The proposed merger between Paramount and Warner Bros. Discovery is anticompetitive, would lay off thousands of workers, raise prices, and create a debt-laden giant that would have to cut costs aggressively to have any hope of servicing that debt. In short, the math doesn’t work – for anyone.
The combined company will start life carrying roughly $79 billion in debt while generating just $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: broader scope, bigger libraries, broader distribution, and stronger franchises. Star Trek and Top Gun meet game of thrones, Superman and Harry Potter.
But size only succeeds when it is built on a solid financial foundation. The scale in this deal will destroy both studios. Here, instead of achieving economies of scale, the opposite may occur. A merger risks creating a company so heavily indebted that it becomes less able to invest in film, television, streaming, sports, production deals and creative talent than either company on its own. The new company’s sole mission will be to service its debts.
Hollywood has already spent the last decade chasing mergers. The results were not excellent. When The Walt Disney Company acquired 21st Century Fox in 2019, Disney’s leverage rose to approximately 2.8 times EBITDA (lower is better). When Discovery, Inc. merged With WarnerMedia in 2021, leverage rose to about 4.3 times EBITDA. Both deals were heavily criticized for excessive leverage at the time. This proposed combination between Paramount and Warner Bros 6.5 times EBITDA. This is a completely different level of financial stress. Paramount recently said it plans to reduce that amount to 3 times EBITDA by fiscal 2029, but that seems doubtful given its level of debt and lack of free cash flow.
The timing makes the situation even more worrying. Disney made its deal when interest rates were low and capital was abundant. Discovery completed its transaction during an era when Treasury yields were near zero. Today’s environment is markedly different. Borrowing costs are materially higher, credit markets are tighter, and Paramount’s debt rating has already been downgraded by two of the big three rating agencies. The company has a massive short-term loan — about $49 billion — that will need to be refinanced in about 10 months. This creates a dangerous dependency. If financing conditions worsen, the company may have few options.
The monetary demands are enormous. Annual interest expenses alone could amount to $5 billion to $6 billion on $79 billion of debt. That’s nearly half of the company’s expected $12 billion earnings before interest, taxes, depreciation and amortization. Add another $3 billion to $5 billion annually for film and television production, $3 billion to $4 billion for streaming content and technology, and roughly $2 billion to $3 billion in merger integration expenses. I’m not even counting here the huge chunk the NFL will bear when it renegotiates its lucrative sports rights deal with Paramount.
And this is all before paying off meaningful debt, which will become a matter of life or death for the company.
As a result, before savings are realized and capital is repaid, the company may not be able to service existing debt and may need to go the other way and continue to borrow more and more simply to maintain operations and make interest payments. A reasonable path is for debt to rise from about $79 billion at closing to $83 billion-$85 billion within the first year, potentially approaching or exceeding $90 billion within three years, as it is unable to repay the principal, and perhaps even higher if cost savings come slowly or operating conditions weaken. This is the media leverage trap: A company merges in order to gain scale, but the cost of taking on debt absorbs the cash flow that scale was supposed to create.
The impact on the industry will be detrimental. In a leveraged buyout like this, the first two steps are to fire people and raise prices. As the debt-ridden companies merge, the immediate consequences will be more job losses at both studios.
When Disney completed its $71.3 billion acquisition of Fox, there was about $2 billion of synergies. From that, and based on the financial models I’ve run, I estimate total job losses at about 14,000. Of those, 4,000 were direct employees and over another 10,000 we’ll call indirect workers. These are people who support or work in the film and television industry. Productions rely on these outside contractors and suppliers, gig workers, security, caterers, VFX houses, sound stage owners, below-the-line workers and more.
When Ellison’s Skydance struck a deal to buy Shari Redstone’s Paramount Global last August, the two companies expected $2 billion in synergies, including direct job cuts of 2,000 to 3,500 jobs. This number will increase as Skydance continues to downsize due to its upcoming merger with Warner Bros.
