There is a point that many of us likely did not consider about the potential buyout of entertainment giant Warner Bros. Discovery (WBD), and it relates to a field that some already believe is on its last legs: the movie theater. And theaters are increasingly alarmed by the notion that someone may be in line to buy Warner. But this did not stop investors from carrying on regardless, as Warner shares gained modestly in the closing minutes of Tuesday’s trading.
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Basically, theaters have been struggling with a lack of content since back around the pandemic. It has improved since then, certainly, but theaters are putting out constant calls for new movies to show. Hollywood has been a bit slow to react on this one, and not without reason. Movies are expensive to make and take months, if not years, to produce. Well, in some cases, that is true, but we will ignore independent development for the sake of this notion.
And as it turns out, theaters are terrified that Warner getting sold off will reduce the number of players in the market. That is true in some settings, of course. If Paramount Skydance (PSKY) or Comcast (CMCSA) buys Warner, then that will be a reduction. But if Netflix (NFLX) or one of the tech companies, none of which were releasing a lot of theatrical content to begin with, buys in, the problem may be substantially less.
HBO Max, RIP
Meanwhile, another key component of the future plan emerged, and if Paramount Skydance ends up with Warner at the end of this process, the likely outcome will be an end to HBO Max. While Max is currently one of the biggest streamers around—significantly larger than Paramount+ by a healthy margin at last report—Paramount will not be interested in keeping it around.
Indeed, should Paramount win, reports note, Paramount+ will be augmented instead, given all of Max’s content, and probably most of Max’s viewers as well. Some might choose to drop out, not wanting to enrich Paramount, but for those who value Warner content, they will get it from Paramount+.
Is WBD Stock a Good Buy?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on WBD stock based on eight Buys and 10 Holds assigned in the past three months, as indicated by the graphic below. After a 171.50% rally in its share price over the past year, the average WBD price target of $20.75 per share implies 8.06% downside risk.
