Paramount Makes Hostile Bid for Warner Bros. Discovery

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1:11Bloomberg Tech is live from coast to coast with Caroline Hyde in New York and Ed Ludlow in San Francisco. This is Bloomberg Tech coming up. Paramount making a hostile bid for Warner Brothers Discovery just days after the company agreed to a deal with Netflix. Plus, President Trump wants to limit state-level AI regulation. He plans to approve an executive order this week, aiming for one rule on artificial intelligence. And IBM is buying the data streaming platform Confluent for about$9.3 billion, one of its largest takeovers yet. Look at their share market reaction for Confluent. Let's check in on the broader markets, though.

1:53Anticipation. Anticipation of the macro perspective that is the Federal Reserve policymaking later this week. We're down by about a quarter of a percent, but so much is happening underneath the hood at the moment, Ed, and you're going to dig into our story of the day, the week, maybe the year. Yep. Warner Brothers Discovery. This is the state of play this morning. Paramount Skydance comes in with a hostile bid at$30 per share for the entirety of Warner Brothers Discovery. At the end of last week, Netflix had come in with an offer of$27.75 a share, but that was largely for the streaming and studio businesses with the plan that Warner Brothers Discovery, who entered into those talks with Netflix, would divest and spin off some of the remaining legacy cable units.

2:36There is so much to discuss in this. The financing in both senses. Where is it coming from and what does the president of the United States have to say about it, Cara? There are so many angles to get into. Let's go to our key reporter on all of this, Blueberg's entertainment reporter, Luca Shaw. You head the entertainment coverage for this network. And I'm interested, what's the standout for you? Because we are unfolding who's behind the money, what's behind the attitude to go hostile. Take us there first. I guess the part that stands out to me is that David Ellison is coming back and going hostile with the same bid that was just rejected by the board rather than sweetening the offer.

3:13You know, Paramount Skylands has now made six different attempts at buying Warner Brothers Discovery. They've been rejected every single time. But they are adamant and have been for days now that their offer is better than Netflix's, that the board is not factoring in certain things. They're confused by the valuation on the cable networks, for example, which would be spun off in the Netflix scenario. And so they're not going down without a fight. But I still think that they will end up probably having to raise the offer. Lucas, over the weekend, you reported in detail a meeting that took place between Netflix co-CEO Ted Sarandos and the president of the United States.

3:54Then the president Sunday night said, and this is before the Paramount Skydance bid came in, that from an antitrust or market share perspective, this has got to be looked at. would the same not apply to Paramount Skydance? It would. It just is a different type of market, I guess. So the president's comments I thought were notable because he had not spoken out against the Netflix bid at all, despite the fact that the Paramount people were convinced that Trump was going to try to block it and was against it. And I would say his comments were sort of balanced. On the one hand, he praised Netflix and praised Ted Sarandos, but he did say that it would need to be reviewed.

4:32You know, Netflix is the biggest player in Hollywood in streaming. And so if we were to add on HBO and Warner Brothers, it would make it even stronger there. In Paramount's case, they'd be combining two movie studios. They'd be combining huge amounts of television networks. The respective share of either combined company in terms of TV viewing would be quite large, would be somewhat similar. And yet both, I think, would still be smaller than YouTube. So a lot of this, if we get to, you know, an antitrust case is going to depend on what market you are defining. Let's just think about the storyline that's capturing a lot of attention today is the money.

5:09And we're all about the money for these things. Lucas, Tencent was involved previously. It looks as though Chinese money is now being put to one side, but Middle Eastern money coming to the fore. And Jared Kushner's money, private equity at least, which is also backed by Middle Eastern money, coming to the fore. Yes. The Middle Eastern money is probably the most interesting part of it because there had been a report, you know, at this point, maybe a month ago in Variety, the Hollywood trade publication, saying that there were three prominent Middle Eastern sovereign wealth funds involved in the Paramount bid.

