Paramount’s Shari Redstone is open for business, but business may not be open for her

Shari Redstone, president of National Amusements and controlling shareholder of Paramount Global, walks to a morning session at the Allen & Company Sun Valley Conference in Sun Valley, Idaho, July 12, 2023.

David A. Grogan | CNBC

Shari Redstone may have missed her window.

Paramount Global‘s controlling shareholder is open to a merger or selling the company at the right price, according to people familiar with her thinking. And she has been open to it for several years, said the people, who asked not to speak publicly because the discussions have been private.

Spokespeople for Redstone and Paramount Global declined to comment.

The problem has been finding the right deal for shareholders. Market conditions have made a transformative transaction difficult at best and highly unlikely at worst.

“The market is crying out for reshaping media company portfolios and consolidation,” said Jon Miller, chief executive at Integrated Media and a senior advisor at venture firm Advancit Capital, which Redstone co-founded. “But the deck is stacked against large-scale transactions now because of both immediate concerns in terms of ad sales, subscription video numbers and the cost of debt. No one wants to transact at the current market valuations that these companies are given.”

Paramount Global is an archetype for the media industry’s consolidation conundrum. The company consists of Paramount Pictures, the CBS broadcast network, 28 owned-and-operated local CBS stations, the streaming service Paramount+, free advertising-supported Pluto TV, “Star Trek,” “SpongeBob SquarePants,” MTV, Nickelodeon, Comedy Central, BET and Showtime. It also owns the physical Paramount studio lot in Los Angeles, California.

From a sum-of-the-parts perspective, the company holds a strong hand. Many of Paramount Global’s assets would fit nicely within larger media companies.

“Paramount has a tremendous amount of assets in its content library and they own some pretty powerful sports rights in the form of the NFL contract, Champions League soccer and March Madness,” Guggenheim analyst Michael Morris told CNBC last week.

“But, they are still losing money on their streaming service,” Morris said. “They need to pull these things together, right-size the content, super charge that topline through pricing and penetration, and then we can see investors get excited about this idea again.”

Declining revenue from the acceleration of pay-TV cord-cutting, continued streaming losses and rising interest rates have put Redstone in a bind. The company’s market capitalization has slumped to $7.7 billion, nearly the company’s lowest valuation since Redstone merged CBS and Viacom in 2019. At the time, that transaction gave the combined company a market valuation of about $30 billion.

It’s unclear whether staying the course will help turn investor sentiment. Warren Buffett, CEO of Berkshire Hathaway, one of Paramount Global’s biggest shareholders, told CNBC in April that streaming “is not really a very good business.” He also noted that shareholders in entertainment companies “really haven’t done that great over time.”

Paramount Global’s direct-to-consumer businesses lost $424 million in the second quarter and $511 million in the first quarter. The company reports third-quarter earnings Nov. 2.

CEO Bob Bakish said 2023 will be the peak loss year for streaming. Paramount Global cut its dividend to 5 cents per share from 24 cents per share to “further enhance our ability to deliver long-term value for our shareholders as we move toward streaming profitability,” Bakish said in May.

Wells Fargo analyst Steven Cahall suggested earlier this year that Bakish should shut down the company’s streaming business entirely, despite the fact that Paramount+ has accumulated more than 60 million subscribers.

“We believe Paramount Global is worth a lot more either as a content arms dealer or as a break-up for sale story,” Cahall wrote in a note to clients in May. “Great content, misguided strategy.”

Big Tech lifeline

Bob Bakish, CEO of Paramount, speaks with CNBC’s David Faber on Sept. 6, 2023.

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Executives at Paramount Global continue to hold out hope that a large technology company, such as Apple, Amazon or Alphabet, will view the collection of assets as a way to bolster their content aspirations, according to people familiar with the matter.

Paramount+’s 61 million subscribers could help supersize an existing streaming service such as Apple TV+ or Amazon’s Prime Video, or give Alphabet’s YouTube a bigger foothold into subscription streaming beyond the National Football League’s Sunday Ticket and YouTube TV.

While Federal Trade Commission Chairman Lina Khan has been particularly focused on limiting the power of Big Tech companies, Apple, Amazon and Alphabet may actually be better buyers than legacy media companies from a regulatory standpoint. They don’t own a broadcast TV network, unlike Comcast (NBC), Fox or Disney (ABC). It’s highly unlikely U.S. regulators would allow one company to own two broadcast networks. Divesting CBS is possible, but it’s so intertwined with Paramount+ that separating the network from the streaming service would be messy.

“We believe Paramount Global is too small to win the streaming wars, but it is bite-size enough to be acquired by a larger streaming competitor for its deep library of film and TV content, as well as its sports rights and news assets,” Laura Martin, an analyst at Needham & Co., wrote in an Oct. 9 research note to clients.