Paramount’s potential acquisition of Warner Bros. Discovery is expected to be worth about $6 billion in public filings. The financial models I manage predict that the number of direct employees in companies will exceed 10,000 employees, and tens of thousands more indirect workers who will be affected by the repercussions of the merger. If Ellison’s pledge to produce 30 films a year turns out to be unsuccessful and movie theater chains lose production, job cuts will only increase.
This projected $6 billion synergy over three years from Paramount’s acquisition of WBD is arguably unrealistic. In most leveraged buyouts, the acquirer does not even reach half of the expected numbers. Saving $6 billion is roughly equivalent to firing 10,000 low- and middle-level workers.
Even if they somehow reach the $6 billion figure, it will make no difference to the newly emerging debt problem. Once again, the combined company will take on $79 billion in debt. To state the obvious, for a company the size of Paramount-Warner Bros. Discovery, the possibility of laying off 10,000 employees is a huge number in itself. This is not “pruning”. This leads to a significant reduction in operational capacity, and is not the standard and customary cuts and job cuts. At this level, you’re not just cutting costs — you’re inevitably reshaping production, menu size, and how the company operates day to day.
Not only is this deal bad for the merging companies, it creates broader problems for the industry as a whole. The traditional studio model already faces enormous pressures from fragmented audiences, rising production costs, declining TV economics, and an increasingly tough streaming market. In this environment, balance sheet flexibility is more important than ever. Companies need space to invest, experiment, absorb failures, and support long-term creative development.
This merger moves in the opposite direction. It would create a company where maintaining the capital structure could become more important than investing in the product itself. There will be fewer films greenlit. Fewer creative risks will be taken. Mid-budget products will disappear. Creative decisions will be replaced by financial calculations designed to maximize short-term cash generation rather than long-term building of excellence or artistic quality.
The result is worse for the consumer and worse for the economy.
A When Disney acquired Fox, we went from six major studios to five. If the Paramount WBD transaction is not blocked, we will effectively transition into four major companies, because two of them will be controlled by a single owner. Do we realistically think they will compete with each other? Does moving from six to four major studios enhance competition, or does it starkly conflict with competition? The answers are clear.
Supporters of the deal call it a bold attempt to build scale for the streaming era. But the size financed by excessive debt is not a strength. It’s fragility disguised as ambition. And when two debt-ridden media companies merge into one debt-ridden company, we know how this movie ends: years of mass layoffs, restructuring, reduced production, increased prices to the consumer, and fiscal cutbacks.
Gulf sovereign wealth funds have recently pushed for significantly more attractive economies in exchange for $24 billion in capital. Now, with favorable pricing, caps on the price they pay, plus guarantees offered as a sweetener, foreign sovereign wealth funds could end up owning nearly 50 percent of the two major studios combined and become the largest equity shareholder.
What we will see if this deal goes through is fewer buyers for the scripts. Fewer films are greenlit. Less competition for talent (actors, directors, people). On the back end, a single company controlling a deeper library and two major streaming services — Paramount+ and HBO Max — can decide where titles go, how long they stay in theaters, and who else can access them.
There’s an uncomfortable truth in this business that’s rarely said out loud: the company that controls distribution ultimately controls the market. I’ve seen more films succeed or fail on the fringes of a distribution strategy than in the development room.
Green lights are important. Budgets are important. But distribution – the ability to reach audiences at scale, on fair and open terms – is the oxygen of the industry. When one company gains too much influence over theatrical booking, cable carriage, or broadcast visibility, the system tilts. Once tilted, it rarely tilts back.
Joseph M. Singer is a former investment banker. For the past 30 years, he has been a film producer and financier, former studio executive at Universal, and founder of Elixir Media. He is the managing director/CEO of a company that specializes in mergers and acquisitions; He has contributed as a producer and financing consultant to most major companies, and negotiated four multi-year co-financing deals in which Elixir financed 25 percent to 33 percent of the images and shared ownership of the copyright. The singer has participated in more than 120 major studio films And his company has an ongoing deal with a major studio.
