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

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Ben Fritz (0:32)

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 Bros. Discovery agreed to sell itself to 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 Iger. This is all against the 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. Joe, let's talk first about consolidation and spin-offs. So Skydance bought Paramount last 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 very well since its public debut in January. What's up with all this reshaping of our media giants?

Joe Flint (1:39)

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. We look at David Ellison, the head of Skydance. He bought Paramount last year, but even then, he thought this is too small to compete with those bigger giants. From the get-go, he went after Warner, believing that that would give him enough scale to compete. 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.

David Ellison (2:26)

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.

Joe Flint (2:41)

Comcast, meanwhile, wanted to move the bulk of its cable assets, including CNBC, MSNBC, and USA, to a separate company called Versant, because long term, cable is not the growth engine it once was. And NBCUniversal is focusing much of their efforts on turning Peacock into a legitimate streaming competitor. Versant 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?

Ben Fritz (3:21)

Sure thing, Joe. So Disney has 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. At NBCUniversal, meanwhile, theme parks accounted for nearly all its profits last quarter, as 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 opened its third theme park in Orlando. It's building one that's just for kids in Texas. We recently reported that it's in talks for a possible theme park in Saudi Arabia. Finally, what about streaming, Joe? How's the OG Netflix doing and how about the media company's own services like Disney+, HBO Max, Paramount+, and Peacock? Are they anywhere close to making up for what was lost in linear TV profits?