🐂 Parting Ways

Market News 12/22

December 22, 2023

Markets

Stocks experienced a positive turnaround yesterday, recovering from a challenging Wednesday to regain their late-year momentum. However, Paramount and Warner Bros. Discovery faced a downturn after reports suggested a potential merger between the two entertainment giants in the coming year. Investors reacted cautiously to the prospect of HBO and Nickelodeon being under the umbrella of the same company, leading to a decline in both stocks.

Entertainment

Warner Bros and Paramount might merge

The possibility of an NCIS x Nathan Fielder crossover series is gaining momentum. According to Axios' Wednesday report, Warner Bros. Discovery CEO David Zaslav and Paramount Global CEO Bob Bakish met to discuss a potential merger between the two media conglomerates. Paramount, reportedly seeking a buyer due to chairwoman Shari Redstone's efforts, faces a $15 billion debt, while WBD, actively reducing its $45 billion debt, is open to acquiring Paramount to compete with Disney and Netflix.

A merger of WBD's and Paramount's streaming services could reshape the streaming wars significantly:

  • Warner Bros.' Max and Discovery+, along with Paramount's Paramount+, would combine for 158 million subscribers, creating the world's second-largest service after Netflix (247 million subs), as per the Wall Street Journal.

  • WBD would gain access to Paramount's franchises like Mission: Impossible, Terminator, and Star Trek, while Paramount users would enjoy DC universe, Harry Potter, and Lord of the Rings from Warner Bros. Discovery.

  • Paramount would fill a programming gap for WBD with NFL rights.

Despite antitrust concerns from US regulators, executives are confident about the deal, noting WBD's lack of a broadcast network, unlike Paramount (which owns CBS). However, scrutiny remains as the combined entity might control 35%-40% of the linear TV market, according to the Wall Street Journal.

Comcast, though not currently in merger talks, might enter the scene. CNBC reported that NBCUniversal (owned by Comcast) isn't in discussions, but WBD's talks with Paramount could be a strategic move to explore NBCU as a potential match.

In summary, the CEOs recently met for discussions, and no agreements have been finalized. If the deal proceeds, it could mark a significant return for mergers and acquisitions in 2024, especially with the Federal Reserve poised to reduce interest rates, encouraging M&A activities that have awaited a more stable economic environment.

International

US and Chinese militaries are on speaking terms again

Yesterday marked the first instance in over a year where the highest-ranking US military officer, the chairman of the Joint Chiefs of Staff, engaged in a conversation with his Chinese counterpart. The senior military officials participated in a video call to address "global and regional security issues" and underscore the importance of initiating discussions at lower levels. In 2022, China's military had ceased communication with the US, citing concerns over what it perceived as a provocative visit to Taiwan by then-House Speaker Nancy Pelosi. However, following a recent meeting between President Biden and China's leader, Xi Jinping, in San Francisco, an agreement was reached to resume regular dialogues between the two superpower militaries with the aim of easing tensions.

Energy

OPEC loses another country

Angola has decided to part ways with the Organization of the Petroleum Exporting Countries (OPEC), joining a growing list of nations distancing themselves from the Saudi-led alliance as its influence diminishes. The decision comes after OPEC reduced Angola's oil output quota by 25% in November, causing dissatisfaction.

In a broader context, OPEC aims to have the ability to adjust production to optimize oil profits, relying on significant oil-producing players. With Angola's departure, OPEC is left with 12 members, while an additional 11 allied countries make up OPEC+, with Brazil set to join next year.

Despite OPEC's efforts to boost oil prices by curbing production, which led to a minor drop in oil prices to around $75 per barrel following Angola's announcement (before recovering slightly), the organization's sway is declining. The International Energy Agency (IEA) reports that OPEC now controls approximately 51% of the world's crude oil market share, the lowest since its expansion in 2016 to include OPEC+ countries. As OPEC withdraws, non-OPEC and OPEC+ countries are filling the void, with the US reaching a record 13.3 million barrels per day in crude oil output last week, according to the US Energy Information Administration.

Moreover, as the world increasingly embraces greener alternatives, the demand for oil is expected to peak before 2030, further challenging OPEC's standing in the market. This move by Angola underscores the shifting dynamics within the global oil landscape.

Sports

The super league has new life

A revived $4 billion plan for a new elite soccer league in Europe is gaining momentum following a recent court ruling that essentially allows for its resumption, likened to the legal version of including your younger sibling in an activity.

In case you missed it, in 2021, a dozen top European soccer clubs unveiled the European Super League, positioned as a high-paying rival to the UEFA Champions League. However, widespread public disapproval led many clubs to withdraw, and threats from UEFA and FIFA resulted in the league's demise.

Fast forward to the present, the European Court of Justice's recent ruling deemed UEFA and FIFA's actions in 2021 as unlawful, asserting that they cannot prevent the formation of new competitions. In response, the company behind the Super League, A22, has unveiled an updated plan, which includes:

  • Replacing the Champions League with a 64-club men's competition and a 32-club women's competition.

  • Streaming the Super League for free on a new platform, generating revenue through advertising, premium subscriptions, and sponsorships.

Despite sarcastic encouragement from some clubs for this second attempt, fan opposition remains strong. However, notable Spanish teams like Real Madrid and Barcelona are supporting the venture.

British Prime Minister Rishi Sunak, in response, has pledged to prohibit Premier League clubs from participating in the Super League, signaling ongoing political resistance to the controversial proposal.