Paramount and Warner Brothers Discovery: Slightly Reducing FVEs While Downgrading Moat Ratings

We are reducing our fair value estimates for Warner Brothers Discovery to $22 and Paramount to $20, each from $25 previously. We are also downgrading our moat rating for each to none from narrow. We broadly view the firms similarly and expect both to figure out the evolving media landscape and be survivors due to their scale, distribution channels, production studios, and content portfolios. However, in an environment defined by cord-cutting and numerous choices for streaming, the companies face significantly more uncertainty than they did when most television entertainment was contained within the pay-TV bundle.