Paramount’s Shari Redstone is open for business, but business may not be open for her

Shari
Redstone
may
have
missed
her
window.

Paramount
Global‘s
controlling
shareholder
is
open
to
a
merger
or
selling
the
company
at
the
right
price,
according
to
people
familiar
with
her
thinking.
And
she
has
been
open
to
it
for
several
years,
said
the
people,
who
asked
not
to
speak
publicly
because
the
discussions
have
been
private.

Spokespeople
for
Redstone
and
Paramount
Global
declined
to
comment.

The
problem
has
been
finding
the
right
deal
for
shareholders.
Market
conditions
have
made
a
transformative
transaction
difficult
at
best
and
highly
unlikely
at
worst.

“The
market
is
crying
out
for
reshaping
media
company
portfolios
and
consolidation,”
said
Jon
Miller,
chief
executive
at
Integrated
Media
and
a
senior
advisor
at
venture
firm
Advancit
Capital,
which
Redstone
co-founded.
“But
the
deck
is
stacked
against
large-scale
transactions
now
because
of
both
immediate
concerns
in
terms
of
ad
sales,
subscription
video
numbers
and
the
cost
of
debt.
No
one
wants
to
transact
at
the
current
market
valuations
that
these
companies
are
given.”

Paramount
Global
is
an
archetype
for
the
media
industry’s
consolidation
conundrum.
The
company
consists
of
Paramount
Pictures,
the
CBS
broadcast
network,
28
owned-and-operated
local
CBS
stations,
the
streaming
service
Paramount+,
free
advertising-supported
Pluto
TV,
“Star
Trek,”
“SpongeBob
SquarePants,”
MTV,
Nickelodeon,
Comedy
Central,
BET
and
Showtime.
It
also
owns
the
physical
Paramount
studio
lot
in
Los
Angeles,
California.

From
a
sum-of-the-parts
perspective,
the
company
holds
a
strong
hand.
Many
of
Paramount
Global’s
assets
would
fit
nicely
within
larger
media
companies.

“Paramount
has
a
tremendous
amount
of
assets
in
its
content
library
and
they
own
some
pretty
powerful
sports
rights
in
the
form
of
the
NFL
contract,
Champions
League
soccer
and
March
Madness,”
Guggenheim
analyst
Michael
Morris
told
CNBC
last
week.

“But,
they
are
still
losing
money
on
their
streaming
service,”
Morris
said.
“They
need
to
pull
these
things
together,
right-size
the
content,
super
charge
that
topline
through
pricing
and
penetration,
and
then
we
can
see
investors
get
excited
about
this
idea
again.”

Declining
revenue
from
the
acceleration
of
pay-TV
cord-cutting,
continued
streaming
losses
and
rising
interest
rates
have
put
Redstone
in
a
bind.
The
company’s
market
capitalization
has
slumped
to
$7.7
billion,
nearly
the
company’s
lowest
valuation
since
Redstone
merged
CBS
and
Viacom
in
2019.
At
the
time,
that
transaction
gave
the
combined
company
a

market
valuation
of
about
$30
billion.

It’s
unclear
whether
staying
the
course
will
help
turn
investor
sentiment.
Warren
Buffett,
CEO
of


Berkshire
Hathaway,
one
of
Paramount
Global’s
biggest
shareholders,

told
CNBC
in
April
that
streaming
“is
not
really
a
very
good
business.”
He
also
noted
that
shareholders
in
entertainment
companies
“really
haven’t
done
that
great
over
time.”

Paramount
Global’s
direct-to-consumer
businesses
lost
$424
million
in
the
second
quarter
and
$511
million
in
the
first
quarter.
The
company
reports
third-quarter
earnings
Nov.
2.

CEO
Bob
Bakish
said
2023
will
be
the
peak
loss
year
for
streaming.
Paramount
Global
cut
its
dividend
to
5
cents
per
share
from
24
cents
per
share
to
“further
enhance
our
ability
to
deliver
long-term
value
for
our
shareholders
as
we
move
toward
streaming
profitability,”
Bakish

said
in
May.

Wells
Fargo
analyst
Steven
Cahall
suggested
earlier
this
year
that
Bakish
should
shut
down
the
company’s
streaming
business
entirely,
despite
the
fact
that
Paramount+
has
accumulated
more
than
60
million
subscribers.

“We
believe
Paramount
Global
is
worth
a
lot
more
either
as
a
content
arms
dealer
or
as
a
break-up
for
sale
story,”
Cahall
wrote
in
a
note
to
clients
in
May.
“Great
content,
misguided
strategy.”

Executives
at
Paramount
Global
continue
to
hold
out
hope
that
a
large
technology
company,
such
as


Apple,


Amazon
or


Alphabet,
will
view
the
collection
of
assets
as
a
way
to
bolster
their
content
aspirations,
according
to
people
familiar
with
the
matter.

Paramount+’s
61
million
subscribers
could
help
supersize
an
existing
streaming
service
such
as
Apple
TV+
or
Amazon’s
Prime
Video,
or
give
Alphabet’s
YouTube
a
bigger
foothold
into
subscription
streaming
beyond
the
National
Football
League’s
Sunday
Ticket
and
YouTube
TV.

While
Federal
Trade
Commission Chairman
Lina
Khan
has
been
particularly
focused
on
limiting
the
power
of
Big
Tech
companies,
Apple,
Amazon
and
Alphabet
may
actually
be
better
buyers
than
legacy
media
companies
from
a
regulatory
standpoint.
They
don’t
own
a
broadcast
TV
network,
unlike
Comcast
(NBC),
Fox
or
Disney
(ABC).
It’s
highly
unlikely
U.S.
regulators
would
allow
one
company
to
own
two
broadcast
networks.
Divesting
CBS
is
possible,
but
it’s
so
intertwined
with
Paramount+
that
separating
the
network
from
the
streaming
service
would
be
messy.

