Inside the Nasty Fight to Take Over Hollywood

0:05Jessica Mendoza:One of the biggest dramas in Hollywood in the past year has been the fight over Warner Brothers Discovery.

0:12David Ellison:Warner Brothers Discovery announced today that it is putting itself up for sale.

0:17Joe Flint:Paramount made three bids to buy the company over the past couple of weeks here.

0:22David Ellison:It first offered$19, then raised that to$22. Warner Brothers Discovery has entered exclusive negotiations to sell its film and TV studios and HBO Max streaming service to Netflix.

0:35Jessica Mendoza:In December, Warner announced that it had accepted Netflix's offer of$72 billion. The Warner Brothers bidding saga seemed to finally come to an end. Only Paramount still refused to take no for an answer. Tonight, a plot twist in a Hollywood blockbuster deal.

0:54David Ellison:Paramount Skydance is challenging Netflix with their own offer to purchase.

0:58Jessica Mendoza:Our colleague Joe Flint has been following the whole story.

1:02Joe Flint:Netflix had a deal with Warner, but Paramount refused to throw in the towel. And they kept coming back with more offers. And even though none of these offers they were making were really moving the needle for Warner, they were making offers, they were lobbying lawmakers to argue against Netflix, They clearly were not going down without a fight. And finally last week, they made an offer to borrow from a Paramount classic, an offer that Warner couldn't refuse.

1:36Jessica Mendoza:That offer was the ninth one from Paramount Skydance's CEO, David Ellison. What does this tell you about how important this deal was to Paramount?

1:47Joe Flint:This deal is almost, one could say, was a make or break for the whole Ellison strategy. And they felt that Paramount on its own didn't have the size and scale to compete with a Netflix, a Disney, all these other bigger players in the streaming wars. But if they could get Warner as well and the Warner Library and HBO Max and the cable networks. Paramount felt they really needed Warner to have a strong hand to go up against a Disney and a Netflix. So they really did need to have this.

2:24Jessica Mendoza:Welcome to The Journal, our show about money, business, and power. I'm Jessica Mendoza. It's Thursday, March 5th.

2:37Jessica Mendoza:Coming up on the show, how Paramount managed to snatch a last-minute victory in the fight for Warner Brothers.

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3:57Jessica Mendoza:If this were a reality dating show, Warner Brothers would have been The Bachelor, and Paramount and Netflix were the final two. And the main reason these two companies were so interested in acquiring Warner was its iconic catalog.

4:12Joe Flint:If you think about, you know, the library they have, whether it's Superman. Superman!

4:18Jessica Mendoza:Harry Potter. Harry Potter. Gryffindor!

4:22Joe Flint:Hit TV shows, friends. I'm not great at the advice. Can I interest you in a sarcastic comment? Tons of shows, all these things which are vital to a streaming platform. For all the original programming Netflix puts on, one of the big things that they have, of course, are those old shows. These shows that have hundreds of episodes are incredibly valuable to these streaming services who are all trying to reduce churn. They're trying to keep customers from buying it and then dropping it after their favorite show goes off the air. So the more content you have there, the more movies, TV shows, other stuff, the more likely you're willing to stick with this service.

5:04Jessica Mendoza:As for Netflix, the company's strategy had always been build, not buy. But it did see a lot of upside in acquiring Warner Studios and HBO.

5:13Joe Flint:Netflix saw an opportunity. They recognized also the value of that library and the HBO brand. Again, they weren't interested in the cable network business, but they were interested in that. And Warner felt that Netflix was a better steward for those assets. And there was also concern from Warner Brothers about Paramount's ability to finance the deal.

5:39Jessica Mendoza:Paramount already had$14 billion in debt. So Warner was skeptical that Paramount made sense as a buyer.

5:46Joe Flint:So there were concerns like, okay, how are you going to pay for this? You've got a ton of debt. You're a smaller company than we are. So those were some of the reasons there was animosity between the two. And it was bad. I mean, we've written stories about Paramount basically sending letters saying they felt this process was being tilted to Netflix and they weren't getting a fair shake.

6:10Jessica Mendoza:But for all that, Paramount wasn't giving up. In December, after Netflix and Warner seemed to have struck a deal, Paramount made one more bid to take over the company, offering nearly$78 billion. Then, Paramount CEO David Ellison turned to his allies in Washington. Just days after making that offer, Ellison sat in President Trump's box at an event at the Kennedy Center. And Paramount's chief legal officer oversaw a lobbying campaign that encouraged Republican lawmakers and administration officials to question Netflix's bid.

