Paramount Pictures, owned by media company Viacom, is reported to be in talks with Sony Pictures and Fox over a merger of its home entertainment division.

A deal would see a merger of DVD production, distribution and back office functions, but the two entities would remain separate would retain their own marketing and sales operations.

The move follows the collapse in DVD sales in recent years, with sales this year reported to be down by up to 20 per cent. Studios have been forced to look at ways of cutting costs and, according the UK’s Financial Times, a merger would offer both sides significant savings.

It is thought that if a merger goes a ahead, it could start a wave of consolidation across Hollywood.