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Speaker A: Hey guys, it’s Lizzie. Quick favor before we start. If you enjoy listening to us on Spotify, take a second and hit follow on what Next’s show page that makes sure new episodes are front and center in your feed. And if you found us through Spotify’s you Daily Drive Mix, please note that this Spotify mix is going away on March 15, so be sure to follow what Next to keep getting all our episodes all year long. All right, here’s the show. When it became clear that Paramount was going to win the bidding war for Warner Bros. Discovery, Julia Alexander had one reaction.

Speaker B: Money talks.

Speaker A: Julia is a media correspondent at Puck News.

Speaker B: In this industry, money talks. What I will tell you is that talking to people inside Warner Brothers Discovery, many of whom have been around since Time Warner days, are looking at their third or fourth major acquisition and merger, the mood in the room once they accepted the Netflix deal was rather jovial.

Speaker A: It seemed for a while that WBD would be sold to Netflix, and WBD people liked that idea.

Speaker B: It was rather hopeful. It was this idea that they would finally be part of a growth business. And now it’s like talking to the cast of Apocalypse now in terms of preparing for another many, many years of just deep cuts and concerns.

Speaker A: Wow. It’s that grim. It’s grim trying to figure out this Hollywood megadeal, one that will affect thousands of jobs. What shows you and I watch and what we pay for them is really complicated. Julia says the best way to understand it is to look at fairly recent history, just rewind the clock four years to when Warner Brothers merged with Discovery.

Speaker B: The reason it’s a good comparison is because it is not necessarily two growth assets, which just means that it is not necessarily like going into a Netflix, an Amazon, a Meta, a Google, where there is tons of profit that is able to kind of take on a media business that is facing all these different whirlwinds. Instead, you have two media companies that are undergoing significant problems because of the collapse of cable, because of the slowdown in the theatrical space, because streaming is not growing at a profitable level the way that many had hoped in 2018, 2019.

Speaker A: Julia has a great analogy to help think about this deal and the various guys named David who are involved.

Speaker B: It’s almost like David Zaslav, who’s the current CEO of Warner Brothers Discovery was trying to flip a house in the wealthiest part of Los Angeles. He bought a house he couldn’t afford, and he thought, well, I can probably sell this off to somebody while he’s doing this. David Ellison, who is the leader of Skydance and is now the head of Param of Skydance. Paramount decides to come in and say, I want to grow one of the biggest media companies in the world.

Speaker A: He buys Paramount and then sets his sights on wbd.

Speaker B: David Zaslav, again from Warner Brothers Discovery, had not said that he was super interested in this, but David Ellison starts to make a bid and Netflix comes in. Netflix, known as being builders, not buyers, goes, we’re going to spend $86 billion on this asset. We think we need the Harry potters and the HBO’s of the world in order to kind of grow our service, in order to increase the monetization of our subscribers. Because streaming is seeing a bit of a slowdown in the domestic. And so all of a sudden you get this huge bidding war. And as Netflix’s stock starts to fall because its shareholders are really concerned, David Ellison goes to his father, Larry Ellison, one of the wealthiest people in the world, the chairman of Oracle, and says, can you help me on this massive bid? And $110 billion later, Paramount emerges as the victor, barring any regulatory hurdles, as the new owners of Warner Brothers Discovery.

Speaker A: Today on the show, a media mega merger, one that has much of Hollywood and free speech advocates terrified. I’m Lizzie o’ Leary and you’re listening to what Next? Tbd, a show about technology, power and how the future will be determined. Stick around.

Speaker B: Foreign.

Speaker A: Let’s start with a basic question that a lot of listeners probably have. If this deal goes through, how does that affect what I’m watching?

Speaker B: Yeah, speaking to your listeners who may be wondering about what it means for Landman or the NFL or House of the Dragon. The big change that consumers are going to feel is that hbo, Max and Paramount plus will become one service. We don’t know what that means in terms of what the programming might look like. We don’t know what that means, what the price point for that service might look like. We don’t know what that means for a combined CBS News and cnn. Does CNN go away effectively and become part of CBS News? What it means on the far more concerning side from a macro level is at the labor front now, in order to get this deal done, David Ellison took on and his and paramount took on 79 billion DOL dollars worth of debt.