6:43Joe Flint:They were very aggressive from the get-go. They clearly had a strategy not only of bidding for these assets, but of making sure that whoever they were going up against would face a very tough time in Washington. And the Allisons have connections with the Trump White House. And Trump made clear, certainly, that he had doubts about Netflix's size and that it would face a tough review. And he didn't really express those same concerns about Paramount.

7:18Jessica Mendoza:Netflix, on the other hand, didn't have those connections in D.C. At a Senate hearing about the merger last month, the company struggled to win over lawmakers from both parties. Here's Republican Senator Mike Lee questioning Netflix co-CEO Ted Sarandos.

7:33David Ellison:Mr. Sarandos, we'll start with you. And please begin with your opening statement. Thank you, Chairman Lee, Reggie Member Booker.

7:43Joe Flint:They've built a giant streaming business and become this giant player. And basically, A, avoided scrutiny from Washington lawmakers. And B, because they haven't done big deals before. they haven't had to parade themselves in front.

7:58Jessica Mendoza:By that point, in February, Paramount had increased its bid to$81 billion. This even included a nearly$3 billion breakup fee that Paramount would pay to Netflix. And Paramount would also pay Warner$7 billion if regulators don't approve the deal. Netflix declined to match the bid. Warner Brothers CEO David Zaslav said that once the company board votes to adopt the Paramount merger, quote, it will create tremendous value for our shareholders.

8:29Joe Flint:On Thursday, the 26th, was when the Warner board came out and said that Paramount's offer for the entire company was superior to Netflix's bid for just the studios and HBO Max streaming service. And that's how we got here right now.

8:47Jessica Mendoza:Netflix's co-CEOs said, quote, this transaction was always a nice-to-have at the right price, not a must-have at any price. Is this it? It's a done deal now? Netflix isn't going to come back with some last, last, last, last minute comeback offer in the next few days?

9:03Joe Flint:I don't think that's going to happen. Done deal, though, we don't know yet because there does still have to be a regulatory process here. So we'll see what happens. But yeah, no, Netflix is pretty sure they're officially out of it now. And their shareholders have been rejoicing because we've seen their stock shoot up once it was clear they weren't going to stay in the chase for Warner.

9:27Jessica Mendoza:After the break, what a Paramount Warner Brothers merger could mean for the entertainment industry and consumers?

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10:46Jessica Mendoza:The Warner Brothers-Paramount merger could create a media behemoth. In addition to its Hollywood studios, Warner Brothers Discovery controls a massive film archive, HBO Max, and TV networks, including CNN. Paramount Skydance owns Paramount Pictures, cable channels like Comedy Central and Nickelodeon, and CBS, both news and sports. So if this merger between Paramount and Warner Brothers actually happens, what would that look like? starting with streaming services, for example?

11:17Joe Flint:Well, Paramount has already said they're going to combine the streaming services. Now, let's be clear by what we mean by combine. What it really means for now, until we get more clarity, is certainly they're going to combine a lot of the operations of the two streaming services. You know, obviously, there's going to be a lot of crossover in tech and other business jobs there that will be reduced. They've also said we're going to protect HBO. We're going to let HBO be HBO. And they also have more sports now. Assuming the deal goes through, TNT, Warner's TNT, they have March Madness. They have some college football.

11:54Joe Flint:They have some baseball. It's very complementary to CBS Sports, which has the NFL.

11:59Jessica Mendoza:Joe, I also want to ask about the news outlets. I mean, Paramount's already making significant changes at CBS. And now they could also own CNN?

12:07Joe Flint:Well, that's getting a lot of attention, certainly in media circles, what this deal will mean for CNN. When the Ellisons were first pitching the deal to the White House, we reported that they promised sweeping changes at CNN. We don't know what sweeping changes means, so there's a lot of unrest at CNN the last few days.

12:32Jessica Mendoza:President Trump has complained about what he calls bias in news coverage, including from CNN and CBS. David Ellison and his father, billionaire Larry Ellison, have signaled to the Trump administration that if they gained control of CNN, they would try to overhaul it. If the deal goes through, Paramount will have a big challenge on its hands. The company stands to take on more debt than it already has, bringing its total debt load up to$79 billion. So as a condition of Paramount's deal with Warner, David's father, Larry Ellison, agreed to personally guarantee much of the purchase. The Ellisons are one of the wealthiest families in the world.