Paramount Global's (PARA) plans to merge with production studio Skydance Media could set off a dealmaking spree in the media industry as it grapples with traditional TV's decline.

On Sunday, Paramount announced it will combine with Skydance following a years-long struggle to make streaming profitable and stop the bleeding of its linear network business.

It's the same two-pronged conundrum that all legacy media is facing: Fewer consumers are paying for the pay-TV bundle, which doesn't bode well for how much programmers can make from ad sales and affiliate fees paid by distributors for their content. Meanwhile, streaming remains unprofitable for the majority of players as costs rise and subscriber growth stalls.

All that points to a handful of giants getting even bigger. Rumors have swirled that Warner Bros. Discovery (WBD) and Comcast's NBCUniversal (CMCSA) could merge or spin off certain assets.

"I think you're going to have two or three major companies," David Wisnia, partner and managing director of media and entertainment at consulting firm Alvarez & Marsal, told Yahoo Finance. "Because if you're not able to bring streaming to a material level of profitability, ... you're going to be looking for a buyer. You have no other choice."

The Paramount deal has been one of the most talked about topics at the ongoing annual Sun Valley conference, which brings together top media moguls and CEOs. It's often a space where company deals are made (or at the very least teased.)

"Getting [Paramount] in solid hands and having them funded — it’s a great company and a great heritage, so I think that’s good for the industry," Warner Bros. Discovery CEO David Zaslav told reporters on Tuesday, as cited by Bloomberg.

“Over the next year or two you’re going to see some real consolidation, whether that happens with companies buying each other or going after streaming together,” he said.

That's a reality already taking place with bundles and partnerships becoming more common within the industry at large. Bundles are viewed as a way to create "stickiness" for subscribers searching for value.

Warner Bros. Discovery (WBD) and Disney announced a streaming bundle that will combine Disney+, Hulu, and Max, with a launch date set for this summer in the US. In May, Comcast (CMCSA) rolled out a StreamSaver bundle, which packages Peacock's ad-supported premium tier with Netflix's basic ad tier (NFLX) and Apple TV+ (AAPL).

And earlier this year, Warner Bros. announced a sports streaming partnership with Disney's ESPN (DIS) and Fox (FOXA), set to debut later this fall called Venu.

"The message has been for the last few years is you need efficiencies, you need growth opportunities, you need ways to find margin improvement. And this is just all a reflection of that," Wisnia said.

"Paramount's deal definitely reinforces the fact that struggling traditional media companies need to improve their fundamentals."

'No other choice'

The buyers in these deals are more likely to be traditional media and entertainment players or private equity firms than Big Tech companies. Sony (SONY), for example, had submitted a bid with private equity firm Apollo for Paramount while WBD also expressed interest in a merger.

"Years ago the driving force was Big Tech," Wisnia said. However, a difficult regulatory environment has become a top headwind for those types of buyers, which already have a significant level of scale.

"You see what happened with Amazon and MGM and the struggle they had just to close that deal. And that was only an $8.5 billion deal at the time," he said. The merger faced nearly a year of regulatory hurdles before finally receiving approval in 2022.

The top tech giants have also moved away from sinking money into original content, focusing on sports rights and live content instead. This means less of a need for the intellectual property libraries of traditional media players.

Given that, the race to consolidate largely falls on the traditional players.

Deep-pocked Comcast has been viewed as a buyer, although CEO Brian Roberts previously said "the bar continues to be even higher" when it comes to any potential deals. Lionsgate could also be a potential acquirer as it spins off its film and TV studio business from cable channel Starz. And, following the back-and-forth Paramount negotiations, Japanese conglomerate Sony clearly seems to be looking to scale.

But, in Wisnia's view, the industry is not as desperate as it seems. Rather, it's in a period of transition.

"It's a time of transition where new business models are being evolved," he said. "A lot of people are down on the industry but the reality is that consumption of content has never been higher, production is still at historic highs. The only thing that's in question, and that's debatable, are the business models."

"But these transitions have happened before," he continued. "We will come out of this and what's efficient will become clearer. And once that does, it'll be a more smooth environment. But we're in the middle of it right now. And until we get out of it, it's just it's a muddied environment."

Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at [email protected].

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