One side just wanted it more. Almost $28 billion more.
If you thought the endlessly long and hectic process it took for Skydance to finally merge with Paramount was shocking, today’s news that Netflix would be pulling out of its agreed-upon deal to buy Warner Bros. Discovery, paving the way for Paramount Skydance to absorb the entirety of Warner Bros. Discovery, definitely took the cake.
The dollars per share can be awfully confusing. But Netflix essentially offered $82.7 billion for just the Warner Bros. Discovery film and TV studios arm and HBO Max, and Paramount-Skydance, after its best and final bid, is going to wind up paying $111 billion in cash to buy all of WBD. Netflix had four days to decide if it wanted to match that offer, and it didn’t even take four hours for it to decide to walk away. With NFLX’s stock price falling as shareholders questioned the value of buying a legacy studio (its stock shot back up about 10 percent at the news of Netflix stepping away), pressure had been mounting on Netflix in the days since the merger was announced back in December. In fact, it said that though WBD was a “nice to have,” it never considered WBD a “must have at any price.”
Paramount-Skydance and David Ellison clearly felt differently.
It is a seismic turn of events for Hollywood. While plenty around town were scared off at the idea of a disrupting company like Netflix taking over a studio that has 100 years of history, not unlike Amazon buying MGM, Netflix was vowing to make itself, Warner Bros., HBO, and Warner Bros. Television as distinct entities and keep things largely as they’ve been. It was suddenly talking the talk on movie theaters, and it was touting the success of Warner Bros. at the box office and the Oscars this year. CEO Ted Sarandos had talked about the deal as though it were a “vertical merger” between two “complimentary” businesses, keeping around the internal film and production capabilities and the theatrical distribution, while using HBO Max as a way to expand what Netflix could offer its subscribers.
The Paramount deal raises a lot more questions, many that Ellison will attempt to answer in the coming days and months as he unveils his vision for WBD. But the immediate feeling is that this deal is less like Amazon absorbing MGM but Disney absorbing Fox, combining two legacy studios with similar businesses into one. It could mean fewer movies and shows in the long run, just as Disney and Fox went from producing roughly 30 movies a year separately to now closer to 20. Paramount has said it intends to keep the volume up, but that’s a tall task for any studio no matter the size. And with multiple TV arms, dozens of cable channels, five streaming services between the two companies (HBO Max, Paramount+ with Showtime, Discovery+, CNN All Access, Pluto), a larger sports portfolio, CBS News and CNN, and two LA-based studio lots, there’s a whole lot of overlap now between the two that needs to get sorted.
We wanted to work through some of our thoughts — and what we imagine are some of yours — and process all this news together.
Will this deal for sure go through?
The biggest question hanging over the last two months of uncertainty with Paramount’s hostile takeover efforts was Paramount’s assertion that it would be able to get a merger past regulatory scrutiny more easily than Netflix would. Netflix would’ve had a combined 400 million SVOD subscribers with the WBD merger, raising big antitrust concerns about the number of streaming options available to consumers in the industry.
David Ellison’s father Larry Ellison, one of the richest men in the world who is guaranteeing the deal’s financing, is also close with President Trump, so the anecdotal belief is that he would have a better chance getting the stamp of approval from the Trump administration than Netflix would (especially after Trump called on Netflix to fire one of its board members). WBD shareholders needn’t worry regardless, because Paramount as part of its latest deal has agreed to kick in even more money for every quarter beyond the end of September that this deal doesn’t close.
Netflix has countered that a deal of this size is going to be subject to the same amount of regulatory scrutiny either way. PSKY also has to navigate European regulators now that it’s absorbing a good chunk of international networks and sports rights in the WBD merger.
Paramount’s deal is also financed as part of a consortium of parties and is backed by Larry Ellison, and Sarandos on “The Town” podcast last week argued there were issues when Elon Musk, the richest man in the world, was buying Twitter. Point being, anything can happen when it comes to billionaires saying they’re good for the money.
How bad will the layoffs be?
It was only back in October when Paramount-Skydance began laying off roughly 2,000 employees between the merged companies as part of what would wind up being $3 billion in cost savings, a number PSKY affirmed it was on pace to reach in its earnings from Wednesday. In December, Ellison said he saw roughly $6 billion in potential cost savings within Warner Bros. Discovery. Paramount as of its most recent 10-K SEC filing disclosed that it has 17,600 employees, down from as many as 24,500 just three years earlier. Warner Bros. Discovery has somewhere in the range of 35,000 employees. There’s a lot of other areas where Paramount can find savings, but it’s safe to say there’s going to be a lot of layoffs.