Acquiring Paramount Global would be a relative drop in the bucket for a Big Tech company. Paramount Global’s market value was below $8 billion as of Friday. It also has about $16 billion in long-term debt.

Still, even with huge balance sheets and trillion-dollar valuations, there’s no evidence technology companies want to own declining legacy media assets such as cable and broadcast networks. Netflix has built its business specifically on the premise that these assets will ultimately die. Paramount’s lot and studio may be appealing for content creation and library programming, but that would leave Redstone holding a less desirable basket of legacy media assets.

Breakup difficulties

It’s possible Redstone could break up the company and sell off legacy media assets to a private equity firm that could milk them for cash. But Paramount Global’s diminished market valuation, relative to its debt, likely makes a leveraged buyout less appealing for a potential private equity firm.

Moreover, rising interest rates have generally slowed down take-private deals in all industries, as the cost of paying debt interest has soared. Globally, buyout fund deal volume in the first half of 2023 is down 58% from the same period a year ago, according to a Bain & Co. study.

If a full sale to Big Tech and a partial sale to private equity won’t happen, another option for Redstone is to merge or sell to another legacy media company. Warner Bros. Discovery could merge with Paramount Global, though putting together Warner Bros. and Paramount Pictures may hold up deal approval with U.S. regulators.

Beyond regulatory issues, recent history suggests big media mergers haven’t worked well for shareholders. Tens of billions of dollars in shareholder value have been lost in recent media mergers, including WarnerMedia and Discovery, Disney and the majority of Fox, Comcast/NBCUniversal and Sky, Viacom and CBS, and Scripps and Discovery.

Merger partners such as Warner Bros. Discovery also may prefer to sell or merge with a different company, such as Comcast’s NBCUniversal, if regulators allow a big media combination.

Redstone has recently dabbled around the edges, shedding some assets, such as book publisher Simon & Schuster, and engaging in talks to sell a majority stake in cable network BET.

But Paramount Global shelved the idea of selling a stake in BET in August after deciding sale offers were too low to outweigh the value of keeping the network in its cable network portfolio. With the total company’s market valuation below $8 billion, it’s difficult to convince buyers to pay big prices for parts. A change in broader investment sentiment that pushes the company’s valuation higher may help Redstone and other Paramount Global executives get more comfortable with divesting assets.

Selling National Amusements

If Redstone can’t find a deal to her liking, she could also sell National Amusements, the holding company founded by her father, Sumner Redstone, that owns the bulk of the company’s voting shares. National Amusements owns 77.3% of Paramount Global’s Class A (voting) common stock and 5.2% of the Class B common stock, constituting about 10% of the overall equity of the company.

Redstone took a $125 million strategic investment from merchant bank BDT & MSD Partners earlier this year to pay down debt, reiterating her belief in Paramount Global’s inherent value.

“Paramount has the best assets in the media industry, with an incredible content library and IP spanning all genres and demographics, as well as the No. 1 broadcast network, the leading free ad-supported streaming television service and the fastest-growing pay streaming platform in the U.S.,” Redstone said in a statement in May. “NAI has conviction in Paramount’s strategy and execution, and we remain committed to supporting Paramount as it takes the necessary steps to build on its success and capitalize on the strategic opportunities in our industry.”

Selling National Amusements wouldn’t alter Paramount Global’s long-term future. But it is a way out for Redstone if she can’t find a deal beneficial to shareholders.

Paramount Global isn’t actively working with an investment bank on a sale, according to people familiar with the matter. The company is content to wait for a shift in market conditions or regulatory officials before getting more aggressive on a transformational deal, said the people.

Still, Redstone’s predicament aptly sums up legacy media’s current problems. The industry is counting on a turn in market sentiment, while executives privately grumble that in the near term there’s little they can do about it.

WATCH: Mad Money host Jim Cramer weighs in on Paramount Global

Lightning Round: Paramount Global might drop another two to three points lower, says Jim Cramer

Disclosure: Comcast’s NBCUniversal is the parent company of CNBC.

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Want to watch MLB games? Making sense of the confusing TV and streaming landscape

Seattle Mariners shortstop J.P. Crawford (3) slides into third to advance on a sacrifice fly against the Oakland Athletics during the third inning at T-Mobile Park, Sept. 28, 2021..

Joe Nicholson | USA TODAY Sports | Reuters

Buy me some peanuts and Cracker Jack – and a bunch of streaming and TV subscriptions, too.

Major League Baseball‘s season opens Thursday, and fans have to navigate various outlets to find their home team’s games this season. This might create some confusion, while causing some viewers to beef up their baseball budgets.

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MLB teams play 162 games during the regular season, giving the league a lot of runway to sign media rights deals with various outlets in a bid to broaden its reach and audience. In recent years, the focus has been on placing more games on streaming services, while traditional cable TV is needed for a bulk of game viewing.

