The Race to Buy Warner Bros. Discovery

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2:20Bloomberg Audio Studios. Podcasts, radio, news. Some of the biggest names in tech and Hollywood are training their sights on Warner Brothers Discovery, the media and entertainment conglomerate that owns HBO Max, CNN, and TNT. Earlier this year, Warner Brothers Discovery announced plans to split itself in two to separate its declining cable networks business from its faster-growing streaming division. But on Tuesday, Warner Brothers said it's starting to consider a broad range of options because of unsolicited interest from multiple parties. Bloomberg has learned Netflix and Comcast are eyeing pieces of Warner Brothers.

3:01And Paramount Skydance, as Bloomberg first reported, made an offer for Warner Brothers Discovery, which the company rejected. It's the latest in a new round of potential consolidation and deal-making, involving old Hollywood studios and new streaming services. Paramount Skydance, itself a newly merged company, is led by David Ellison. David Ellison is a movie producer turned movie mogul, media mogul, who is initially known as the son or perhaps known to many as the son of Larry Ellison, the co-founder of Oracle, the second richest man in the world, depending on which day and various net worth calculations.

3:42Lucas Shaw writes the Screen Time newsletter for Bloomberg and hosts its annual conference, which took place earlier this month. His whole thing was, I'm going to invest in your biggest franchises, which are the biggest risks because they cost the most, but also probably the best bets. And as of earlier this year, merged with Paramount, not just the movie studio Paramount Pictures, but the larger company Paramount Global, which also owns a lot of cable networks like MTV and Comedy Central, and has a streaming service called Paramount+. That was an$8 billion deal that just went down in August. If Ellison succeeds in putting together a deal that's acceptable to the Warner Brothers board and federal regulators, what he'll have is a media behemoth, one that reflects both his reverence for Hollywood and his dad's success in tech.

4:31He's sort of trying to bridge those worlds. Now, that sounds kind of great as a talking point. What that means in practice is less clear to people, right? You know, if you go back 20 years, the assets Viacom and CBS, they were among the crown jewels in media. They've since been lapped and passed by many others. And he wants to kind of restore to them to their final glory by being the youngest and most tech savvy CEO around.

5:01I'm David Gurra, and this is The Big Take from Bloomberg News. Today on the show, why David Ellison, the chairman and CEO of Paramount Skydance, wants to buy Warner Brothers Discovery. We'll hear from Ellison himself. Plus, what other companies are interested in the business? And what more consolidation would mean for Hollywood, the news business, and for you and me?

5:26Bloomberg's Lucas Shaw has been tracking Paramount Skydance's interest in Warner Brothers Discovery very closely. Earlier this month, Lucas and his colleagues broke the news Warner Brothers rejected Paramount's unsolicited bid. Warner Brothers Discovery is in the process of splitting into two entities. But it became clear sort of late summer, early fall, that David Ellison made an offer to Warner Brothers Discovery of about$20 a share, which is well below what we believe the board and management thinks it's worth. One of the reasons that they are splitting is because they feel that they're not being properly valued by the street and that they could unlock value by essentially breaking it up into two parts.

6:09How does this overture stand to change, if at all, that plan to split Warner Brothers Discovery into? It sounds like David Ellison wants the whole thing. He's not interested in a part of the company. It's not really clear. Does that work with the timeline? Yeah, I mean, my assumption has been that he would do that and then spin off all the cable networks, which are the assets that generate the biggest share of the profit, but that are shrinking and nobody really wants. And that what David really wants is the studio and the streaming service and maybe the broadcast network, which he already has with CBS at Paramount.

6:40Now, he can't do that with Paramount as it is because the cable networks account for the vast, vast, vast majority of the profit. And so if he were to do that, he'd be left with this like tiny company that wouldn't really generate enough money to do what it wants to do. The exact particulars of what he would do in control, still a little unclear. Like there's no world in which it would make sense to have two different streaming services, Paramount Plus and HBO Max. You have to assume they're very similar that you would they would just combine them, pick one. You know, I think they're most likely to keep the studios separate for now just because they're anticipating the blowback from the creative community.

7:20If they were to say that either Paramount or Warner Brothers were to go away. And then a lot of questions about what they would do with cable networks. Warner Brothers Discovery owns HBO. It owns CNN. It owns TNT and TBS. TNT got a lot less valuable now that they no longer have the rights to the NBA, but still pretty popular cable networks. I asked Lucas about the timing here. It's only been a couple of months since Skydance Media closed its merger with Paramount Global. Well, the reason not to do it now, and I know some advisors of his have urged him to wait, is that the feeling that the price will only go down.

7:55That Warner Brothers Discovery is a damaged company, much as Paramount has been a damaged company. that it has all these cable networks that are shrinking. It has a very large studio in Warner Brothers, but the business is really about the cable networks. And if the cable networks keep going into the crapper, then the stock price for the company will too. And why pay$20 a share now when you can pay$15 a share in a couple of years? The other argument for waiting is he just got his arms around Paramount. Why not wait and try to execute your strategy? A lot of these big media deals have not worked out very well.

