Paramount is the only logical winner in the three-horse race for Warner

The famed Warner Bros. studio is officially on the block, as are HBO, CNN, Turner Broadcasting, DC Comics, the Discovery Channel and other businesses owned by Warner Bros Discovery.

Just 3½ years old, the media conglomerate is holding an auction process with a deadline for the first round of nonbinding bids set for Thursday. Paramount Skydance, Netflix and Comcast are all preparing offers, according to The Wall Street Journal’s reporting.

All three have strong reasons to pursue a deal. And conventional wisdom might give the edge to Netflix, whose runaway success as a streamer has made it the new king of Hollywood. The company’s operating profit vastly exceeds what any of its rivals are generating from streaming, and its market capitalization of nearly half a trillion dollars exceeds the combined value of its two major competitors on this deal, plus that of Disney.

But Paramount Skydance is the more logical fit for Warner. And while its last reported cash position is about one-third of Netflix’s, the backing of the world’s second-richest person—Oracle founder Larry Ellison—effectively makes Paramount the deepest pocket in the game.

Larry Ellison’s good relationship with President Trump is also a serious competitive edge considering the administration’s fraught relationship with the media industry overall. Comcast’s ownership of MSNBC, now rebranded MS NOW, would likely prove especially problematic if the company were to seek to acquire the owner of CNN.

Warner’s deep well of established intellectual property is a draw for all bidders. Warner runs one of the largest TV production studios in Hollywood, and the “Harry Potter" series is but one of four Warner film franchises that have each grossed more than $5 billion globally, according to the industry tracking site the Numbers.

Those franchises alone would be a big boost to Paramount, which has trailed Warner, Disney and Universal in annual box-office share during most of the past decade. More important, combining Paramount’s and Warner’s respective streaming offerings would bring the industry some necessary consolidation while also creating a platform with the heft necessary to better compete with the industry’s leaders.

“If you put Paramount and Warner together, you don’t quite get Disney scale, but it’s close enough to that," Bernstein analyst Laurent Yoon said in an interview.

The complication of pairing that IP with Netflix is that the company has long avoided the theatrical business in favor of giving priority to its streaming subscribers.

Even blockbuster success hasn’t seemed to shift that thinking. “Our strategy is to give our members exclusive first-run movies on Netflix," Netflix co-Chief Executive Ted Sarandos said on the company’s earnings call last month, responding to a question about the success of “KPop Demon Hunters," which Netflix put on movie screens for one weekend in October and still grossed about $18 million domestically—even though the movie had already been on its streaming platform for two months.

In streaming, Warner’s 128 million global subscribers wouldn’t actually do much for Netflix, which now has about 317 million subscribers, according to analyst consensus estimates from Visible Alpha. Yoon notes that about 94% of subscribers to Warner’s HBO Max service are also Netflix subscribers, while that overlap is only about 51% for HBO Max and Paramount+.

Netflix has also long eschewed major M&A moves—its largest deal to date was valued around $680 million, according to FactSet. So spending what would likely be north of $60 billion would be a heavy lift. It is also unclear what Netflix would want with Warner’s shrinking cable TV channels and other vestiges of legacy media.

“The financial burden of such a transaction could significantly weaken Netflix’s balance sheet and dilute shareholders," Robert Fishman of MoffettNathanson wrote in a note to clients last week. He said he believes that Netflix “is merely doing its due diligence on [Warner] by kicking the tires and would not pay a premium to the current price in a competitive bidding process."

Paramount has already been hard at the effort. Warner has rebuffed three offers so far from the company, with the last one offering a price Warner’s stock hasn’t seen since April of 2022, right after it completed its merger with Discovery Inc. Warner is also trying to separate its streaming and studio business from its cable TV side, and that split would make a deal far more palatable for Netflix and Comcast, who only want the former.

But Warner and its chief executive, David Zaslav, might be hard-pressed to keep turning away David Ellison, CEO of Paramount.

David Ellison has big ambitions for the storied studio but needs the scale to compete effectively against powerful streamers such as Netflix and Disney, as well as the deep pockets of Apple and Amazon.com.

M&A hopes are also the only thing that has made Warner’s stock into anything resembling a hit. The shares have surged 89% since mid-September, when the Journal reported that Paramount was preparing a bid for the company. Even then, shares have badly lagged behind the overall market since the Discovery merger.

For Warner, a deal with Paramount might be the only real show in town.

Write to Dan Gallagher at dan.gallagher@wsj.com