We knew going in that the merger between entertainment giant Paramount Skydance (PSKY) and Warner Bros. Discovery (WBD) was likely to be perilous from the beginning. We are starting to see as much play out, especially after yesterday’s revelation of two Democrat lawmakers calling out Paramount CEO David Ellison. But Paramount is also taking the fight to regulators, trying to get its plans pushed through. Investors seemed skeptical, and Paramount shares slipped over 2% in the closing minutes of Wednesday’s trading.
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New trading tool for AMZN bullsPerhaps one of the biggest concerns Paramount faces right now is Rob Bonta, California attorney general, who has already made it clear that a lawsuit to shut the deal down is on the table. Bonta noted, “There are red flags everywhere for us. We’re looking at things like higher prices, lower wages, fewer jobs, less quality, less choice, less competition—the things that you look at when you’re looking at an antitrust case and a proposed merger.”
Interestingly, Paramount sent Bonta a letter just before Bonta’s recent press briefing, where Bonta noted a lawsuit could be ready to go. Paramount actually addressed at least some of those concerns in said letter, noting, “Paramount and WBD have every intention, and, importantly, incentive to keep filling California theaters (and theaters across the world) with a wide range of titles as we look to raise the standard for content production and distribution.”
A Bigger Problem
But Paramount also raised an issue that few seem willing to consider, or even interested in considering. Paramount spelled it out plainly: if Paramount and Warner do not get together, they will not be in a position to compete against Netflix (NFLX), Amazon (AMZN) or Disney (DIS) by themselves.
Neither Paramount+ nor HBO Max has the scale to “compete effectively” against its rivals in the space. Further, neither is likely to grow sufficiently to be able to reach that point in the foreseeable future. The top three streaming providers—Netflix, Amazon and Disney—have a combined total of 65% of the streaming video on demand (SVOD) market. Paramount would basically have to take most of what was left in order to pose a real competitive threat.
Is Paramount Stock a Good Buy Right Now?
Turning to Wall Street, analysts have a Moderate Sell consensus rating on PSKY stock based on one Buy, five Holds and four Sells assigned in the past three months, as indicated by the graphic below. After a 9.48% loss in its share price over the past year, the average PSKY price target of $11.38 per share implies 8.49% upside potential.
