Can the Paramount-WBD Merger Survive a Trial, Midterms, and a $650 Million Clock?

0:04This episode of The Town is presented by HBO Max. HBO Max presents Hacks, nominated for 25 Emmy Awards, including Outstanding Comedy Series. In the aftermath of mistaken news reports that Debra passed away, she and Ava returned to Las Vegas determined to secure Debra's legacy as a comedian. Don't miss the series Variety is calling one of TV's best comedies ever. Hacks is now streaming on HBO Max. Adobe Firefly is the all-in-one creative studio with AI-powered image and video editing for today's creative process. Built for creators of every kind, Firefly helps you generate, edit, and experiment fast.

0:43Because the asks aren't getting smaller, the budgets aren't getting bigger, and the timelines, oh yeah, still tight. With all the best creative AI models in one place, Firefly brings your ideas to life. Unlock a better way to make with Adobe Firefly. It is Wednesday, August 5th. We've got a trial date. March 2nd, 2027 in Oakland, California. Paramount lawyers will square off with the Attorney General of California in 11 states over whether the Ellison family should be allowed to also own Warner Brothers Discovery and its studio, including HBO and perhaps most importantly, CNN. Obviously, that trial date seven months from now is not what David Ellison wanted, given the$650 million per quarter ticking fee and the election coming in November, and it gives Rob Bonta and the state some pretty big leverage for a potential settlement.

1:34But Paramount is indeed getting what they asked for here, a trial on the merits of whether the combined Warnermount would give it too much power in the market for TV networks, wide-release movies, and the so-called tentpole movies that the legacy studios specialize in making for theaters. There's been a ton of discussion of the politics at play here, especially since David Ellison wrote a pretty scathing New York Times column this week, arguing that the states just don't want him to own CNN. But there's been less discussion of the actual legal issues at play here. So that's today's show. Eric Gardner is here.

2:08He writes about the law and Hollywood for Puck, and he's been following this case pretty closely. We're going to talk about how it might play out, the key players, what this trial date means, the lawsuit that Warners filed to keep his executives from jumping ship, And most importantly, when will this whole thing actually end? From The Ringer and Puck, I'm Matt Bellany and this is The Town.

2:33All right, we are here with Eric Gardner, my colleague at Puck and legal expert and reader of all of the documents that have been filed so far in the Paramount Warner Brothers, California, 11 state litigation. Welcome, Eric. Thanks for having me. Did I overstate the number of documents you've read? You haven't read everything, have you? I've read everything three times, at least three times. Nice. Okay, good. All right. Well, my point is you're reading this stuff more closely than I am, and I wanted to get your assessment of the case so far, because we've discussed it with Lucas and others, and a lot is going on here.

3:14We now, I feel like we have a solidified procedural disposition. This case is going to trial in March, unless it's delayed, which I don't think it will be. And we have a 12-day trial. We have the lawyers on both sides lining up. And we have Paramount. The perception is that this has not been going great for them. So first of all, do you agree with that? I think they took a bit of a gamble by agreeing to delay a hearing and to kind of waive the preliminary injunction issue and go straight to trial. And so far, that bet is not looking so hot. No, they wanted November. The state AGs wanted April.

4:01They got March. So much more on the side of the AGs. Certainly, yeah. But, you know, they said from the beginning, we want time to litigate this and to present all the facts. And now they're going to have plenty of time to do their depositions and to seek documents and to prepare their experts. And this case will, I think, be a really interesting window into the state of Hollywood in 2027. Oh, yeah, absolutely. I mean, there'll be executives across the industry that will be testifying. We're going to see data about the industry like none other. There'll be experts that will come forward and testify about exactly the state of the industry, who's the real competition here.

4:50This is certainly going to be a broad canvas about how this industry operates and the health of it and what's coming up on the back end of things. You know, we haven't really talked a lot in this case about AI yet, but I'm sure that that will be part of the defense, too. So so this is definitely going to be, you know, I take the temperature of the industry type of case. Yeah, I talked to one of the theater owners recently and they made a really interesting point here because they were saying it's not just the market power that the combined Paramount Warner Brothers is going to have in these negotiations for film rental prices.

5:29It's all the others. When you take out a buyer, when you take out a competitor, all of the players get more leverage in these discussions. Disney is probably looking at this and saying, if there are five, six competitors for opening weekends, and then you take one away, we as Disney get more leverage and we can ask for more. So they're looking at this from the broader perspective of how taking out a competitor in the market is going to impact all of their business. Yeah. And that's why a lot of these statistics when it comes to markets measure stuff like concentration and what share of the market a single dominant company has.