Speaker A: That’s a lot of debt.

Speaker B: It’s a lot of debt. And again, it’s a lot of debt for a business where there’s not a lot of growth. Streaming has already kind of hit stagnation in the domestic market and the Domestic market is where they see the highest. What we refer to as arpu, or the average revenue per user just means that the monetization and the revenue they’re making in the domestic marker is better than anything internationally. Internationally, it’s a slower rollout for both HBO Max and Paramount plus compared to a Disney plus or netfl. The theatrical side of the business has already been in a slowdown. You have David Ellison saying, you know, with the combined Paramount and Warner Brothers studios, we’re gonna release 30 movies a year. We know that’s not true because Disney made similar promises with its Fox acquisition and went back to about 15 to 18 movies a year. And so all of this means that David Ellison has to do what he refers to as efficiencies. A nightmarish word that simply means layoffs.

Speaker A: Right. That’s. That’s just corporate speak for people are getting fired.

Speaker B: Corporate speak for a lot of people are getting fired. And while David Zaslav walks away with a massive pay package for getting this deal done. And if you look at where that’s really going to hurt, it is the labor industry in Los Angeles that is already seeing massive slowdowns as Hollywood moves a lot of its jobs overseas into international markets. It’s going to affect parts of New York. It is going to affect a current labor market where new jobs are not being created. And so I think that component of what this deal does, especially when you look at how Hollywood’s consolidating, meaning there’s less places for producers to sell things, it’s going to be really rocky for people in the entertainment media industry for some time.

Speaker A: We’re going to get into kind of the follow on effects in just a little bit. But there’s one question that I have. Clearly David Ellison, who started as an actor, loves movies, right? He thinks movies are great, especially like big Tom Cruise, blockbuster kind of movies.

Speaker B: I don’t know.

Speaker A: Does this deal make sense if you take that part out of it?

Speaker B: If you just look at it from a business perspective, to me it doesn’t. The issue is that if you look at the per capita attendance, so just meaning how many people on average are going to movies, it is significantly lower than pre2019. The pandemic really shifted irrevocably. Consumer behavior. People are just not going to theaters as much.

Speaker A: No, they’re just like I stream it.

Speaker B: Exactly. The type of movies that people were going to go watch that were kind of guarantees are also struggling. Great example would be a Marvel film. We know how popular Marvel movies are and Even if you look at the average revenue that a Marvel movie brings in in 2024, 2023, you know, it’s 450, 500 million. A decade ago it was a billion dollars. Part of that is that China, which was a significant market for these big movies that to your point, David Ellison really loves these Tom Cruise movies. China is investing in its own domestic market for films and so they’re spending less time with, with a lot of these type of Hollywood blockbusters. And so the idea that someone like, or a company, I should say, like a combined Paramount, Warner Brothers is going to put out 30 films, you know, one film every week and a half, does not make any economic sense versus if you look at the Netflix side. And I don’t believe co CEO Ted Sarandos when he said he was super committed to the theatrical component. But if you do look at the potential upside there, Netflix doesn’t have a theatrical division, so it needs a lot of those employees to help figure it out. Netflix could commit to 10 to 15 movies in theaters because they’re not having to come down from anything. They’re only going to increase. Netflix could use that, those theatrical films to increase marketing opportunity for its platform. We know that theatrical movies tend to do better on streaming as they’re more, as consumers are more aware of it. But on the Paramount side, I think David Ellison truly believes he wants to be able to do this, but I do not think he can do it. And that reality will become very clear.

Speaker A: So if he has to go to daddy for money, a lot of that is tied up in the future of the tech industry and specifically in AI. There has been so much reporting about whether or not we are in an AI bubble. If that bubble pops, could that negatively impact Paramount’s futures?

