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Paramount-Peacock merge could compete with Netflix: Analyst

Paramount+ (PARA) and NBC's Peacock are in talks to join forces. What could this potential merger mean for the greater media landscape and other streaming platforms?

Citi Managing Director Jason Bazinet joins Yahoo Finance Live to take a closer look at what this could mean for competition.

“I’m in the minority” states Bazinet who suggests that consolidation could be one way to “compete with the likes of Netflix.” With one major concern being pricing for consolidation, Bazinet stated that “pricing will go up,” but insists that consolidation ensures cost savings because “we have too many apps.”

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

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Editor's note: This article was written by Eyek Ntekim

Video transcript

- Paramount Plus and Peacock reportedly in talks to join forces amid an increasingly competitive streaming landscape. This coming amid several potential strategic options at the entertainment company is pursuing all according to a report here from the Wall Street Journal. Here with more on the path forward for not only Paramount but also several of the other media giants, we want to bring in Citi managing director Jason Bazinet.

Jason, it's great to see you again, so let's start on that journal report here from last week. Just give us your assessment just of where Paramount specifically stands, and when we talk about consolidation, whether or not it's inevitable that some of these smaller players need to some sort of combine or bundle up with the larger players in order to better compete.

JASON BAZINET: Well, I'm in the minority. If you speak to most of our institutional investors, they would say that consolidation really makes no sense, and there's good reasons for the buy side to say that. I understand why they draw that conclusion because we've already seen many rounds of consolidation with Disney Fox. We saw Warner Brothers Discovery. We saw CBS-Viacom.

And none of them, none of those deals sort of was the elixir that allowed them to generate copious amounts of profits in streaming. So the buy side says we're sort of done with consolidation. Even if we see more consolidation, it's not going to help any of these incumbent firms. And I think it's just dead wrong. We need another round of consolidation. It will help these incumbent firms compete with the likes of Netflix.

- How will that consolidation then, from your purview, change the pricing mechanisms that these companies put forward to consumers?

JASON BAZINET: You know, I don't think it's so much about pricing per se. I would say that we went through a chapter, I'll call it 2019 through 2021-ish, where it was just give away the product, trying get as many subs as you can to get scale. And we're now in a chapter where a lot of these media companies are saying, look, we can't generate losses forever in streaming. We're going to take pricing up.

So if we see another round of consolidation, I think pricing will go up for the video streaming apps, but it would go up anyway. What we really are focused on is more about the cost savings that you get with consolidation, and equally critical, just rationalizing the number of apps that are out in the marketplace. We just have too many video apps.

- Jason, talk to us just a little bit more about what that cost savings perspective, what that's going to do, how much will it really save some of these media players in the long run.

JASON BAZINET: Yeah. Typically, it runs a low single digit percentage of the cost structure of the pro forma firm. So it's billions of dollars, no matter which combination you envisage.

- And so with that in mind, I mean, we're already hearing as well that there's going to be some potential pushback from the DOJ if there's more of this consolidation effort that goes forward. Where do you think that companies will have to strike the right tone in their messaging to regulators as well?

JASON BAZINET: Well, I don't know. It's pretty interesting because the regulators have a propensity to almost be too backward-looking, right? And so there certainly is some risk that you'll get regulatory pushback. I can tell you the way the institutional investors are looking at it is the real competition is really from the tech giants that are getting into the streaming business, whether that's an Apple or an Amazon.

And so the buy side doesn't really look at consolidation as a constraint. But sometimes, the regulators tend to be a little bit backward-looking and might say, there's too much consolidation, but I think that would be the wrong answer.