You now have employees doing similar jobs at two film studios, including production and distribution, you have employees at similar cable channels like Cartoon Network and Nickelodeon, duplicative international arms, marketing teams, administrative personnel, and so much more. When Disney acquired Fox, up to 4,000 people lost their jobs. This could be a similar bloodbath.
Where does Paramount find all those cost savings?
It’s not just layoffs that will result in $6 billion in savings. Paramount when it completes this deal may have upwards of $100 billion in debt on the books, and Sarandos on “The Town” podcast speculated that for a company as leveraged as PSKY would be with WBD in the fold, the cuts could be closer to $16 billion in the short term.
So those cuts have to come from somewhere. It stands to reason that Paramount could look to sell other assets that aren’t core to the combined business. Perhaps Warner Bros.’ gaming division is seen as superfluous. Maybe some international divisions could see the axe. Or would it need both studio lots, including Paramount’s Hollywood headquarters and WB’s Burbank stages? Questions abound.
What happens to the Warner Bros. Pictures brand?
WBD CEO David Zaslav proudly touted on Thursday’s earnings call that it has an industry-leading 30 Oscar nominations this year at the Academy Awards. Guess how many Paramount has this year: zero.
The WB Pictures brand is clearly valuable, as is the studio’s incredible library that Paramount will now control of everything from Harry Potter, “Lord of the Rings,” DC, “Friends,” “The Conjuring,” and so much more. But would Paramount continue to distinguish between WB films and Paramount movies, not to mention New Line, DC, and Warner Bros. Animation that each have their own separate leaders, or would it be much like how Disney has turned the 20th Century Studios banner into just a label? For Disney, 20th Century allows them to put more mature, less kid-friendly content out without the Disney stamp, but there’s little such distinction between a Paramount movie and a WB one.
It would not be a surprise if Mike De Luca and Pam Abdy, who managed to turn around the studio with nine straight No. 1 hits after looking like they were on the hot seat, didn’t stick around in the transition to a new regime. Coincidentally, Mike Ireland, the former film chief at Paramount before the Skydance deal, just took a job at Warner Bros. There’s also the question of the brand new specialized division launched by former Neon exec Christian Parkes, which has yet to acquire a movie or even announce a name for the label. What will Ellison and company think about that?
Do both HBO Max and Paramount+ survive?
Paramount+ just revealed that it has 79 million subscribers globally, while WBD said that between HBO Max, Discovery+, and the linear HBO, it had 131.6 million streaming subscribers. In terms of content and subs, it might seem like a no-brainer that HBO Max, with the brand name as well, would be kept around and is the superior streaming option. It wasn’t that long ago before the Skydance merger that some analysts wondered if Paramount+ should continue to exist.
Is that how David Ellison sees it? Does Paramount need two SVOD streaming services, or do they figure out how to merge the two into one platform, Disney+ and Hulu style? HBO Max might’ve just become a tile on Netflix or part of a bundle add-on offering, but it could be in a similar situation with however Paramount wants to handle it. Paramount is buying WBD for the library, the brands, and the scale, and not because it doesn’t have a streamer of its own. Ellison too has invested a great deal in improving the product offering on Paramount+ and intends to do more, and further patching up HBO Max could easily be redundant.
How does Paramount handle all of WBD’s cable channels?
WBD has been in the process of spinning off its cable channels for some months now, something that would’ve set up Netflix to buy WBD but leave behind the part of the company that has been dwindling in value. Paramount put a kibosh on that and will now own its own big network of cable channels along with all of WBD’s. Those include TNT, TBS, Turner Classic Movies, OWN, HGTV, Food Network, Discovery Channel, TLC, Adult Swim, and of course CNN that now join MTV, VH1, BET, Nickelodeon, Comedy Central, Paramount Network, and more.
Had the Discovery Global channels gone off on their own, they could’ve merged with another spun-off suite of linear networks, Versant, which was formerly all of NBCUniversal’s channels. Combining all of those as one mega entity could be the means to keep these linear channels afloat, and maybe something like that is still on the table should Paramount look to do some more M&A shopping. But the heyday of these channels is behind them, so they too could be among the cost cuts, sales, or major layoffs and re-organization in the near future.
What’s the future of CNN in David Ellison’s hands?
It’s not necessarily our place to wade into the media realm, nor do we mean to get all conspiratorial, but it’s hard to ignore the narrative online that buying WBD was a means of acquiring CNN and putting its stamp on the news network prior to the mid-term elections. That said, Paramount could’ve still bought CNN once WBD spun off its cable channels without buying the whole thing, but the ticking clock Paramount put on this latest offer suggests they see some urgency in getting the ball rolling. The many changes at CBS News under the supervision of Bari Weiss have been dramatic and rocky, and it’s hard not to at least wonder if the changes at Paramount have implications beyond Hollywood.