Here’s a breakdown of how the landscape looks, for now.

Home base plan

For the baseball fan looking to watch as many games as possible, a traditional pay TV service is still the go-to place.

Regional sports networks air the majority of local games during the season. In addition, national networks like Disney unit ESPN and Warner Bros. Discovery’s TBS, as well as Fox Corp.‘s broadcast and pay TV networks, take up a decent chunk of the schedule.

There are a few internet-TV bundle competitors that are an option, too. DirecTV’s DirecTV Stream and FuboTV carry most, if not all, regional sports networks. Other providers like Google‘s YouTube TV and Disney’s Hulu Live TV+ carry few, if any, of these networks.

The reason for that? The high fees networks charge pay TV operators. A “regional sports network” fee is broken out on pay TV bills. It varies by the market.

The fate of the regional sports networks has been brought into question. Recently, Diamond Sports, which operates a portfolio of regional sports networks, filed for bankruptcy protection, toppled by a debt load and the loss of pay TV subscribers.

The networks and the streaming services haven’t gone dark and are still expected to show games this season.

Similarly, Warner Bros. Discovery has been looking to exit the regional sports networks it inherited from the acquisition of Warner from AT&T last year, The Wall Street Journal recently reported. While Warner Bros. sent a notice to the teams looking to transition the network rights over to them, the league and Warner Bros. have been in negotiations to keep the networks running normally for the foreseeable future, people familiar with the matter said.

Streaming options

As the traditional TV audience shrinks, the league and the networks have been looking to streaming services to grow MLB’s audience there. However, as more options are introduced, regional sports networks are getting fewer games and fans have to pay more to watch all games.

“From baseball’s perspective there is not only a need to find new audiences but different demographics,” said Will Mao, senior vice president of media rights consulting at Octagon. “It’s been a longtime narrative the baseball audience is getting older. To find the next generation of fans you need to go where more content is consumed, which is digital streaming platforms.”

With a higher rate of consumers dropping pay TV bundles and opting for streaming services, many networks have created direct-to-consumer streaming app options. Few offset the pay TV losses, but at least provide an option for fans wanting to stream.

New England Sports Network, home of Boston Red Sox games, has a streaming option for fans in its region. Diamond Sports’ Bally Sports+ launched last year, but only offers Detroit Tigers, Kansas City Royals, Miami Marlins, Milwaukee Brewers and Tampa Bay Rays games as the company negotiates with the league for streaming rights on a team-by-team basis.

New York Yankees right fielder Aaron Judge (99) rounds the bases after hitting home run number sixty-two to break the American League home run record in the first inning against the Texas Rangers at Globe Life Field.

Tim Heitman | USA TODAY Sports | Reuters

The New York Yankees’ YES Network launched its own option the day before Opening Day, priced at $25 a month. Still, for Yankees fans, it can be particularly confusing. Since last year, 20 of its local games have been on Amazon‘s Prime Video rather than YES or a local broadcast network, stemming from Amazon taking a piece of ownership in the network.

This will mark the second season that Apple‘s Apple TV+ will air two games every Friday night. However this year “Friday Night Baseball” will come at an extra cost – a $6.99 subscription to Apple TV+ – as opposed to when it was free last year.

A set of 19 games will once again air on Sundays on Comcast‘s Peacock beginning April 23 of this year, a bit earlier than its May 8 start last year. Peacock, which costs $4.99 a month, will soon have more information about its announcers for the Sunday broadcasts, many of which air at 11:35 a.m. ET or 12:05 p.m. ET, a bit earlier than the typical MLB start time of 1:05 p.m.

Since 2021, ESPN has begun simultaneously airing games on its streaming service ESPN+, which costs $9.99 a month, and also streams a local RSN game most days throughout the season.

“I do empathize now with the rose-colored glasses many have for the traditional cable bundle. There’s value to bundling we’ve learned not just across media but other industries,” said Mao.

These additional streaming bills come as the cost of pay TV subscriptions from satellite and cable providers varies across the U.S. A recent U.S. News report found that an average cable bill costs more than $200 a month, but that could include bundled services, likely broadband service. The Federal Communications Commission’s most recent report from 2018 shows the average of basic cable at $25.40 a month, with the expanded package averaging $71.31. The former is unlikely to include national sports networks.

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

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Schumer, Jeffries pressure Murdoch, Fox News over Trump’s false election fraud claims

Two top Democrats in Congress are calling on Fox Corp. Chairman Rupert Murdoch and the leadership of Fox News “to stop spreading false election narratives and admit on the air that they were wrong to engage in such negligent behavior.”

Senate Majority Leader Chuck Schumer and House Minority Leader Hakeem Jeffries, both Democrats from New York, sent a letter this week to Murdoch and Fox News leadership. The letter comes days after further revelations in Dominion Voting Systems‘ $1.6 billion defamation lawsuit against Fox Corp. and its TV networks.

