The proposed merger between Paramount and Warner Bros. Discovery is anti-competitive, will lay off thousands of workers, raise prices and create a debt-laden behemoth forced to slash costs aggressively to have any hope of servicing that debt. In short, the math doesn’t work — for anybody.
The combined company would begin life carrying roughly $79 billion in debt while generating only $3 billion in annual free cash flow. The deal is being sold by David Ellison and David Zaslav as a necessary answer to the modern streaming era: more scale, larger libraries, broader distribution and stronger franchises as Star Trek and Top Gun meets Game of Thrones, Superman and Harry Potter.
But scale only works when it is built on a solid financial footing. Scale in this deal will devastate both studios. Here, rather than economies of scale, the opposite would arguably happen. The merger risks producing a company so burdened by debt that it becomes less able to invest in films, television, streaming, sports, output deals and creative talent than either company is on its own. The sole mission of the new company will be to service its debt.
Hollywood has already spent the last decade chasing consolidation. The results haven’t been stellar. When The Walt Disney Company acquired 21st Century Fox in 2019, Disney’s leverage rose to roughly 2.8 times EBITDA (lower is better). When Discovery, Inc. merged with WarnerMedia in 2021, leverage climbed to about 4.3 times EBITDA. Both deals were heavily criticized as over-leveraged at the time. This proposed Paramount–Warner Bros. combination would begin at approximately 6.5 times EBITDA. That is an entirely different level of financial strain. Paramount recently said it plans to lower this to 3 times EBITDA by fiscal 2029, but that seems doubtful given the level of debt and lack of free cashflow.
