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

0:00Joe Flint:Instagram teen accounts default teens into automatic protections for who can contact them and the content they can see. Explore teen accounts and all of our ongoing work to protect teens online at instagram.com slash teenaccounts. 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 itself to Netflix, then left the streaming giant at the altar for a better proposal from Paramount.

0:42Joe Flint:Disney picked a new CEO who will be the second person to replace Bob Iger. 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.

1:04Joe Flint:Joe, let's talk first about consolidation and spinoffs. 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?

1:23Ben Fritz:Well, both the Paramount Warner deal and Comcast cable spinoff 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 Ellis and the head of 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.

2:05Ben Fritz:They framed it as an ambitious project that would reinvigorate entertainment. Here's Paramount CEO David Ellison.

2:11Joe Flint: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.

2:26Ben Fritz:Comcast, meanwhile, wanted to move the bulk of its cable assets, including CNBC, MSNBC, and USA, to a separate company called Versin. 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?

3:04Ben Fritz:Ben, why don't you tell us more about that.

3:06Joe Flint: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 U.S.

3:41Joe Flint:At NBCUniversal, 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 one that's just for kids in Texas. And we recently reported that it's in talks for a possible theme park in Saudi Arabia.

4:15Joe Flint:So 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?

4:29Ben Fritz: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. Revenue was up 20 percent, net income 30 percent, 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.

5:07Ben Fritz: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$552 million, despite some subscriber gains largely through sports. The challenge is 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 if the Olympics end. And I'm already hearing about that now that the Olympics are over. Some Peacock subscribers are saying, OK, we're done for now.

5:43Joe Flint:I have to say, once the current season of The Pit ends, I may be churning from HBO Max myself for a little while.

5:50Ben Fritz:Well, and that's why they want to merge with Paramount, so that then you'll stick around for the new season of Landman.

5:56Joe Flint:And that was What's News in Earnings. Today's show was produced by Pierre Bien-Aimé with supervising producer Tali Arbel. Additional sound courtesy of S &P Global Market Intelligence. Come 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.

6:41Joe Flint:news to help navigate the markets, consider becoming a subscriber to The Wall Street Journal. Visit subscribe.wsj.com slash take on the week to subscribe now.