6:10Because that has direct impact on their leverage and their ability to dictate terms when it comes to licensing. And you're right. It has some immeasurable effects on some of the other companies that are in the market as well. It makes it harder for lesser companies to come in and get the same. But that's why the merger is also happening, because David Ellison says that he needs scale to compete with Netflix. So it works kind of both ways. This lead lawyer, Jeffrey Weinberger, he's gone up against the lead lawyer for the Paramount Coalition, Beth Wilkinson. They went up against each other in the Microsoft Activision case, and she won.

6:57She got that deal essentially through. And now we could argue about whether that was a beneficial deal or not. But what do you know about this lead lawyer for Paramount, Beth Wilkinson? Fascinating figure. She seems to be now involved in almost every big industry case. She's in the Tenga-Nexstar merger. She's representing Disney in this FCC fight they have with the government. She was involved in the NCAA litigation that led to athletes having much more rights there. She did the infamous Dan Snyder report for the Washington commanders that got him fired. Yeah, I mean, I think her real specialty is trials, though.

7:37And that's why she was brought on board. As soon as Paramount made the decision that they were going to go to trial, they brought in Beth because, you know, she is an expert when it comes to kind of the nuances of handling a trial of, you know, guiding witnesses to testify of cross-examination of procedure and all that. But, you know, they have a slate of many different lawyers and it's - They do. Okay. So I want you to explain to people because they don't really realize this. Okay. Beth Wilkinson, Jeffrey Kessler, David Gelfand, Paul Clement, these are all A-list lawyers and they bring their entire firm and apparatus and 20 different associates with them.

8:22These are all also$2 ,000 an hour,$2 ,500 an hour lawyers. How much is Paramount going to spend per month on this case? It's crazy. Estimate, ballpark. I mean, they're probably spending, you know, 10,$20 million a week on this. I mean, it's just... No, no, no. That can't be that much. But like when I was when I was a litigator, the estimate was you spend a million dollars a month if you go to trial. That was 20 years ago. Right. I mean, they are they are sparing no expense. They've already said they spent one hundred million dollars on legal fees. Yeah. I mean, and it's going to it's going to grow.

9:01I mean, it's it's funny. I mean, just how much legal talent they've amassed for this. It's it's like, you know, you're getting a divorce. You speak to every divorce attorney in town. So you're, you're, you're, you know, soon the BX can't have their own. And it's almost like they're collecting antitrust superstars. Matt, they're almost like your Dodgers bringing in Scoople, you know? It is the Dodgers. They are the Dodgers of antitrust lawyers. And they're going up against the Tampa Bay Rays of the state attorney generals. The assistant attorney general probably makes what? 200, 300 ,000 a year?

9:39Yeah, probably. Maybe a little more, but not that much more. Oh, God. Hilarious. I know. And then there's still no guarantee they're going to win. All right. So I want to talk about the timing here because that's the big issue. You've got this trial set for March. The ticking fees are going to kick in October 1, so$650 million every quarter. You've also got this June 4th deadline. if they don't close this deal by June 4th, our guy David Zasloff at Warner Discovery, he can cancel the deal, take a$7 billion termination fee and figure out what to do next with his company. Maybe go forward with the split that he wanted.

10:23He never liked the Ellicons, never wanted to sell to them. He said that he preferred Netflix from the beginning. Ultimately, he had to sell to the Ellicons because they offered more money. But is David Zasloff sitting there counting the days until he gets to put this company up for sale again? Or is he going to make some deal with them? And he knows that his stock price is going to crater if the deal falls apart. And he's so pregnant with this deal now that he wants it to close and he will get his $800 million. And he will do whatever it takes to get Warner Discovery sold here. I expect he'll get a call before the June 4th outside date comes up.

11:07You know, they'll want to amend the agreement so that they have some more time. The question is really, what's he going to demand for that? I mean, he could at least demand higher ticking fees, less restrictions, you know, maybe a bonus for himself. A bonus for himself. We know that's what it's going to be. Yeah, yeah. He'll get the plane. He'll get some bonus. He'll get his kid's summer camp bought by, you know, some patron of the Ellisons. Something will happen. I mean, the other thing that could happen is that, you know, this just all plays out. And the closer we get into the date, his leverage goes up.

