Warner Bros. Discovery in Talks to Merge With Paramount

Warner Bros. Discovery has joined the ranks of companies expressing interest in a possible merger with Paramount, according to two people with knowledge of the discussions.

David Zaslav, the chief executive of Warner Bros. Discovery, had lunch this week with Bob Bakish, Paramount’s chief executive, and expressed interest in a potential merger of the two companies, the two people said.

During the lunch, which was held Tuesday at Paramount’s Midtown Manhattan headquarters, the prospect of a merger came up in a wide-ranging conversation between Mr. Bakish and Mr. Zaslav, the people said.

Warner Bros. Discovery’s stock fell on news of the deal, which was reported earlier by Axios. Paramount’s stock dipped slightly in after-market trading.

Shari Redstone, who controls Paramount through her stake in its parent company, National Amusements, has recently shown a willingness to part with her family’s media empire. In recent weeks, National Amusements held talks about selling its controlling stake to Skydance, the movie studio with production credits on Paramount franchises like “Top Gun” and “Mission: Impossible.”

There is ample business logic in a tie-up of Warner Bros. Discovery and Paramount. Paramount’s bundle of TV networks, which include MTV, Nickelodeon and Comedy Central, could give Warner Bros. Discovery greater leverage in negotiations with cable distributors like Comcast and Charter.

The companies could also save costs on producing and marketing shows and movies on their networks and from their movie studios. And Paramount’s CBS broadcast network would give Warner Bros. Discovery, which operates NBA TV, another platform for airing National Basketball Association games, a selling point in its negotiations with the league on a renewal of rights.

But there would be significant hurdles to any deal. Though Warner Bros. Discovery has paid down much of the leverage it incurred as a result of the 2021 deal to merge Discovery with AT&T’s WarnerMedia, the company is still burdened with more than $40 billion in debt. And it remains to be seen whether arcane tax laws would allow Warner Bros. Discovery to strike a deal before the two-year anniversary of the completion of the merger, which is in April.

A deal for Paramount, if it came to fruition, could set off further consolidation among media companies, which have huddled together for warmth in recent years as the dying embers of the TV business burned low. Though TV companies like Paramount and Warner Bros. Discovery have been bankrolled by cash from cable distributors over the decades, the pay-TV ecosystem is becoming increasingly shaky as viewers cut the cord in droves.

With the exception of Netflix, most streaming services are no better off. Traditional TV programmers like Warner Bros. Discovery and Paramount have invested billions of dollars in streaming services like Max and Paramount+, but they have failed to reproduce the cash-rich business model of cable TV.

Ms. Redstone’s relationship with Mr. Zaslav will ultimately be a factor in the outcome of the negotiations. The two are well acquainted in the clubby world of media executives and share many powerful friends, including the owner of the New England Patriots, Robert Kraft.