Warner Bros. Discovery merger talks with Paramount Global may draw out NBCUniversal

Let’s say you have a crush on two people and you find out one of them may like you back. Do you just start dating that person, or do you find out what the other person thinks, too?

That’s where Warner Bros. Discovery finds itself today. The company has held preliminary merger talks with Paramount Global, the media conglomerate controlled by Shari Redstone. Warner Bros. Discovery Chief Executive David Zaslav met with Paramount Global CEO Bob Bakish on Tuesday to discuss what a merger of the companies may look like, according to people familiar with the matter.

“Crush” may actually be too strong here. This is not a case of both companies lusting for each other. It’s more of a partnership of necessity. Both companies don’t have a clear future competing for content in a streaming-dominated world where Apple, Amazon, Netflix and YouTube owner Google have far larger balance sheets. They just want to survive and boost their share price.

But maybe Warner Bros. Discovery would rather merge with Comcast‘s NBCUniversal — if Comcast is open to it. There may be regulatory issues with NBCUniversal. It’s unclear whether officials would allow Universal and Warner Bros. to come together. This year, they’re the top two U.S. movie studios by revenue. While smaller than Warner Bros. or Universal, Paramount is still a top five studio most years.

Comcast also owns cable news channel MSNBC, which may or may not be a problem for regulators given that Warner Bros. Discovery owns CNN.

Deal structure will be important here. If Comcast spins out NBCUniversal to merge with Warner Bros. Discovery, it could theoretically give Zaslav debt-free earnings to strengthen the combined company’s balance sheet.

That might be more enticing than taking on Paramount Global’s $15 billion of debt. Warner Bros. Discovery has nearly $45 billion of debt and has worked to bring down its leverage all year by boosting free cash flow. Buying Paramount Global might be viewed as starting over for Zaslav, who hasn’t made many friends in Hollywood with his intensive cutting of both jobs and content spending.

It’s also possible Comcast CEO Brian Roberts wants to hold on to NBCUniversal and isn’t interested in doubling down on legacy media right now. NBCUniversal isn’t in merger talks with anyone right now, according to a person familiar with the matter. Spokespeople for Comcast, Warner Bros. Discovery and Paramount Global all declined to comment.

Generally speaking, Comcast’s NBCUniversal has similar assets to Paramount Global. They both have broadcast networks: NBC for NBCUniversal and CBS for Paramount Global. They both own a slew of aging cable networks. NBCUniversal’s include Bravo, E! and USA. Paramount Global’s include Nickelodeon, MTV and Comedy Central. Both companies have subscale, money-losing streaming services. Paramount Global owns Paramount+ (and Showtime), and NBCUniversal has Peacock.

NBCUniversal probably isn’t a merger fit with Paramount Global, though. Both companies’ ownership of broadcast networks likely makes that deal a non-starter.

Opening discussions with Paramount Global should give Warner Bros. Discovery a read on where Comcast stands on dealmaking. Is Comcast OK with Paramount Global and Warner Bros. Discovery merging? Or does Roberts want to combine with Warner Bros. Discovery instead, leaving Paramount Global without an obvious dance partner? Would that lead Redstone to selling her stake in National Amusements and letting someone else, like David Ellison at Skydance, figure out the future for Paramount Global?

Those discussions have now begun. They will almost certainly heat up in the coming weeks and months. The starting gun has been fired. Welcome to 2024.

Disclosure: Comcast is the parent company of NBCUniversal, which owns CNBC.