“We
believe
Paramount
Global
is
too
small
to
win
the
streaming
wars,
but
it
is
bite-size
enough
to
be
acquired
by
a
larger
streaming
competitor
for
its
deep
library
of
film
and
TV
content,
as
well
as
its
sports
rights
and
news
assets,”
Laura
Martin,
an
analyst
at
Needham
&
Co.,
wrote
in
an
Oct.
9
research
note
to
clients.

Acquiring
Paramount
Global
would
be
a
relative
drop
in
the
bucket
for
a
Big
Tech
company.
Paramount
Global’s
market
value
was
below
$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
technology
companies
want
to
own
declining
legacy
media
assets
such
as
cable
and
broadcast
networks.
Netflix
has
built
its
business
specifically
on
the
premise
that
these
assets
will
ultimately
die.
Paramount’s
lot
and
studio
may
be
appealing
for
content
creation
and
library
programming,
but
that
would
leave
Redstone
holding
a
less
desirable
basket
of
legacy
media
assets.

It’s
possible
Redstone
could
break
up
the
company
and
sell
off
legacy
media
assets
to
a
private
equity
firm
that
could
milk
them
for
cash.
But
Paramount
Global’s
diminished
market
valuation,
relative
to
its
debt,
likely
makes
a
leveraged
buyout
less
appealing
for
a
potential
private
equity
firm.

Moreover,
rising
interest
rates
have
generally
slowed
down
take-private
deals
in
all
industries,
as
the
cost
of
paying
debt
interest
has
soared.
Globally,
buyout
fund

deal
volume
in
the
first
half
of
2023
is
down
58%
from
the
same
period
a
year
ago,
according
to
a
Bain
&
Co.
study.

If
a
full
sale
to
Big
Tech
and
a
partial
sale
to
private
equity
won’t
happen,
another
option
for
Redstone
is
to
merge
or
sell
to
another
legacy
media
company.


Warner
Bros.
Discovery
could
merge
with
Paramount
Global,
though
putting
together
Warner
Bros.
and
Paramount
Pictures
may
hold
up
deal
approval
with
U.S.
regulators.

Beyond
regulatory
issues,
recent
history
suggests
big
media
mergers
haven’t
worked
well
for
shareholders.
Tens
of
billions
of
dollars
in
shareholder
value
have
been
lost
in
recent
media
mergers,
including
WarnerMedia
and
Discovery,


Disney
and
the
majority
of


Fox,


Comcast/NBCUniversal
and
Sky,
Viacom
and
CBS,
and
Scripps
and
Discovery.

Merger
partners
such
as
Warner
Bros.
Discovery
also
may
prefer
to
sell
or
merge
with
a
different
company,
such
as
Comcast’s
NBCUniversal,
if
regulators
allow
a
big
media
combination.

Redstone
has
recently
dabbled
around
the
edges,
shedding
some
assets,
such
as

book
publisher
Simon
&
Schuster,
and
engaging
in
talks
to
sell

a
majority
stake
in
cable
network
BET.

But
Paramount
Global

shelved
the
idea
of
selling
a
stake
in
BET
in
August
after
deciding
sale
offers
were
too
low
to
outweigh
the
value
of
keeping
the
network
in
its
cable
network
portfolio.
With
the
total
company’s
market
valuation
below
$8
billion,
it’s
difficult
to
convince
buyers
to
pay
big
prices
for
parts.
A
change
in
broader
investment
sentiment
that
pushes
the
company’s
valuation
higher
may
help
Redstone
and
other
Paramount
Global
executives
get
more
comfortable
with
divesting
assets.

If
Redstone
can’t
find
a
deal
to
her
liking,
she
could
also
sell
National
Amusements,
the
holding
company
founded
by
her
father,
Sumner
Redstone,
that
owns
the
bulk
of
the
company’s
voting
shares.
National
Amusements
owns
77.3%
of
Paramount
Global’s
Class
A
(voting)
common
stock
and
5.2%
of
the
Class
B
common
stock,
constituting
about
10%
of
the
overall
equity
of
the
company.

Redstone
took
a
$125
million
strategic
investment
from
merchant
bank
BDT
&
MSD
Partners
earlier
this
year
to
pay
down
debt,
reiterating
her
belief
in
Paramount
Global’s
inherent
value.

“Paramount
has
the
best
assets
in
the
media
industry,
with
an
incredible
content
library
and
IP
spanning
all
genres
and
demographics,
as
well
as
the
No.
1
broadcast
network,
the
leading
free
ad-supported
streaming
television
service
and
the
fastest-growing
pay
streaming
platform
in
the
U.S.,”
Redstone
said
in
a
statement
in
May.
“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.”

Selling
National
Amusements
wouldn’t
alter
Paramount
Global’s
long-term
future.
But
it
is
a
way
out
for
Redstone
if
she
can’t
find
a
deal
beneficial
to
shareholders.

Paramount
Global
isn’t
actively
working
with
an
investment
bank
on
a
sale,
according
to
people
familiar
with
the
matter.
The
company
is
content
to
wait
for
a
shift
in
market
conditions
or
regulatory
officials
before
getting
more
aggressive
on
a
transformational
deal,
said
the
people.

Still,
Redstone’s
predicament
aptly
sums
up
legacy
media’s
current
problems.
The
industry
is
counting
on
a
turn
in
market
sentiment,
while
executives
privately
grumble
that
in
the
near
term
there’s
little
they
can
do
about
it.

WATCH:
Mad
Money
host
Jim
Cramer
weighs
in
on
Paramount
Global

Disclosure:
Comcast’s
NBCUniversal
is
the
parent
company
of
CNBC.