Paramount deal offers sneak peak of media 3.0

AMC Global Media

09/07/2024 15:00

(The author is a Reuters Breakingviews columnist. The opinions
expressed are her own.)
    By Jennifer Saba
       NEW YORK, July 8 (Reuters Breakingviews) - Shari
Redstone has agreed to pass the media mogul torch. On Sunday,
Paramount Global’s  PARA.O  controlling shareholder struck a
deal with David Ellison’s Skydance Media after months of drama
fit for the once-mighty MTV’s reality programming. The $8
billion transaction is lopsided in their favor. Yet it gives
Ellison the chance to write the script for Hollywood’s next
phase.
    The two-step deal will see Skydance acquire National
Amusements, the Redstone family investment vehicle that holds
77% of Paramount’s voting shares. Ellison will then merge his TV
and film production outfit into the larger company that operates
the eponymous movie studio, broadcaster CBS, and numerous
declining cable networks.
    Both Ellison and Redstone come out on top. The agreement
values Skydance at $4.7 billion. Even after giving the studio
credit for its share of costs savings — $2 billion of expected
profit boosts are touted – it is expected to generate $343
million in EBITDA next year. Skydance has won an enterprise
value some 14 times that metric, approximately twice the
multiple the market attributed to Paramount prior to the
announcement.
    Redstone, for her part, gets a payout of $2.4 billion for
NAI. That works out to $37.79 per share for her stake – without
counting any value placed on the theater chain NAI also owns.
Still, other holders of voting stock get $23 per share; those
without a vote, $15 per share. The arrangement will likely
attract scrutiny from minority shareholders, even if Redstone’s
control threatens a fait accompli.
    The good news is that Paramount gets room to salvage a
tricky situation. In 2007, when Netflix  NFLX.O  launched its
streaming service, the Redstone family empire was worth over 6
times more than Paramount’s market value today. As Reed
Hastings’ company ascended, old-guard media companies belatedly,
and expensively, raced to catch up. Paramount+ launched three
years ago and has struggled since, hemorrhaging money while
reaching approximately a quarter of Netflix’s 270 million
subscribers.
    Ellison will have to transform the also-ran entertainment
firm. Ditching the sub-scale, expensive direct-to-consumer
strategy should be on the table. Already, the companies are
talking up a shift to profitability and partnerships – Paramount
and much-better-equipped goliath Comcast  CMCSA.O  have already
discussed joining hands in streaming, according to the Wall
Street Journal. Selling content to others should be next. The
post-Netflix era has been a costly bust for the stragglers of
media, like fellow family-controlled pipsqueak AMC Networks
 AMCX.O  or even Warner Bros Discovery  WBD.O . If the gambit at
Paramount works, it points a path to survival.

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    CONTEXT NEWS 
    A special committee of Paramount Global’s board of directors
approved a merger with Skydance Media on July 7. The two-step
process involves Skydance buying National Amusements, the
investment vehicle of the Redstone family that controls
Paramount, then combining with the media company behind the
Yellowstone franchise, MTV network and broadcaster CBS.
    Under the terms of the agreement, Skydance is offering
holders of Paramount’s voting stock, aside from NAI, $23 per
share. Holders of non-voting Class B stock will receive $15 per
share in cash and stock. The cash consideration available to
public investors totals $4.5 billion. 
    Skydance is purchasing NAI, which holds 77% of Paramount’s
voting shares as well as a movie theater chain, for $2.4
billion. 
    At the close of the $8 billion deal, Skydance will own
approximately 70% of Paramount’s outstanding shares. 

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Netflix's streaming subscribers tower over Paramount's    https://reut.rs/3xOsB5i
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 (Editing by Jonathan Guilford, Sharon Lam and Pranav Kiran)
 ((For previous columns by the author, Reuters customers can
click on  SABA/ 
jennifer.saba@thomsonreuters.com))