company excluded from the agreement will face greater pressure and have to find their own deals. Media companies are now focusing on monetizing streaming content through bundling and partnerships.

For example, Disney and Warner Bros. Discovery Channel have recently become more willing to license some of their content to streaming services like Netflix, a competitor, to better monetize programs that have not added a large number of new users to their streaming services. Comcast recently launched a bundled service for its cable, broadband, and mobile customers, offering Peacock, Netflix, and Apple TV+ for $15 a month.

Disney and Warner Bros. Discovery Channel announced their plans to bundle their streaming services together starting this summer. According to an informed source, although both companies have not announced the package price including Disney+, Hulu, and Max, the discount will be "considerable".

Better windows

Another hot topic of discussion currently is playing movies and TV shows through different streaming services at different price points. Skydance Media had also considered this idea and had previously been close to acquiring Paramount Global, but negotiations broke down last month. According to insiders, Skydance's plan for Paramount included merging Paramount+ with another streaming company to create a new streaming service, in order to better rationalize their assets. For instance, Paramount's Showtime series library could be combined with another company's well-known TV shows to create an independent ad-free service.

Then, another ad-supported service could include sports live broadcasts and window prestige originals, which may appear on the second service after some time. These services can be bundled together, like how Disney bundles Disney+ with Hulu and ESPN+.

Integration of content applications

The traditional media leadership generally believes that better packaging of existing content can bring greater profits to the entire industry. The disadvantage of bundling or windowing more content is that it can confuse users. With increasingly mixed services between streaming services, customers can easily become frustrated instead of satisfied.

Several media executives privately stated that they expect Peacock, Paramount+, Max, and Disney to eventually integrate their programs into one application to alleviate confusion and compete with Netflix. Netflix dominates the subscription streaming industry with about 270 million global users. Two executives stated that given Disney's relative dominance in the entertainment streaming industry, it would be the most likely company to own this application. They added that any media company providing content for the streaming application can share revenue, similar to how the current cable TV economy operates.

However, competition and tensions between companies may make it difficult to assemble such a product. Although Max and Disney have reached a bundled sales agreement, Comcast's relationship with Disney has been historically tense. Both parties are currently trying to split their joint venture Hulu so that Disney can have complete control over the service, which was originally owned by NBCUniversal, Fox, and Disney together.

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