Price increases at Paramount and WBD likely to draw regulators’ attention

Both Paramount and Warner Bros. Discovery reported Q1 2026 earnings in the first week of May. On the surface, the story looks better. Paramount’s adjusted EBITDA jumped 59% year-over-year. WBD’s streaming segment grew. The shareholder vote passed on April 23. Read the filings carefully and a different story emerges.

A Debt Load That Does Not Get Easier to Explain

As we noted in April, this merger carries approximately $79 billion in net debt. Q1 2026 does not reduce that number. It adds a new layer to it.

During the quarter, Paramount drew $2.15 billion on its revolving credit facility to pay the $2.8 billion termination fee that WBD owed Netflix upon entering the merger agreement. That $2.8 billion now sits on Paramount’s balance sheet as “advance consideration for WBD acquisition.” Although this was part of the strategy, it still adds interest payments to a debt that is already large enough. Paramount ended Q1 with $1.9 billion in cash and cash equivalents and $15.5 billion in gross debt — up from $13.7 billion at year-end 2025.

WBD’s position is structurally heavier. The company carries $33.4 billion in gross debt, with a weighted average cost of 6.0% across the full debt stack. This is the average interest rate it needs to pay for the debt. Management reports net leverage of 3.4x, which seems reasonable for a capital heavy company. However, that figure uses trailing four-quarter adjusted EBITDA of $8.8 billion as the denominator. That adjusted EBITDA number excludes $2.8 billion in termination fees, $204 million in restructuring charges, $173 million in transaction costs, $1.226 billion in depreciation and amortization, and $102 million in content fair value step-up amortization in Q1 alone. The adjustments are legal and disclosed. But if you look at EBITDA, rather than Adjusted EBITDA the leverage picture looks materially different. And the merged entity will need to lower the leverage if it wants to escape the “junk” investment credit rating.

The combined entity’s annual interest obligation approaches $4 billion. That is the fixed cost the merged company must service before investing a dollar in content, technology, or distribution.

Paramount has signalled its intention to apply around $20-25 billion equity raise proceeds from Gulf sovereign wealth funds and strategic investors to de-lever toward a 4.0x target (from the current 6.6x), which would reduce net debt materially — but the timing and quantum of that paydown remain unconfirmed.

Sources: WBD Q1 2026 Earnings Release (May 6, 2026); Paramount Q1 2026 Shareholder Letter (May 4, 2026).

Cash Flow, Price Hikes, and the Regulator’s Obvious Question

The leverage story matters most when read alongside the cash flow and revenue data — because that is exactly what a regulator will do.

WBD’s free cash flow in Q1 was minus $476 million, down from positive $302 million in Q1 2025. Paramount’s was $96 million — barely positive, and guided to deteriorate sharply in Q2 due to “several hundred million in merger-related transformation costs”. Neither company is generating the cash flow needed to pay back the debt.

Now layer in the revenue data. Paramount+ revenue grew 17% year-over-year in Q1. Of that growth, 14 percentage points came from higher average revenue per user and only 2 percentage points from subscriber growth. The company raised subscription prices in January 2026 across four markets. The growth story, in other words, is not coming from reaching new subscribers. It is coming, at least right now, from extracting more from existing ones.

WBD has followed the same path. HBO Max distribution revenue grew in Q1, driven partly by new market launches and partly by pricing actions in existing territories.

Both companies raised prices, in parallel, in the months before the merger closed. That sequence will attract regulatory attention. The question any competition authority will ask is straightforward: if the companies were already willing and able to raise prices independently before the transaction, what constraint on pricing behaviour does the merged entity face afterward? The earnings releases do not answer that question.

Sources: WBD Q1 2026 Earnings Release (May 6, 2026); Paramount Q1 2026 Shareholder Letter (May 4, 2026).

Synergies Without a Map, and Intercompany Numbers That Need Explaining

The companies have committed to $3 billion-plus in efficiencies through 2027, with $2.5 billion in run-rate savings expected by year-end 2026. Paramount’s Q1 shareholder letter reaffirms the target but provides no breakdown — no segment allocation, no program detail, no headcount figures. What the letter does disclose is that Paramount expects approximately $800 million in merger-related transformation costs in 2026 alone.

Regulators conducting a detailed merger review will ask for the synergy model. What they will find in the public record is a target number without a supporting schedule. That gap is manageable if the companies can produce a credible internal breakdown.

The WBD Studios numbers require a separate conversation. Studios adjusted EBITDA surged from $259 million in Q1 2025 to $775 million in Q1 2026 — a 199% increase. The driver was not a theatrical hit or a licensing windfall with a third party. It was intercompany content licensing: WBD’s Studios segment licensing content to the HBO Max international expansion, which sits in the Streaming segment. The revenue is real within the segment. It nets out at consolidation — confirmed by inter-segment eliminations jumping from $765 million to $1.497 billion quarter-over-quarter.

Sell the Networks Now, Before the Regulator Tells You To

WBD’s Global Linear Networks segment, the cable and broadcast portfolio including TNT, TBS, CNN, and Discovery, declined 9% in Q1 2026. Distribution revenue fell 8%. Advertising revenue fell 12%. Adjusted EBITDA for the segment was $1.634 billion, down 10% and shrinking every quarter.

Paramount’s TV Media segment tells the same story. Revenue declined 6% year-over-year in Q1, with both advertising and affiliate revenue falling at the same rate.

As we noted in April, both companies have already taken billions in goodwill impairment charges on these assets — $9.1 billion for WBD and $5.98 billion for Paramount in 2024 alone.

The strategic logic of a voluntary divestiture of the linear networks is compelling. It would reduce the combined entity’s channel bundling power — one of the specific areas likely to attract regulators’ attention. It would generate meaningful cash proceeds at a point where the combined entity needs to de-lever. And it would allow the sellers to set the price, rather than accepting whatever a regulator-mandated divestiture process produces under time pressure and with a constrained buyer pool.

Sources: WBD Q1 2026 Earnings Release (May 6, 2026); Paramount Q1 2026 Shareholder Letter (May 4, 2026).