WarnerMedia Discovery Deal places ViacomCBS and NBCUniversal underneath strain

Shari Redstone, Chairwoman of ViacomCBS and President of National Amusements, reacts as she celebrates the merger of her company at Nasdaq Market, New York, on December 5, 2019.

Brendan McDermid | Reuters

In the words of the great Tom Lehrer: “Who’s next?”

After AT&T decided to split WarnerMedia and merge it with Discovery, the rest of the media world – especially the smaller players – is facing renewed pressure to take countermeasures.

Even before this deal, it was clear that Lionsgate, MGM, Sony Pictures, and AMC Networks were probably too small to survive in a streaming world where success relies on a huge supply of content and global reach.

But ViacomCBS and Comcast’s NBCUniversal are much bigger and likely assumed they had some time – at least a year – to see how many subscribers signed up for their Paramount + and Peacock streaming deals.

“It will be turned on or off for all of us over the next two years,” said David Zaslav, CEO of Discovery, who will lead the way with the combined company, in December. “Can you show that you scale? Are you going to be a gamer in the US? Are you going to be a gamer all over the world?”

Vacuum

This timeline is now shorter.

Suddenly, both ViacomCBS and NBCUniversal seem to be sub-scaled when trying to put together global streaming services. They’re not trying to be niche players like Starz or AMC +.

That means they both need more content to compete against Netflix, Amazon Prime Video, Disney and the new name WarnerMediaDiscovery.

The obvious move would be the merger of ViacomCBS and NBCUniversal. With a combined ViacomCBS / NBCUniversal, however, two US broadcast networks – CBS and NBC – would be housed under the same corporate roof. That won’t fly with US regulators. While the parent companies could in theory spin them off or sell them, the broadcast networks offer so much value to both companies – and their streaming services – that it seems unlikely.

In addition, Chairman Shari Redstone controls ViacomCBS and Comcast Chairman Brian Roberts NBCUniversal over his family’s Comcast shares. Their dual-tier stock structure is another barrier to both companies as it makes it difficult for outsiders to pressure companies to make changes that executives do not prefer. But it’s not a deal stopper – Discovery had multiple share classes too, but John Malone was willing to eliminate his voting shares in order to close a deal with WarnerMedia.

Four options

This leaves Comcast and ViacomCBS with four likely options.

To buy. If both companies feel that their streaming services can compete globally, they can conduct global and domestic acquisitions. It may take multiple deals to achieve a scaled position as it merges smaller assets in the US and larger global media companies in Latin America and Europe.

To sell. You could also sell. Redstone is more open to the idea of ​​selling ViacomCBS than her late father Sumner Redstone, the former chairman, according to people familiar with the matter. It’s unclear whether Roberts would consider selling NBCUniversal. Potential buyers could be Amazon or the newly merged WarnerMedia-Discovery. Apple and Netflix continue to float along the periphery, but neither company has ever shown much interest in major media acquisitions.

Reduce your ambitions. The third option is to throw in the towel to be a global streaming service. Instead, NBCUniversal and ViacomCBS could license their content to other, larger streamers and handle Paramount + and Peacock if they fail to achieve global traction.

Bundle up. Option four is similar but less drastic. ViacomCBS and NBCUniversal could begin to bundle their streaming services or find new streaming partners in order to improve the worldwide distribution through reduced offers. The main problem with this strategy is that it limits the upward trend for both companies that are unable to compete with larger players for top content and breadth of programming.

The fifth option – inaction – is no longer a viable strategy. Roberts, Jeff Shell, CEO of NBCUniversal, Redstone and Bob Bakish, CEO of ViacomCBS are under pressure to find exciting solutions for their businesses.

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

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