5:40Paramount initially didn't really engage. Then later that day said that the report was inaccurate. and then it turns out the report looks like it was pretty accurate. Because, yes, I had heard and they have since disclosed that you do have a lot of Middle Eastern money in this bid and there had been Chinese money, which makes it even more interesting that, you know, Paramount's, one of Paramount's arguments is that they will have an easier time getting this deal approved. But Warner Brothers Discovery's perspective was, well, it's actually making our life more complicated if you have all of this foreign money because then CFIUS might have to look at it and approve it.

6:15Bloomberg's Lucas Shaw, who's led the team on this story every step of the way. Thank you so much. Let's continue the conversation with Brandon Katz, Greenlight Analytics Director of Insights and Content Strategy. Lucas did a really good job in explaining the differences in structure of the deals and also the different perspectives of each party. But I wondered if you'd help our audience understand what the difference is between a Netflix joined with Warner Brothers Discoveries streaming and studio business versus a Paramount Skydance taking the entire thing. What does that look like? You and Lucas have already done a great job, so I'll try to pitch in here.

6:52Really, WBD and Paramount, more redundancies, more overlap. They are both traditional TV and film companies with streaming services tacked on. Whereas Netflix, obviously, as we know, famously or infamously, depending on your perspective, they are a streaming first at all costs company. So there's less overlap and far more new integration of potentially complementary or potentially conflicting businesses. Now, we have seen mega mergers of this nature in the past, but they have almost always been a like versus like company absorbing each other. We have not really seen a major, major streaming service take a company at the size of Warner Brothers Discovery just yet.

7:36Brendan, we're going later in the program to go deep on the antitrust considerations. There are antitrust considerations here. But let's say in either event, Netflix comes out on top or Paramount Skydance comes out on top. How does that change the landscape of entertainment? What does it look like to have an entity of that size? roughly two-thirds of u.s adults who subscribe to hbo max also subscribe to netflix whereas about 40 percent of hbo max subscribers also use paramount plus according to greenlight analytics data so as of right now now the clear raw subscription streaming upside obviously favors paramount plus which has about 80 million subscribers globally so they are a solid growing streamer that's been on original content hot streak since late 2023 but clearly isn't remotely the same size as Netflix, Amazon, or Disney+.

8:28So if Netflix were to get WBD, they would suddenly be investing in a lot of new businesses. And we don't know how they would play up theatrical. We don't know how they would handle WBD TV's massive external TV licensing business. We do know that Paramount and WB, there's more of, again, overlap and redundancies. So we can safely say that that would probably be more predictable as to what the future would look like. And it would certainly position Paramount to make that entrance into the top three contenders of media companies. Certainly, David Ellis has been talking about getting in the position to produce more, more content, in particular for the consumer.

9:08Brandon, just listen to what he told our own Lucas Shaw a little bit earlier in October at our Screen Time event. We have a good relationship with the administration. and look, I think if you look to that, I do believe other things that have been rumored about, right, are very large-scale players that could potentially create monopolies, obviously, in the ecosystem. And again, I think when you look at the lens of consolidation, for us, I'll keep going back to it, it's always how do you create long-term value creation, how do you put yourself in a position to produce more content, not less, and how do you ultimately build something that is better for the consumer?

9:44Brandon, what serves the consumer best? What serves the consumer best overall is usually competition. So I think there is a large sect of industry analysts and professionals that would probably prefer Warner Brothers Discovery to remain as an independent company because it means more competition. It means more buyers on the market. It probably means less layoffs of the labor force. Having said that, that's unfortunately not the reality that we live in. So somebody is going to get Warner Brothers. So it is really deciding which ultimate partner is probably best for the industry. Now, if you combine Netflix and HBO Max and if you combine Paramount Plus and HBO Max, they are still significantly smaller than YouTube, which is currently about a third bigger than Netflix in the U.S.

10:31So either way, there is still a lot of competition out there depending on which industry you're pitting against one another. Let's talk about good old cable television, because that is where many would say there is perhaps value. And it depends on which side of the equation you think. At the moment, it feels as though Warner Brothers Discovery had thought there was more value in spinning off that part of the business than the$30 coming from Paramount Skydance. How do you look at those valuations? Well, let's stick with the famous Warner Brothers property. friends. Ross was a famous paleontologist in the show, which means he loved fossils, which means he would love the cable network assets.

