The entertainment company that everyone in Hollywood is talking about is based in a nondescript three-story office building in the Boston suburb of Norwood, Massachusetts.Nestled between an indoor ice-skating rink and a Home Depot distribution center is the headquarters of National Amusements, Inc., a movie theater operator with 22 cinemas in the U.S., almost all in the New York to Boston corridor.But it’s not the movie theaters that have investment bankers, media moguls and opportunistic private equity firms salivating. National Amusements, the pride and joy of the media titan Sumner Redstone, and now controlled by his daughter Shari, serves as a holding company for the family’s most precious asset: voting control of Paramount Global, the owner of CBS, Paramount+, Paramount Pictures, Nickelodeon, and other media brands.Paramount — or at least control of Paramount via National Amusements — now appears to be on the block, with Redstone reportedly working with banker Byron Trott to figure out next steps. Among those kicking the tires is another scion of a mogul, David Ellison and his Skydance, which is working with Gerry Cardinale’s RedBird on evaluating potential deals.A precarious financial position for both Paramount and National Amusements could have played a role in the timing. The state of play at Paramount was laid out in stark terms Dec. 5, as a panel of credit analysts weighed in on what they are thinking about for 2024. Paramount, S&P Global analyst Naveen Sarma noted, now had a credit rating of BBB-, the “bottom end of what we would call investment grade.”And National Amusements has faced issues of its own. The movie theater business, after all, has not had a good few years. In May, Trott’s BDT & MSD Partners took a $125 million preferred equity investment in National Amusements. In September, NAI sold additional shares and warrants and restructured some of its debt.Skydance and RedBird are far from alone, should the Redstone stake in National Amusements or Paramount as a whole hit the block. The company’s distress has also been top of mind for John Malone, the cable tycoon and Warner Bros. Discovery board member. “We are headed to a period of distress: The streaming, conversion or disruption; the fact that rates are now high; that a lot of maturities are approaching,” Malone told investors in his Liberty Media at the company’s shareholder meeting Nov. 9. “There will be opportunities presented by distress, and companies that have got dry powder or some kind of currency…will find synergistic consolidation opportunities in that distress.”Malone, as a mentor to Warner Bros. Discovery CEO David Zaslav and a board member of the company, knows a thing or two about synergistic consolidation opportunities. “Ultimately, in a difficult environment, it’s going to give us optionality, because we’re surrounded by a lot of companies that don’t have the geographic diversity that we have, aren’t generating real free cash flow, have debt that is presenting issues,” Zaslav said on an earnings call, adding that there are “excess players” in the marketplace. “So this will give us a chance not only to fight, to grow in the next year, but to have the kind of balance sheet…that we could be really opportunistic over the next twelve to 24 months.”Media insiders have been buzzing that the “opportunities” seen by Malone and Zaslav involve Paramount, or at least some of the company’s assets. 10-Comcast, likewise, could very well take a look, though president Mike Cavanagh said the company has a “very high bar” for M&A at a recent UBS conference, pouring cold water on any imminent deal. But it’s worth noting that the cash Disney is paying Comcast for its stake in Hulu will likely be worth about as much, if not more, than Paramount’s current $10 billion market cap.The big question is whether Paramount sells as a whole, or whether the company (or a new controlling shareholder at National Amusements) parses it out and sells pieces.At least one influential Paramount investor thinks the company should consider splitting up its assets. “Paramount…observed early this year…company should keep CBS network…spin O&Os (owned and operated tv stations),” shared money manager Mario Gabelli on X (formerly Twitter). Gabelli’s funds are the second largest shareholders in Paramount’s voting stock, after National Amusements.If the company were to split up its holdings, its options would grow. Private equity firms like Apollo and TPG have long explored media holdings, and businesses like Paramount’s linear TV businesses (like cable channels and, yes, its local TV stations) could be appealing given their strong cash flows (even if they are in secular decline).BET, which was on the market earlier in the year, could find itself there again, with bidders like Tyler Perry and Byron Allen likely to take another look.The Paramount studio is the crown jewel of most appeal to Skydance and tech companies like Netflix, Apple or Amazon, all of which would benefit from its library, its intellectual property, and production prowess. Likewise, the Paramount lot in Los Angeles has been coveted by Netflix, among others (the company has sold or is selling almost all its real estate in New York).And in the event of a breakup, Warner Bros. Discovery would surely look at CBS and its news and sports divisions, which could tuck in nicely with its existing assets (CNN and CBS News previously had merger talks back in the early 2000s), and bring the NFL and a broadcast network to the company, something it currently lacks.The future of Paramount – or the pieces of it – are shaping up to be among the biggest stories facing Hollywood in 2024. And once again changing consumer preferences are forcing its owner National Amusements to adapt.Shari Redstone’s grandfather, Michael Redstone, opened his first drive-in movie theater in Massachusetts 75 years ago in 1948. Sumner Redstone closed it 30 years later as drive-ins fell out of favor. Just as Sumner shuttered the business that was the cornerstone of his father’s legacy, Shari may be poised to do the same thing.
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