Warner Bros. Discovery 'halts merger talks with Paramount Global' after Wall Street analysts said a deal would leave both companies 'worse off'

Warner Bros. Discovery has reportedly halted merger talks with Paramount Global, after the proposed deal raised concerns on Wall Street and sent both companies' stock plunging. 

Sources familiar with the matter told CNBC on Tuesday that the acquisition talks had been halted, several months after word of the potential media mega-merger first emerged in December.

Skydance Media, the film and TV studio run by David Ellison, is still performing due diligence on a potential transaction with Paramount Global, two of the people said. 

Shortly before Christmas, it was reported that WBD CEO David Zaslav had spoken with Paramount Global CEO Bob Bakish and Shari Redstone, who owns Paramount's parent company, about a potential acquisition.

Shares of both companies dropped sharply on the news, and analysts warned a merger would leave both companies 'worse off' and saddled with billions more in debt.

WBD CEO David Zaslav speaks onstage during The New York Times Dealbook Summit 2023 at Jazz at Lincoln Center on November 29, 2023 in New York City

WBD stock (above) dropped following reports of a proposed Paramount merger

'It looks like a play for survival at all costs. Both businesses are heavily indebted and it is likely further debt will need to be issued to make this deal possible,' said Quilter Cheviot technology analyst Ben Barringer at the time. 

The proposed deal followed months of industry speculation about consolidation among companies that lack the scale to compete with streaming pioneer Netflix while steadily losing customers in the traditional TV business to cord-cutting. 

Among other holdings, WBD owns Warner Bros. movie studios, HBO, CNN, and streaming service Max, while Paramount runs Paramount Pictures, CBS Entertainment Group, and streaming service Paramount+.

A merger would have created the largest movie studio in Hollywood, and a streaming business with the third-highest US subscribers, analysts said. 

The firms together would have accounted for up to 40 percent of total time viewed on traditional TV. 

But the ongoing decline in the TV business - their main profit engine - is also expected to make it harder for the firms to deal with the extra debt that would have  accompanied the merger.

Warner Bros Discovery has tried to prop up its cash flow and aggressively lower costs over the past few months, but it still has about $45 billion in debt. Paramount has about $15 billion.

Meanwhile, new data on Tuesday showed that streaming subscriber growth in the United States halved in 2023, a sign that the boom might be over for the industry in its key market.

Growth in the premium subscription-video-on-demand category slowed to 10.1 percent last year from 21.6 percent in 2022, according to the data from research firm Antenna.

Shortly before Christmas, it was reported that Zaslav had spoken with Paramount Global CEO Bob Bakish (left) and Shari Redstone (right), who owns Paramount's parent company

But its overall growth has more than doubled in four years, signaling a steady re-subscription trend.

Streaming giant Netflix, Comcast-owned Peacock and Paramount Global's Paramount+ drove the most growth, with total subscriptions at 242.9 million at the end of 2023. 

At the start of the streaming boom, companies focused on pumping money into creating swathes of content to draw and retain subscribers. 

Customers also signed up to services during the pandemic while homebound with theaters being inaccessible.

But since then and with the twin Hollywood strikes last year, companies have been looking to keep content spend low while also pushing their ad-offerings to draw in revenue.

Earlier this month, Paramount Global said it would lay off about 800 employees or roughly 3 percent of its workforce, in a bid to cut costs. 

After the merger talks emerged, several analysts questioned the timing of the deal talks as the upcoming US presidential election would ramp up the regulatory uncertainty facing big mergers.

'It's risky to push a deal of this size during an election year when antitrust legislation is making a comeback,' said Ross Benes, eMarketer senior analyst.

Among other holdings, WBD owns Warner Bros. movie studios (above), HBO, CNN, and streaming service Max 

Paramount runs Paramount Pictures, CBS Entertainment Group, and streaming service Paramount+ 

Some analysts believed the talks may encourage NBCUniversal-owner Comcast to make its own move with Warner Bros Discovery.

Comcast's nearly $180 billion market value is much bigger than Warner Bros Discovery's $30 billion and Paramount's about $10 billion. 

Its CEO Brian Roberts has also been long rumored to be interested in expanding the company's media business.

'At the end of the day, Comcast may be the one strategic buyer with the capital structure and assets required to benefit either WBD or PARA in a long-term viable way,' MoffettNathanson analysts said.