The studio is in advanced talks with Sony and Fox about somehow merging its home entertainment division, the FT's Matthew Garrahan reports. DVD sales have fallen by as much as 20 per cent in the past year, forcing studios to cut costs. Any such merger could lead to further consolidation (and possibly jobs).

The talks have focused on combining DVD production, distribution and back-office functions. One proposal would see Paramount begin using Sony's DADC DVD production system rather than Technicolor's system, which the studio currently uses. Following the merger, Paramount and its partner would outwardly continue to operate as separate entities. The two studios would also keep their own marketing and sales operations.

In other studio news, George Clooney and Grant Heslov's Smokehouse Pictures are leaving Warner Bros for an exclusive two-year development and production deal with Sony. (The Wrap)