M&A Isn’t the Only Way Out of Streaming’s Financial Hole

The chilly M&A climate as this year’s Allen & Co. conference kicks off in Sun Valley must be sending shivers down the spines of some of Hollywood’s most elite executives. After all, it’s conventional wisdom that some of the entertainment industry’s major players are in rather desperate need of consolidation amid this chaotic epoch of the streaming age.

Paramount Global and NBCUniversal in particular are widely considered too small to compete in the era of conglomerated SVOD services. Having lost billions on their direct-to-consumer operations with no end in sight — despite the promises that 2023 will mark “peak investment” in streaming — every moment these companies aren’t moving toward or engaging in some form of M&A, they’re instead digging themselves deeper into the streaming hole.

But is further consolidation really the only way, or even the best way, to dig out of that hole? As Warner Bros. Discovery has proved, sometimes all a merger gets you is a massive debt load that leads to a deeply depressed stock price, despite a year of aggressive cost-cutting and backpedaling from the “all in on streaming” strategy, which in theory should have had Wall Street cheering.

And while we’ve yet to see the first post-rebranding results for Max (those will come in WBD’s Q2 earnings report), that rebranding seems so far to have confused the service’s position in the streaming field, muddling the instantly recognizable, prestige-y aura of HBO in the fog of yet another general-entertainment SVOD service — the kind of platform basically every major player in the streaming wars is currently offering.

In other words, instead of looking to WBD’s M&A-driven example, companies like Paramount may be better served by imitating another, oft-forgotten Hollywood player: Sony.

Yes, it’s practically a cliché at this point to bring up Sony, which has long since become streaming skeptics’ favorite illustration of their philosophy’s wisdom. But that doesn’t change the fact that the Japanese company has found a successful road through the treacherous streaming battlefield.

Sony chose not to launch its own SVOD platform while all of its fellow major studios did enter the fray, opting instead to provide content to the combatants as a so-called “arms dealer.” Both Netflix and Disney struck lucrative (for Sony) licensing deals with the studio, which also produces TV shows for streamers all over town (e.g., “The Afterparty” at Apple, “The Night Agent” at Netflix).

In short, Sony now looks like the smartest studio on the block in the wake of last year’s Great Streaming Crash. Wall Street certainly seems to think so: Sony stock is currently trading at around $90 per share, putting it on par, incredibly, with Disney’s current prices. (Imagine predicting that two short years ago. You’d have been laughed out of the New York Stock Exchange.)

Granted, Sony is also unburdened by linear TV networks, where ad-market challenges and worsening audience attrition are also battering companies hard. These will continue to pose difficulties for players such as Paramount, but that burden would likely be easier to bear without the streaming albatross around the company’s neck as well.

So should Shari Redstone & Co. simply shutter Paramount+ (with Showtime) and spread their content across the streaming ecosystem? It’s far from the worst idea: Imagine the price those “Yellowstone” spinoffs could fetch from a deep-pocketed buyer like Netflix or Amazon. And Paramount’s film studio has continued to churn out in-demand product, most notably “Top Gun: Maverick” and the “Mission: Impossible” franchise but also solid base hits such as last year’s horror sensation “Smile.”

There would be challenges to this approach too, of course. Anyone turning arms dealer now would be entering a cooling content market, and Paramount and NBCU likely need to keep some form of streaming operational to preserve audiences for their linear TV content and live sports coverage. (Paramount+ and Peacock offer live feeds of viewers’ local CBS and NBC stations, respectively.)

Still, whatever form that offering took would surely be less costly than a premium SVOD service with glossy original programming, and the revenues from increased content licensing would help offset expenses. There is no easy road in our current media landscape, to be sure, but further consolidation doesn’t have to be the only path.