Every media giant’s playbook: grow through mergers and acquisitions (M&A), expand the content library and launch a streaming service.

2022 is proving to be a poor time to enter the industry — with the death of CNN+ and the implosion of Netflix’s stock. Despite the risks, the industry has caught the attention of one well-known investor.

What does Mr. Buffett see in Paramount?

Last week, filings revealed that Warren Buffett’s Berkshire Hathaway took a $2.6B stake in media giant Paramount Global (NASDAQ:PARA) — becoming Berkshire’s 18th largest holding at the end of the first quarter.

Does the famed value investor see Paramount as a value play, or is there something the rest of us don’t see? Either way, thanks to Buffett’s position, Paramount is up 5.4% in 2022, while Netflix and Disney are down 34% and 70%, respectively.

• In February, media giant ViacomCBS rebranded to Paramount Global — putting a greater focus on streaming.
• Paramount assets include Showtime, Nickelodeon, MTV and Comedy Central — but it has been selling many of its legacy holdings.

Last year, Paramount set a goal for 65-75M streaming subscribers by 2024. Fast forward one year, and Paramount expects to hit that target by the end of 2022 — and raised its 2024 target to 100M.

Investors are tired of the same script

Higher growth comes with a cost — primarily, content production costs. The company expects to raise its spending on streaming content from $2.2B in 2021 to $6B in 2024.

Analysts — already cautious with streaming platforms — have mixed feelings about Paramount. They’re worried about rising content costs impacting profitability and competition from better-financed companies with stronger IP.

But there might be another reason for Buffett’s purchase — a potential acquisition play. For the past decade, the media industry has been consolidating with massive deals — and in recent years, activity has picked up again.

• In April, WarnerMedia and Discovery completed their merger — forming Warner Bros. Discovery (NASDAQ:WBD).
• Amazon completed its acquisition of film and TV studio MGM in March.

Investors: Open for business

After a decade of consolidation, Paramount is one of the few strong acquisition candidates remaining.

• Earlier this year, Paramount’s CEO hinted at being open to an acquisition, and one possible acquirer is Warner Bros. Discovery.
• Per Bloomberg Intelligence Analyst Geetha Ranganathan (BBG), Paramount is attractive to acquirers due to its “digestible size.”

Media giants have different answers to subscription fatigue — Paramount wants to plow billions more into content, Disney plans to show ads and Netflix’s answer is K-dramas.