“As noted in your deposition released yesterday Tucker Carlson, Sean Hannity, Laura Ingraham, and other Fox News personalities knowingly, repeatedly, and dangerously endorsed and promoted the Big Lie that Donald Trump won the 2020 presidential election,” the lawmakers wrote in the letter, which was released Wednesday.

Trump has repeatedly spread false claims that the election was stolen from him. His attempts to pressure a top official in Georgia to “find” votes for him are the subject of a criminal probe in that state, which Trump lost to Democrat Joe Biden.

Earlier this week, Dominion filed court papers that revealed parts of the testimony from Murdoch and other top Fox Corp. leadership. In his deposition, Murdoch acknowledged that some of Fox’s top TV hosts endorsed false election fraud claims.

When Murdoch was asked if he was “now aware that Fox endorsed at times this false notion of a stolen election,” Murdoch responded, “Not Fox, no. Not Fox. But maybe Lou Dobbs, maybe Maria [Bartiromo] as commentators,” according to court papers.

“Some of our commentators were endorsing it,” Murdoch said in his responses regarding election fraud during the deposition. “They endorsed.” Murdoch and other top Fox executives also remained close to Fox News CEO Suzanne Scott during the election coverage, according to the court papers.

A representative for Fox didn’t immediately respond to a request for comment.

On Monday, when the court papers were filed, a Fox News representative said in a statement that Dominion mischaracterized the facts by cherry-picking soundbites, “When Dominion is not mischaracterizing the law, it is mischaracterizing the facts.”

Dominion sued the right-wing cable networks, Fox News and Fox Business, and their parent company, arguing the networks and their top anchors made false claims that Dominion’s voting machines rigged the results of the 2020 election. Fox News has consistently denied that it knowingly made false claims about the election.

In court papers filed in February, the parent company said that the past year of discovery has shown Fox Corp. played “no role in the creation and publication of the challenged statements – all of which aired on either Fox Business Network or Fox News Channel.”

Murdoch and his son Fox CEO Lachlan Murdoch, in addition to Fox’s chief legal and policy officer, Viet Dinh, and Paul Ryan, the former Republican speaker of the House and a Fox board member, have all been questioned in recent months.

The revelations that have come out in court papers in recent weeks stem from months of discovery and depositions. Top Fox TV personalities, including Carlson and Hannity, also faced questioning.

The faces of Fox News and Fox Business also expressed disbelief in Sidney Powell, a pro-Trump attorney who aggressively promoted claims of election fraud at the time, according to court papers. Ryan said that “these conspiracy theories were baseless,” and that the network “should labor to dispel conspiracy theories if and when they pop up.”

The lawsuit has been closely watched by First Amendment watchdogs and experts. Libel lawsuits typically focus on one falsehood, but in this case Dominion cites a lengthy list of examples of Fox TV hosts making false claims even after they were proven to be untrue. Media companies are often broadly protected by the First Amendment. Fox News has said in earlier statements, “the core of this case remains about freedom of the press and freedom of speech.”

A status conference is slated for next week, while the trial is set to begin in mid-April.

Read the letter below:

Dear Mr. Rupert Murdoch et al:

As noted in your deposition released yesterday Tucker Carlson, Sean Hannity, Laura Ingraham, and other Fox News personalities knowingly, repeatedly, and dangerously endorsed and promoted the Big Lie that Donald Trump won the 2020 presidential election. Though you have acknowledged your regret in allowing this grave propaganda to take place, your network hosts continue to promote, spew, and perpetuate election conspiracy theories to this day.

The leadership of your company was aware of the dangers of broadcasting these outlandish claims. By your own account, Donald Trump’s election lies were “damaging” and “really crazy stuff.” Despite that shocking admission, Fox News hosts have continued to peddle election denialism to the American people.

This sets a dangerous precedent that ignores basic journalistic fact-checking principles and public accountability. This is even more alarming after Speaker McCarthy is reportedly allowing Tucker Carlson to review highly sensitive security camera footage of the events surrounding the violent January 6 insurrection.

We demand that you direct Tucker Carlson and other hosts on your network to stop spreading false election narratives and admit on the air that they were wrong to engage in such negligent behavior.

As evidenced by the January 6 insurrection, spreading this false propaganda could not only embolden supporters of the Big Lie to engage in further acts of political violence, but also deeply and broadly weakens faith in our democracy and hurts our country in countless other ways.

Fox News executives and all other hosts on your network have a clear choice. You can continue a pattern of lying to your viewers and risking democracy or move beyond this damaging chapter in your company’s history by siding with the truth and reporting the facts. We ask that you make sure Fox News ceases disseminating the Big Lie and other election conspiracy theories on your network.

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