Speaker B: This is the question that we, and by we, I mean analysts and reporters in the entertainment side or in the entertainment industry, I think have danced around. We have all acknowledged Larry Ellison is very, very wealthy. But to your point, you know, at best, his business grows with the need for more data centers and more data capabilities.

Speaker A: With companies like OpenAI and Meta and Google, Oracle’s doing all sorts of deals with them.

Speaker B: Precisely. At worst, the actually negatively impacts his business. The a lot of these companies like Meta go out and build their own things or whatever it might be. If he says, I can no longer kick in the money that you need to pay down the debt at the speed of which you need, you being David Ellison, need to pay down the debt in order to pay the banks when those payments come due. Then there’s a really big problem, and there’s a lot of costs that we don’t talk about with this deal that are going to come up very soon. And the biggest one is the NFL. So CBS is a very big partner to the NFL, the NFL. And Roger Goodell, who’s the commissioner, a couple years ago looked at the NBA. The NBA got a 76 or $77 billion rights deal. The NBA, one could argue, based on just the viewership, ratings alone, is a decaying product, but managed to increase the amount it was getting. Because sports are so important to streaming. The NFL is 10 times larger than the NBA in the domestic market. And so Roger Goodell, again commissioner of the NFL, can go in and say, we want, you know, three, four times as much money, and we know we’re going to get it because Netflix and Google and Amazon are interested in it. If you’re David Ellison and you’ve already taken on $79 billion worth of debt in order to just get this deal done for a studio and a streamer, and now you have to find the money for the NFL to make your streaming package more valuable, all of this creates incremental dollars that Larry Ellison is ultimately on the hook for. And he’s hoping that OpenAI doesn’t implode, that the bubble doesn’t pop. And there’s no proof that it won’t.

Speaker A: I mean, it’s just amazing listening to you talk about all the different things that are going to be under the umbrella of a wbd, Paramount, Skydance. That’s a lot of stuff, a lot of very different products. And I wonder where in that universe is David Ellison betting on growth? Because as you’ve described it, it’s a lot of products, but they’re not all paying for themselves. They’re not all, or I should say, they’re not all growing. They’re just sort of steadily existing.

Speaker B: Steadily existing would be a compliment to some of them, too. It’s something like a cnn. Steadily existing is a great compliment to that business, I think, to set that up. Remember, David Ellison sees $6 billion in efficiency, is our least favorite term, layoffs. So that’s immediate. $6 billion in layoffs that’s going to come from reduced engineering, reduced sales, all that kind of component. Where he really sees growth is in streaming and technology. And I think this is a really important distinction to make. When he first bought Paramount, when he was still at Skydance and bought Paramount, he released the letter that he sent internally to employees. And I went through that letter, and I Command effed. All the most important terms that a CEO coming into an entertainment company might use. Film, theatrical, television. The word that appeared the most was technology. And the problem with this, everybody wants to be a technology company. We look at the stock for Apple, Google, Amazon, we get it. Look at Netflix. The problem with trying to turn an entertainment company, a storied entertainment company that deals with antiquated practices like the way Hollywood often does, is trying to shift that culture into a tech forward culture requires either massive layoffs across the board to rebuild, or two, it requires hiring the best engineers and technologists that are getting paid four or five times as much at those companies I just mentioned.

Speaker A: Right. They don’t want to go work for WBD, they want to work for OpenAI or Meta.

Speaker B: Exactly. And so where David Ellison sees this growth is in creating this enhanced technology. Remember Oracle? Larry Ellison’s company is now a 15% owner in the US version of TikTok. And so they there’s this component of where they see consumer behavior happening and how technology plays a part and that will bleed down into the streaming product. But if you look at the streamers, HBO Max and Paramount plus only make up about 4% of overall connected TV viewership share in the United States. To put that into perspective, Netflix by itself is about 8.5, 8.6%. YouTube is closer to 13%. And so he’s going to combine these two platforms. But that doesn’t necessarily mean that you’re going to see engagement increase and advertiser dollars really start to flow. And so the growth is hopeful that the technology will make discoverability easier and people will engage more and the advertisers will love it. But these are really, really big attempts that other streamers have spent five, six, seven years trying to figure out with nowhere close to the debt that he now has.

