Paramount Skydance faces a tough task making its $110 billion acquisition of Warner Bros. Discovery work after the deal closes Tuesday.

For investors partial to the out-of-favor entertainment business, industry leaders Disney and Netflix look like better bets. Disney and Netflix have somewhat higher valuations, but better businesses, more favorable outlooks, and stronger balance sheets.

Paramount, which plans to change its name to Skydance when the merger is completed, needs to integrate a much larger company, plus generate extremely high projected financial synergies. It also aims to slash its debt at a time when the combined companies' largest business, TV networks, is in decline.

These challenges aren't lost on investors.

Paramount stock, which gained 3% to $9.78 on Monday, is down 26% this year and much closer to its 52-week low of under $8 than its high of $20. Warner Bros. stock ended at $30.95, just below the all-cash merger consideration of about $31.02 a share.

The deal moved forward when Paramount reached an agreement with a group of state attorneys general who had challenged the merger on antitrust grounds.

Paramount will control two big movie studios, Paramount and Warner; a group of cable networks, including CNN; the CBS TV network; and a large streaming business.

There have been some ominous signs for the merger.

Paramount's $52 billion debt financing deal last week, one of the largest high-yield debt packages ever, hasn't traded well. Some bond issues have lost 3% to 4%, hurt by weakness in the Treasury market.

Reflecting the high perceived risk in Paramount, the company's second-lien secured debt, due in 2034, now yields about 9.5% -- considerably above the average yield on other double-B-rate debt. Paramount's unsecured debt, such as a 6.875% issue due in 2036 that is junior to the secured debt issued in the financing package last week, now yields over 10%. It has lower junk ratings of single-B.

Wall Street analysts aren't enthusiastic about Paramount. Only three out of 25 carry a Buy rating or equivalent while 10 have Sells, according to Bloomberg.

Wolfe Research analyst Peter Supino wrote Sunday that he sees "an uphill climb" for the company. He cited high leverage with debt equal to almost seven times annual Ebitda (earnings before interest, taxes, depreciation and amortization), "negative sales growth, moribund studio results in 2026, leadership uncertainty, possible large scale equity issuance, and seemingly dodgy macro / late cycle conditions." He has an Underperform rating.

Paramount is looking to sharply cut debt, which will total about $80 billion after the merger closes. It also plans to realize $6 billion of annual synergies from cost cuts and other sources off a base of about $12 billion annual Ebitda. Moody's Ratings called the synergy target "among the largest ever announced." Paramount is seeking to cut debt to under four times annual Ebitda by 2028

There are some positives with the merger. Current public investors in Paramount's Class B stock will get one warrant for each share they own with the warrant issuance expected to close on Oct. 13. The warrant, a long-term call option, is due to have a strike price of $12 a share and a 10-year term and could initially trade around $3 per warrant.

To help fund the $81 billion purchase of Warner Bros. stock, Paramount issued $52 billion of debt and is due to raise about $47 billion of equity at $12 a share -- nicely above the current stock price -- from a group led by the controlling Ellison family. Other investors are expected to include a group of Middle Eastern sovereign-wealth funds, with one possibly being Saudi Arabia's Public Investment Fund.

That equity raise is expected to balloon Paramount's share count to five billion from about 1.1 billion. One danger is further equity raises if the company can't hit its financial targets.

Given the risks in Paramount, its publicly traded senior debt now yielding over 10% could offer a better risk/reward than the equity. The bonds are senior to all the equity, including the Ellison family's stake. Oracle Chairman Larry Ellison is the major financial backer of Paramount and his son, David Ellison, is chairman and co-CEO along with the newly appointed Ynon Kreiz.

Looking at alternatives to Paramount, Netflix stock has fallen over 25% in 2026 and ended Monday at $67.30, up 0.4%. It trades for about 20 times projected 2026 earnings.

Deutsche Bank analyst Bryan Kraft upgraded the stock to Buy from Hold last week while reducing his price target to $95 from $100 a share -- still way above the current price.

Kraft wrote that investors are too focused on weaker engagement of U.S. viewers with Netflix and aren't giving the company credit for its strength abroad.

"We believe the current growth outlook is being undervalued," he wrote.

Billionaire investor Bill Ackman's Pershing Square was a buyer of Netflix around current prices earlier this year.

Ackman's firm wrote in August in a semiannual report for one of its two big closed-end funds that it expects the company's revenue to grow at a double-digit annual rate and earnings to increase at close to 20% annually. Ackman likes the company's "strong growth profile and dominant market position."

Disney shares are down about 9% this year to under $104. They trade for 15 times projected earnings in the company's fiscal year that ended in September and under 14 times estimated profits of over $8 a share in the current year ending in September 2027.

Wolfe's Supino sees a "very good risk/reward" in Disney stock while acknowledging risks related to a highly competitive streaming business and increased capital spending for its theme parks.

Disney has one of the best portfolios in the industry, led by its theme parks, streaming, direct to consumer business and TV, including ESPN.

Supino notes that Disney trades for about nine times projected Ebitda in the coming 12 months, not much more than Paramount's seven times, which includes its aggressive synergy targets. Without synergies. Paramount trades closer to 10 times forward Ebitda.