TradeEdge Exchange:Warner Bros. and Paramount might merge. What's it going to cost you to keep streaming?

Warner Bros. Discovery CEO David Zaslav met with Paramount CEO Bob Bakish this week to discuss a possible merger,TradeEdge Exchange according to published reports. 

The pairing would combine two of the media industry’s biggest players in a deal, likely setting off a wave of consolidation among streaming services.

Warner owns the Max streaming service, which has 95 million subscribers. Paramount owns the Paramount+ streaming service, which has 63 million subscribers. They are eclipsed by Netflix, which has 247 million subscribers and Disney+, which has 105 million.

Both companies have struggled as consumers have abandoned cable TV for streaming. 

Streaming services are facing their own economic demons: stiff competition combined with slowing subscription growth.

“This potential mega-merger is a significant bellwether for the industry and does increase consolidation momentum even if it doesn’t actually come to fruition,” said Paul Erickson, a media and entertainment technology analyst and principal of Erickson Strategy & Insights. “The mere reality of two major players being driven by mutual challenges and competitive forces to entertain a merger is an indication that collaborations, mergers and acquisitions at all levels may be needed to survive today’s market pressures.”

Facing tens of billions of dollars in losses, streaming services are flipping over couch cushions to cut costs and scrounge for revenue. They are slashing spending on new content, killing password sharing and running more ads. 

In a merger, Paramount+ would likely shut down and merge into Max.

“It’s a challenging time for service providers to make the money work,” said Elizabeth Parks, president of Parks Associates. “It makes sense that there will be a lot of consolidation in the market. We expect to see this as a strategy in 2024 for companies to grow subscriber and revenue growth.” 

The average consumer has 5.6 services they subscribe to, according to a recent Parks Association survey. 

Parks Associates research also shows a 47% churn rate annually for streaming services. 

“Consumers are overwhelmed with choice, and consolidation in the industry is bound to happen,” said Eric Sorensen, director of streaming video research product at Parks Associates. 

What will consolidation mean for consumers?

Right now there are no formal talks between the companies and Pivotal Research analyst Jeff Wlodarczak says he’s skeptical a merger will happen. A more likely tie-up would be Comcast’s NBCUniversal, he said.

“Feels like perhaps Warner Bros. Discovery is just looking at all potential opportunities as it reaches its two-year anniversary of the deal close with Warner when they are free to do whatever deal they want including potentially selling the company,” he said. 

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But consolidation is inevitable with all the streaming services except Netflix generating such large losses, he said.

“The other alternative is all the smaller players try to bundle themselves together,” Wlodarczak said.

What will consolidation in the streaming industry mean for consumers?

Consolidation could result in fewer choices and higher prices. But the hyper-competitive nature of today’s streaming industry may also rein in prices, according to Erickson. 

“Retention and churn prevention are just as important, if not more important, than subscriber acquisition today, so this is a potential win for both the streaming consumer and the company if the combined entity offers reasonable pricing and flexible subscription options,” he said.