Speaker A: When we come back, the Donald Trump of it all. A lot of people in Hollywood feel pretty nervous right now. We’ve come off two strikes. Things are not where they were pre pandemic. Who is going to feel this the most?

Speaker B: That’s a really, really good question. The two sides that are going to feel it are anyone working on the theatrical part of the business, the number of films being released in theaters, which by the way has a total one to one correlation to the decrease in overall box office revenue, means that there are just less jobs needed. The way that studios will use generative AI tends to be on storyboarding on CGI components. So a lot of those jobs are going to disappear. That’s a really big Concern the other side, which is the whole crux of this conversation, is anything to do with the cable networks. This important distinction from the Netflix deal. I should have said up top, Netflix was going in for what Warner Brothers Discovery called studios and streaming. So it was going for Warner Brothers, Warner Brothers Pictures, the games, Warner Brothers Games and kind of HBO Max. Now David Ellison is buying the entire thing that includes cable networks like tnt, tbs. These networks that generate, generate absolutely no audience, but they do drive some what we call affiliate revenue. This is the revenue that they make just from being carried by your cable companies like a Comcast or a Charter. And so David Ellison has said publicly that he really intends to invest in this very, very quickly decaying product. But no one can quite figure out the math on this. Part of the theory is that he has to say it in order to appease the European Union because the international component, where streaming is far less of a product than it is domestically and cable remains a really significant product, could undergo much harsher review. The European Union is known for being much more harsher with anything that resembles monopolistic practice. But the other component is that David Ellison may just sell a lot of these down the road to a company like Apollo Private Equity that comes in and kind of runs into the ground and makes as much profit as they can while they have it. The jobs on that side, anything related to the various cable networks in any role are where a lot of people have been fleeing over the last decade. And we’ll start to see a lot more layoffs on that side.

Speaker A: This brings me to the CNN question. What does having Trump friendly owners in the Ellison family mean for both kind of the size and scope of CNN and the editorial content of cnn?

Speaker B: Well, David Ellison was on cnbc, the one we’re recording this. He was on there just a few hours ago.

Speaker C: When it really comes to editorial independence will absolutely be maintained. It’s maintained at cbs, it’ll be maintained at cnn. And really who we want to talk to is the 70% of Americans and really around the world that identify a center left at center right. And we want to be in the truth business. We want to be in the trust business. And that’s not going to change, of course.

Speaker B: That is what David Ellison is going to say on cnbc.

Speaker A: When they’re regulatory, we’re going to make it say whatever we wanted to say, right?

Speaker B: I jokingly said to a colleague, you know, it’d be really fun if he just went out and said, yes, we’re going to be an official propaganda arm. Of course he’s not going to do it.

Speaker A: The question of CNN with CBS News, including whether Barry Weiss, who was appointed the head of kind of not the head but is effectively running it, editor in chief of CBS News.

Speaker B: Yeah, exactly. Is effectively running it. You know, does she come in and replace Mark Thompson who’s currently the head of cnn? Does CNN exist as a tile on an HBO Max or Paramount plus, does CNN just become a program based thing instead of a 24, 7 hour news network? I think there’s a lot unknown because CNN is still somewhat valuable within the cable system. So you don’t want to get rid of it. Especially right now. There’s no better time for CN than war. And so, you know, you’re looking at it and you’re saying, well, we want to have our version of cnn. But I think to look at that news network and say that there’s anything or any component of it that David Ellison is super invested in would be a mistake. Remember that news for a lot of these guys is 90% of headaches and 10% of revenue. And it used to be that you wanted a news network because news networks came with their own form of power, right? They came with credibility and then and it came with a connection to the president. If you were Rupert Murdoch and you knew you were going to elect the next president, that’s a lot of power. It gives you leverage if you’re going to make certain other M and A activity. The ability to have that power has now shifted away from the news networks and has shifted to the Metas and the Amazons and the Googles because that is to effectively, in the eyes of a lot of people in Congress, elect leaders. It is what they’re seeing on Facebook and Instagram and YouTube. And so I think if you’re David Ellison, there’s a value in having news from a sense of it does keep the president and the administration eyes on him. It does give him a seat at the table in a lot of ways. There is still this edge of cool to an extent, I think with news networks and media that still appeals to a guy like David Ellison. But does CNN create more headaches than opportunities for him? And how do you deal with that? That’s the big question.