11:07They are rapidly declining. They are shrinking every day. And while they still spit out a decent amount of free cash flow, Wall Street sees them as an albatross, an anchor. So they all these companies want to position themselves for long leashes from shareholders and Wall Street. And the cable nets just aren't part of that strategy? Niche analogy, but we're here for it. The most important question, seriously, was posed by Bloomberg tech producer Pyle Zaveri. Just take this at face value seriously. Let's say either deal goes through and we don't know if it will, there's antitrust. Does that mean that we stop paying for multiple subscriptions and we can just pay for one subscription where all of our platforms are in one?

11:51Because that's the other side of it. everyone has a dozen or more different subscriptions. And what's so funny is like the parties here, they're all contributors to that ecosystem. Yeah, this seems to be, let's say Netflix gets it. I'm betting HBO will be available as a premium add-on, an upsell. You have to pay more for it. But what's interesting about that is it puts Netflix in closer competition to Amazon channels, which is an aggregator, a platform from which you can subscribe to other streaming services. That's the really big strategic question, because if Netflix pulls this off, who's to say they won't start offering this to other niche or subscale streaming services that need the broad reach and distribution of Netflix?

12:33Because we've seen both YouTube and Amazon primetime channels are massively beneficial for subscale streamers. And then those host companies get a huge cut of ad revenue, subscription revenue, and it becomes an entirely new self-fulfilling business model all on its own. You are all about entertainment data. At the moment, our data is to look at share prices. And Paramount goes higher today on the back of this news. And Netflix sinks yet more. Do you think there is more value to be had longer term for the entire industry with one or the other, Brandon? I think if Netflix said, you know what, we're going to be complacent, we're not going to touch our bid, and they didn't get it, they would still be the number one streaming subscription video service in the world.

13:18and for the foreseeable future. And we've already seen through the last month that shareholders aren't totally convinced that ingesting, let's say, non-traditional business assets compared to their business model is the right way to go. Whereas Paramount is a little bit more comfortable and familiar with these businesses that it would be ingesting. So I think also because Paramount is trying to be a top three contender and a last man standing in the streaming wars, they probably have the most to gain by getting WBA. Brandon Katz, all the energy of Greenlight Analytics. We appreciate it. Now, coming up, President Trump, he's aiming to curb state AI rules.

13:56We'll discuss what that means for the future of the US AI industry. Ed, what are you looking at? M &A Monday. IBM is buying Confluent for$9.3 billion. Enterprise value of the deal,$11 billion, including debt. I think of Confluent as like the plumbing for data, particularly in a world where these very large frontier models aren't relevant to lots of companies. IBM basically wants you to pipe your data into its Watson platform real time. And that's what this deal represents. IBM a little higher, but Confluent up 28%. This is Bloomberg Tech.

14:38President Trump saying he plans to approve an executive order this week, establishing, quote, one rule on AI to limit state-level policies regulating the technology. Newberg's senior tech editor, Mike Sheppard, has been across what we knew has been being talked about more and more, an anxiety that there will be 50 rules for AI companies instead of just one federal rule. What sort of form could this take, Mike? Well, it's really unclear. We have seen circulating in recent weeks a draft version of a measure that the president might sign that would call for two things. It would allow the Justice Department to sue states over regulations at the state level that the federal government finds unconstitutional.

15:20It would also call for cutting funding to states that have regulations in place that the administration finds objectionable. It's unclear what those criteria exactly are. We did see in the AI action plan a call for reining in rules that might impede innovation. But those are all the specifics we have in hand at this moment. So we'll be waiting to see what emerges on the president's desk. We do know this is a priority for the administration, for the president, for his top AI advisor, David Sachs, as well as the tech industry. We've heard from Jensen Wong. We have heard from Marc Andreessen. We've heard from OpenAI and Google that they really would like to rein in what they call a patchwork of state level rules.