8:29You know, this would be the third time that Warner Brothers Discovery has been traded in the last 10 years. And it's got all these great assets. You know, Warner Brothers is one of the great Hollywood studios. HBO is this amazing brand. And yet the company keeps getting less valuable because these deals tend to be huge distractions. And they prevent the buyer from thinking long term and executing against a real strategy. Lucas says there are also reasons why Ellison would want to do a deal now. I think there are two big reasons. Well, maybe three. One is if you're already going to go through the pain of integration with Paramount, why not just like try to take your lumps all at the same time?

9:06The other two would be to regulatory and competition. The Ellison family has a very good relationship with President Trump. If you're going to go for a big media merger, why not try to do it at a time where you have a regulatory regime that favors you? That ties into the other one, which is competition. This current regulatory environment would seemingly box out a lot of other potential buyers for the asset. You know, Comcast has been floated a lot. The Trump administration does not like Comcast and the Roberts family that is kind of the biggest shareholder there. It has frowned at certain big tech companies.

9:43And so I think there's an opportunity to act now while you are the one clear, obvious buyer as opposed to waiting and risking there being more competition in the price going up. You mentioned the Ellison family's closeness with President Trump and with the Republican Party. You asked David Ellison about that relationship on stage. And what did he tell you? He said that his family has a very productive relationship with the administration and not a ton beyond that. Here's some of Lucas's conversation with Ellison at the Screen Time conference earlier this month. I think we can answer this one. What do you say to people who seem who are concerned that there's just like an Ellison slash Ellison Trump plot to just like corner the media business?

10:29You've got Elon with Twitter. You know, they're there. No, I know where you're going. Look, it's under the headline of doing better. I can I can only speak to.

10:47look, I think I can speak to my personal state of mind, right? Is that fair? Am I permitted to do that? So what I can tell you is that conversation has never once been discussed or brought up. You know, when we basically approach things, it is going back to always how do we create basically value for shareholders. I mean, he has tried to avoid talking about politics too much. His talking point is their company is an entertainment company first, and their job is to entertain the world and getting political kind of interferes with that. But he can't disguise the fact that his dad has a good relationship with this administration, and it does work to their benefit.

11:29In the context of news, what has he said about editorial independence and how have we seen that play out in actual fact now that he's in charge of CBS News? Well, he hasn't spoken that much about news other than he did this big deal in buying the Free Press, which was started by Barry Weiss, kind of a former opinion writer at the New York Times. and he has talked about it more as a business than in terms of the output or the content. He would like to see the news division modernized in terms of how it gathers news and most importantly, I think, in terms of how it distributes it. After the break, what it would mean if Paramount Skydance or another big company buys Warner Brothers Discovery, how it could change news gathering, sports coverage, and what gets made in Hollywood.

12:30Hey, everyone. It's Emily Simpson and Shane Simpson from the Legally Brunette podcast. Each week, we're bringing you true crime through a legal lens. Whether you want all the facts on the disappearance of Nancy Guthrie, or you still need to wrap your head around the ditty verdict, we're breaking it all down step by step. And we're not just lawyers. We're also husband and wife. It makes for some pretty entertaining episodes. Listen to Legally Brunette on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts. Right now, we are living through some of the most tumultuous political times our country has ever known.

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13:36I asked Bloomberg's Lucas Shaw about how significant a deal would be between Paramount Skydance and Warner Brothers Discovery, or between Netflix and Warner Brothers, or Comcast and Warner Brothers. Bloomberg reported Tuesday those two companies, Netflix and Comcast, are also interested. It would be seen as something like the Disney-Fox deal, where you'd have these two entertainment companies combining. It would put a lot of cable networks under one roof, but perhaps more importantly to producers and sellers in Hollywood, it would combine two major streaming services, two major movie studios and two major television studios.

14:11And typically when assets like that combine, they're not going to make more, right? Like if one company makes 20 movies and one company makes 20, when they combine, they might make 30, but they're not going to take the 40 they're making to 50. So there's a lot of concern that output will only go down further, that job cuts will continue, and that it will be a kind of a net bad for the creative community. If we were to get this giant media company of Paramount Skydance and Warner Brothers Discovery, what does that mean for me as a consumer of video content? What's going to change if we have a company of that scale and size?

14:46Well, the most likely outcome would be you'd have one fewer streaming service to pay for, but the resulting streaming service that you almost certainly want would be more expensive, I'd say, is the most likely outcome from that. Incidentally, Disney announced it's raising streaming prices, and Warner Brothers Discovery just increased the price of HBO Max this week. Lucas says a deal involving Paramount Skydance and Warner Brothers would have implications for the news organizations at those two companies. It would put CBS News and CNN under the same company and under the control of a family that I think feels that both of them are a little too liberal.

