What’s News in Earnings: Merger News Dominates the Entertainment Business

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Hey listeners, it's Thursday, March 5th.

I'm Ben Fritz for the Wall Street Journal,

and this is What's News in Earnings.

Our look at some of the biggest themes standing out this earnings season.

Today I'm speaking with Wall Street Journal Media and Entertainment Reporter, Joe Flint.

It's been a dramatic few months for the media business.

Warner Brothers Discovery agreed to sell a self-dened Netflix,

then left the streaming giant at the altar for a better proposal from Paramount.

Disney picked a new CEO who will be the second person to replace Bob Iyer.

This is all against a backdrop of rapid declines in the linear television business,

and struggles by entertainment companies to grow other businesses,

like streaming and theme parks, fast enough to make up the difference.

So let's talk first about consolidation and spin-offs.

So Skydance bought Paramount less summer,

and now Paramount Skydance has a deal to buy Warner.

Comcast spun out its cable networks into a new company called Versant

that isn't doing it very well since its public debut in January.

What's up with all this reshaping of our media giants?

Well, both the Paramount Warner deal and Comcast cable spin-off are driven by the desire

of these companies to be more focused on streaming,

try to offer real competition to Netflix and Disney Plus.

And we look at David Ellison that had a Skydance.

He bought Paramount last year, but even then he thought this is too small

to compete with those bigger giants.

So from the get-go he went after Warner,

believing that that would give him enough scale to compete.

So now we'll get to see if that actually pans out for him,

or if he's just saddled another media company with a ton of debt.

Earlier this week, and just a few days after Paramount's earnings report,

the company held a call with analysts to talk about the Warner deal.

They framed it as an ambitious project

that would reinvigorate entertainment.

Here's Paramount CEO David Ellison.

This is not about consolidation.

It's about reinventing the business.

We want to expand our reach and enhance our ability to create the world's most compelling

stories and experiences.

And we're incredibly excited about this transaction,

and it will accelerate that ambition.

Comcast, meanwhile, I wanted to move the bulk of its cable assets,

including CNBC, MSNBC, and USA,

to a separate company called Versing.

Because long-term cable is not the growth engine it once was,

and NBC Universal is focusing much of their efforts on turning peacock

into a legitimate streaming competitor.

Versing just reported that for 2025, profit and revenue both fell,

but they say they're in a good position to grow this year.

Disney and Universal have also been investing aggressively in their real-world experiences,

theme parks and cruise ships.

Why is that?

Do they have advantages over companies without theme parks and businesses?

Ben, why don't you tell us more about that?

Sure thing, Joe.

So Disney's been in the theme park business since the 1950s,

but that was always smaller than first its film business and then later television.

Post-pandemic, however, people have been rushing out to have real-world experiences together.

It's been a booming part of entertainment.

And since 2022, experiences, the Disney Division,

that includes theme parks and cruise ships,

has accounted for the majority of its profits.

Last quarter, in fact, it was 72%.

The company expected to keep growing,

although the domestic theme parks are facing pressure from fewer foreign visitors coming to the US.

An NBC Universal, meanwhile, theme parks accounted for nearly all its profits last quarter.

Its losses from peacock basically covered the profits from film and the shrinking linear

television business, which includes networks like NBC and Bravo.

Both companies are expanding aggressively.

Disney is nearly doubling the size of its cruise ship fleet.

It's expanding or refurbishing all of its theme parks and is planning a new one in Abu Dhabi.

Universal just opens its third theme park in Orlando.

It's building on us just for kids in Texas.

And we recently reported that it's in talks for a possible theme park in Saudi Arabia.

So finally, what about streaming, Joe?

How's the OG Netflix doing?

And how about the media company's own services like Disney Plus, HBO Max,

Paramount Plus, and peacock?

Are they anywhere close to making up for what was lost in linear TV profits?

They're getting closer, but it's still a long road.

First, we'll focus on Netflix that, fortunately, for them,

doesn't have those old linear businesses to worry about.

They had a good quarter.

A revenue was up 20%, net income 30%,

325 million subscribers worldwide.

But obviously, they too are worried about growth,

hence their interest in buying the Warner Library and HBO Max.

And we see them investing more and more in live sports,

all these things to keep viewers from churning

and to maintain subscriber growth.

The others are growing, but linear media and the money

those cable channels generate are still significant.

Disney streaming had operating income growing, 72%.

HBO Max has been growing nicely,

but they saw a slight decline in earnings

because of some changes with their distribution deals.

Peacock, however, lost $550,000,000

despite some subscriber gains largely through sports.

The challenges those subscribers are not always long-term.

They come in, they check out.

Customers drop off when a season of their favorite show ends

or at the Olympics end, and I'm already hearing about that,

now that the Olympics are over, some Peacock subscribers are saying,

okay, we're done for now.

I have to say, once the current season of the Pit ends,

I may be churning for me to go max myself for a little while.

Well, and that's why they want to merge with Paramount

so that then you'll stick around for the new season of land.

And that was what's news in earnings.

Today's show was produced by Pierre B&MA,

was supervising producer Tali Arbel,

additional sound courtesy of S&P Global Market Intelligence.

I'm back later today when we'll have the PM edition

of what's news out for you as usual,

and we'll be back later this earnings season

diving into another industry.

Until then, I'm Ben Fritz, have a great day.

Hey, this is Tellus Demos.

And I'm Miriam Gottfried.

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