Speaker A: If you are a consumer. You know, I’ve heard people say, oh well great, then maybe I’ll just have to pay for one thing as opposed to paying for, you know, Paramount plus over here. You know, I. Is that really how it’s going to work? Because I have never seen prices go down when Mergers come into play.

Speaker B: Yeah. Somewhere Alina Khan is like ringing a bell about this exact issue. You cannot expand what we call horizontal growth. You have to go have vertical growth, which is getting more out of the customers you do have. And to your point, that means that those. The only way to do that is to increase prices and drive significantly more advertising. Consolidation does both. This is why we have monopolistic practices or reviews, I should say, to look into monopolistic practices. The idea that if you want HBO max and Paramount plus and CNN and the NFL and whatever it might be, you’ve got to pay $25 a month sounds reasonable because you might be paying $30 a month for those services already. Does that make it more consumer friendly or less consumer friendly? If it is the only option? And then what does that mean for the type of experience you’re going to have now that competition has been all but eliminated? And I think this is the regulatory hurdle that David Ellison is going to encounter, which is he may be able to say at first he’s going to lower prices because he has the ability to offer it as someone who owns all of this, but inevitably, if he wants to grow profits each quarter, which is what you have to do if you’re a public company with shareholders, he’s going to have to increase those prices and it becomes very consumer unfriendly.

Speaker A: Is there any regulatory hurdle? After all, this is a family that is close to Trump. The EU may try and throw some roadblocks in this deal, but like, is that really going to stop it?

Speaker B: If we look at the precedent, which is, of course, what the court of law will do, is this deal much different than the Disney Fox deal? Is this deal much different than the WarnerMedia discovery deal? Is this deal much different than any of the type of consolidation that’s happened in the entertainment space over the last 10 years? And what David Ellison can argue is that he’s far from the biggest player. He’s one of the smaller players. If you look at the streaming side, if this comes down to a conversation about streaming, and even to an extent on the theatrical side, Disney and Universal have bigger theatrical box office revenues every year than Paramount, on average streaming, his streamer and HBO Max make up a very tiny part of the pie. So the idea that he is coming from a place of being able to monopolize, which is what he argued with Netflix, which is why co CEO of Netflix, Ted Sarandos, had to argue that YouTube was the main competitor and not everyone else, might lessen the overall hurdles, because the precedent is on his side. I always like to say, never say never. I thought Netflix was going to buy Warner Brothers Discovery, and I remember saying, never say never. It’s going to go to the highest bidder. And lo and behold, you know, David Ellison came through. So he might think that there’s less regulatory hurdles because of the precedent, because he’s sitting next to Trump at UFC fights, because he’s going to host a UFC fight on the front lawn on July 4th. Right. This idea that he’s leaning into this presidency and administration to get this deal done, I still don’t think it’s a clean acquisition. And I think it’s going to take much longer than they anticipate. And from what I understand, the murmurs inside the company are that they think Ellison can get. Ellison believes he can get this done by the end of the year. I know if that’s going to happen. But if it does, then it’ll show you just how well he has played these cards.

Speaker A: Julia Alexander, thank you so much. This is totally fascinating.

Speaker B: Thank you.

Speaker A: Julia Alexander is a media correspondent at Puck. All right, that is it for our show today. What Next? TBD is produced by Evan Campbell and Patrick Ford. Our show is edited by Paige Osborne, who is the senior supervising producer for what Next and what Next tbd. Mia Lobel is the executive producer here at Slate, and TBD is part of the larger what Next family. I am Lizzie o’. Leary. Thank you so much for listening.