15:22And so it would likely change some of the news put out there by both CBS News and CNN. How is this deal being seen or talked about in Hollywood? What would it mean for the film industry and for the TV industry if this were to go through? People don't like it, I guess is the simplest answer. They were all very excited about David Ellison buying Paramount and all very worried about him buying Warner Brothers Discovery. But a lot of them see it as a fait accompli and that there's not a lot they can do about it. And that's a fear of the size it would amass? It principally has to do with just how much it would control, how big it would be?

15:55No, a fear that another studio is going away. Fear that just more consolidation will mean more job losses, fewer buyers, fewer projects being acquired. Nobody, I think, is worried about the scale because even that combined company wouldn't be bigger than Netflix or Disney or Apple or Amazon. It's just that Hollywood has lived through two and a half years of what's felt like kind of constant bad news. And this feels like it would just be more of the same, I guess, to them. It feels like a shrinking industry. And even though if you look, if you really zoom out, like there's a lot of discussion of the loss of a studio.

16:32And what I have to sometimes remind people is like, well, yes, you lost Fox and you may lose either Warner Brothers or Paramount, but you gained Netflix, Amazon, and Apple. And so the total number of studios hasn't really shrunk, but that argument doesn't work well with people who've seen their friends lose jobs and seen overall output go down. So you're going from having kind of four separate companies coming together perhaps as one. What is the last time in history we've had so much concentration in the entertainment industries? Is this at all novel? Is it a return to something we've seen before?

17:04So how do you see this in kind of the sweep of entertainment history in the US? So there are more ways to inform and entertain yourself than ever before. You know, you can go on YouTube and TikTok and Instagram and Twitter and all these social media platforms. You can go on any number of streaming services and TV networks, there's God knows how many podcasts. But there are also entertainment and media companies that own more assets than anything that we've seen before, right? But if you add in streaming and you consider all TV viewing, as presently constructed, Paramount and Warner Brothers Discovery combined would account for less television viewing than YouTube.

17:45And that's just in the US. YouTube is much, much, much, much, much bigger abroad. So it's a big asset, but a lot of these tech platforms like Google, Facebook, these companies still have way more control than any of these other media companies that we seem to be very worried about. Would a company that has CBS and NBC have more control over what people think than Alphabet, which owns Google and YouTube and Google Maps, or then Meta, which owns Instagram and Facebook and WhatsApp? Like, does Netflix have more control and power than CBS did at its peak? In the US, the answer is clearly no. More people watched CBS every night than watched Netflix every night by a lot.

18:30When you consider Netflix's global reach, which CBS didn't have, are more people watching Netflix on any given night globally than watched CBS in the US? That is more of an apples to apples comparison, but it's a different type of influence. Before I let him go, I asked Lucas what he thinks isn't getting enough attention as this story develops, as he and our colleagues report on the next steps for Warner Brothers Discovery. We're just in the very early stages of seeing what David Ellison plans to do with Paramount, and I'd have a lot more thoughts about what that means for Warner Brothers Discovery if I had a clearer handle on what's happening with Paramount.

19:09Because the first month or two has been, we're going to spend a lot of money to show it's a new regime, right? and then the next couple of months are going to be we're going to fire a lot of people and restructure. And we'll have a really clear feel for kind of what David Ellison as chairman and CEO of a major media company looks like after 12 to 18 months. I think a lot of Warner Brothers Discovery people feel like it can't be worse than what they've been through. Like while most of Hollywood is against the deal, a lot of people who work at Warner Brothers Discovery are pro. Even if they are worried about losing their jobs, they didn't love being owned by AT &T, They haven't loved being led by David Zaslav.

19:46And so if David Ellison can be different, you know, maybe that's better. Do you have a sense from your reporting of what would be palatable to the Warner Brothers Discovery boards? They rejected that initial offer. Are they simply looking for a higher number here? What are they considering that might make this something that could come together? I think it really comes down to the number. It's not like there's another, you know, version. Maybe they want certain assurances, but they will say we have a fiduciary responsibility to shareholders. and I have been told that they have a number at which they would say yes.

20:21This is The Big Take from Bloomberg News. I'm David Gurra. To get more from The Big Take and unlimited access to all of Bloomberg.com, subscribe today at Bloomberg.com slash podcast offer. If you like this episode, make sure to follow and review The Big Take wherever you listen to podcasts. It helps people find the show. Thanks for listening. We'll be back tomorrow.

20:46Hey, everyone. It's Emily Simpson and Shane Simpson from the Legally Brunette podcast. Each week, we're bringing you true crime through a legal lens. Whether you want all the facts on the disappearance of Nancy Guthrie, or you still need to wrap your head around the ditty verdict, we're breaking it all down step by step. And we're not just lawyers. We're also husband and wife. It makes for some pretty entertaining episodes. Listen to Legally Brunette on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts. This is Tom Keen inviting you to join us for the Bloomberg Surveillance Podcast.

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