16:02There are 38 states enacting almost 100 measures so far this year, and it's becoming a bit much in their view. Shep, my sense from what I'm hearing out of DC is that this EO will focus more on the why those state laws are bad rather than proactive. Here's one great rule for everyone. But politically, it's really interesting because it's not as if Republicans broadly are supporting the president in diluting or detracting from state powers. I I think of Ron DeSantis, for example, his position on this has been quite clear. So private industry, of course, would support that. But politically, the president has to do some management here.

16:43Well, absolutely, Ed. And really, regulating AI has been a politically tricky issue from the get-go. And the reason is there are so many different points of view on artificial intelligence. There are a handful of members in Congress who are accelerators, who really want to speed the adoption of technology, setting aside whatever needs there might be for regulation. And then there are others who really want to slow it down. In the middle, you do have a large number of other lawmakers who are seeking to rein in specific areas. Some are worried more about the doomer issue. Others are worried about privacy.

17:21Others still are worried about copyright. And so far, we do not have anything comprehensive at the federal level. And in the spirit that space abhors a vacuum, this is why we are seeing at the state level, both in Republican states and Democratic states, legislators and governors moving in to try to impose some order on a system that they see as both economically significant, but also potentially perilous to voters and consumers. And we are hearing from Ron DeSantis of Florida, Sarah Huckabee Sanders in Arkansas, and then even here in Washington, Marjorie Taylor Greene, a one-time ally, but now really at odds with President Donald Trump, favoring state autonomy when it comes to regulating this new technology.

18:06So it'll be interesting to see how this plays out and whether they do more to articulate a vision for regulating artificial intelligence at the federal level, as opposed to just saying why the state level rules on a patchwork basis are bad right now. Mike Shepard breaking it down. We thank you. Let's continue the conversation. We can head out to Sarah O. Lam, VP and Senior Fellow of the Technology Policy Institute. From your perspective, is it better to have technology policy from a state level on AI or federal? Well, if you look at all the introduced state laws, there are over a thousand apparently that are out there floating.

18:42In addition to the ones that have been enacted, they're just so diverse. There are like six or seven buckets of the type of state law, including disclosure mandates, algorithmic discrimination, notice and bias requirements. So you have this matrix of 50 states times six or seven buckets, and that's a patchwork. What you see also is a race to the bottom. So the most conservative rule might rule them all. And so really, it is a matter of time and effort for small and large companies to know what these policies are. The discussion mimics a lot of the privacy debates that we had 10 years ago and still do.

19:26But really, it's difficult to see innovation move forward when you have all these state laws. Sarah, the mechanism of an EO is not that surprising if you look at the prior initiatives of this White House. In November, a big push by the White House on Congress to include a federal moratorium on state AI laws in a particular piece of legislation. That effort not successful. Explain why that was important, please. Sure. So you're seeing this post today because four days ago, apparently the state law moratorium was dropped from the NDAA defense spending bill. I think Representative Scalise mentioned that it wouldn't be included.

20:11There was a push in November to include it in the NDAA. And that was after in July there was a push to include it in the spending bill, the BBB, Big Beautiful Bill. And so there has been discussion, a lot of buzz on the Hill, how to include this moratorium in legislation. But, you know, Congress thought it's not the right vehicle to include a moratorium. And so then you see this EO. The draft proposal was floated three weeks ago. It's called Eliminating State Law Obstruction of National AI Policy. You can read it. It includes a litigation task force, evaluation of state laws, restriction of funding, and also involves Commerce Department, the FCC, FTC, DOJ.

21:01Yeah. And so that was the draft. We don't know if all that was in, is in the actual, but they floated it for review. Sarah, I want to push it forward a little bit of what actually is necessary, because it's all very well and good saying we don't want it from a state level. But many would harp back to what happened with social media, where ultimately the big companies were left to regulate themselves because no federal policy was ever enacted. Do you have optimism that there will be some rules of the road, some guardrails from a federal perspective, or will it just be pushed back on a state level?

21:33You know, it's hard to say about the harms of technology because, yes, there are harms, but who can really know what will be the really emergent or difficult harms out of thousands of possibilities? You know, you don't want to stop all of them and all innovation. And so, you know, is government the right venue to discover that? Really, you see it through litigation. And in Europe, they've taken the approach, well, let's do blanket regulation. And, you know, that hasn't turned out very well. As you can see, people are pushing back against EU regulations right now. So it really is a matter of perspective.

22:17The Biden AI executive order was rolled back, and that is a perspective that's more precautionary. And so the Trump EO is taking the other approach, saying we need light touch regulation. So I think and compare that with China. I don't think we hear about regulation from for AI there. Right. And so that's the that's the comparison. Sarah Olam, the Tech Policy Institute. Time now for Talking Tech. First up, IBM is buying the data streaming platform Confluent for about$9.3 billion, marking one of its largest takeovers yet. It's a major bet on the kind of enterprise software that AI tools need to perform tasks in real time.

23:05It says both companies, you see, have been rising on the news. Plus, OpenAI says that its tools are saving workers an average of 40 to 60 minutes a day on professional tasks. It's according to a survey from the chat GPT maker, data science, engineering, communications roles among those saving the most time. Of course, it all comes amid skepticism that there is a lack maybe of economic benefits of AI.

23:32You know, ironically, it was David Zasloff last year that said, you know, consolidation of media business is important. And the way we approach everything is, first and foremost, what's good for the talent community? what's good for our shareholders and value creation and what's good for basically storytelling at large. That was Paramount Skydance CEO David Ellison there at Bloomberg's Screen Time event in October foreshadowing consolidation in the industry. Fast forward to Monday, December 8th. Paramount Skydance comes in with a hostile bid, $30 per share for Warner Brothers Discovery after Netflix entered into talks with Warner Brothers Discovery at the end of last week in a different kind of deal.

24:17That's what the shares are doing right now. For the ARBs out there, Warner Brothers Discovery trading at 27.35 cents a share, 36 cents a share below both the offer prices at this moment in time. Cara? ARBs, arbitrage for those who don't parlay in that sort of lexicon every single day. But meanwhile, President Trump, he did, Ed, weigh in on the Warner Brothers Discovery and Netflix deal. Here's what he had to say about Netflix CEO Ted Sarandos. But he's done one of the greatest jobs in the history of movies and other things. And he's got a lot of interesting things happening aside from what you're talking about.

24:52But it is a big market share. There's no question about it. It could be a problem. Discovering the co-CEO, discussing, well, the control that Netflix might ultimately have. Let's talk about that with Jennifer Ree from the antitrust team at Bloomberg Intelligence. So there we heard perhaps an admission from the White House that he's looking at how competition is going to play out with whomever owns Warner Brothers Discovery, at least the streaming and the studio side of it. Right, exactly. You know, and at the end of the day, it depends on the Department of Justice and the analysis that they do.

25:22This year long investigation that's very likely to take place no matter who ends up being the buyer and what their economists find out when they look at the market, what the documents from the companies look like when they're talking about who they think they compete with. And I think with the Netflix situation, it very much comes down to how the market is defined. But if the market is defined narrowly in the way I think it ultimately will, and the Department of Justice does tend to define markets narrowly in general, Netflix has a problem. The president is correct. It's a big market share. Jen, I think it would really help the MIMO tech audience understand the process a little bit.

25:57Is it rules based? So if there's an antitrust review on this, do they look at past precedents? Do they look at a codified set of rules and say, OK, this either is or is not abusive market position? It is absolutely rules based. There's a set of guidelines called the horizontal merger guidelines that the Department of Justice will look to that actually gives it basic mathematics to understand, at least facially, whether a deal is anti-competitive. And they start by defining a market and then summing the shares in that market. Now, oftentimes this market definition situation can be dispositive because the broader the market, the filters down the shares, the combined share isn't as large as it is in a narrower market, at least in this situation.