11:46You know, who knows? Maybe we'll see Netflix reenter the picture, like start making noise about how they might reenter bidding. I mean, they couldn't beat Ellison's offer the first time. But, you know, with, you know, the seven billion dollar termination fee difference and the and if it looks like the the the merger is going to be blocked, they can make a credible case that that, you know, it would be, you know, the best fiduciary duty of, you know, David Zaslav to take their deal. So no guarantee, by the way, that the government wouldn't try to block that as well. Oh, yeah, of course. But we're just talking about about David Zaslav's position here and what he might want.

12:30And I expect that that, you know, some of this will be worked out beforehand, before it even gets to June 4th. And because of the delay, are they going to have to go back to some of these regulatory bodies that have approved the merger and reopen the case? There's been some chatter about how in January, February, they will have to file additional paperwork and get and basically re-approve this deal. What's going on there? Yeah, I mean, this was from Paramount's own words. uh you know when they were trying to make the case that this trial should happen in november rather than uh april you know they made the point that if the deal doesn't close by february by i think like the week after uh the super bowl um they have to resubmit their paperwork to to the doj uh and that they have to resubmit paperwork um you know throughout regulatory bodies across the world.

13:27So, so yeah, I mean, there's no, there's nothing to, you know, to lead me to believe that the outcome will be different, but it's just a big hassle for them. And if, if there are political regimes that have changed around the world, who knows, like maybe, maybe they'll, you know, there'll be some minds that have changed. Well, we're having an election in November, right? So the contours of the U S Congress could change. Yeah. And I honestly, I think, uh, That's been one of the under, you know, discussed points. Like, why did Paramount want this trial to happen in November? Well, you know, if you look at, like, what they've been talking about this past week, oh, this is all political.

14:08Well, what is happening in November? The midterms are happening in November. So maybe they thought that we'd get past the midterms and the political temperature were cool and that the states would drop their case. That's one theory that I've been banding about in my mind the last few days. Well, or the Democrats get more power in Washington and are more emboldened to hold hearings or make this a much bigger deal now that they get a little bit of power. Well, I think one of the things that's going to happen is the environment around this merger changes. I almost think that how this is going to play out has less to do with the merger itself and the procedural posture of this case and some of the other stuff that's happening around this.

14:58you know, whether it's the politics and who holds the levers of control, you know, whether, you know, AGs are filling their oats or whether they feel like they need to, you know, step up in the vacuum of less, you know, federal intervention, whether it's, you know, the jobs front, whether it's, you know, the industry's health, you know, the box office, you know, I think that there's a lot of things. Yeah, we've talked about that. Things could change a lot in this industry in six, seven months. And we're also going to get a new governor. I mean, there's been some reporting in the journal that Gavin Newsom, the current governor, doesn't like that Paramount is being challenged here.

15:39But we don't know what Javier Becerra, the incoming likely governor, is going to say about this stuff. Yeah, absolutely. So I think that, you know, basically, you know, not much is going to change in terms of, you know, whether this merger is anti-competitive or not. Yeah, they'll be collecting evidence and going through discovery and all that. But, you know, some of the kind of environment, the weather around this case may change. Yeah. Speaking of strategy, what did you think of Ellison's big New York Times piece, his op-ed, where he paints himself as Mr. Down the Middle, just trying to get his big merger done.

16:17He's going to be a responsible steward of CBS news and CNN and everybody should just calm down and let this deal go through. Yeah, I just don't think it's going to have that much of an impact. Maybe he got tired of, you know, there were some op-eds, you know, going the other way a week or two ago. Oh, yeah. I mean, and he's had his surrogates out there. Yeah. Ari Emanuel, Adam Aaron, our guy. And my take on this is I thought it was smart, you know, to do that, to at least put it out there that that this is, in my view, a political witch hunt. Now, obviously, he created the political situation here by jumping into bed with Trump and going all in on that and sitting next to him at the UFC match and everything that he did that caused the Democrats to be outraged by this.

17:04And what he didn't mention in the op ed is. His actions, since he's owned CBS News, have not been down the middle. He put Barry Weiss in charge of CBS News, and she is an open ideologue. She is very pro-Israel. She has very strong political beliefs that she has espoused both in her New York Times column and at the Free Press. So Mr. Down the Middle has shown himself to be kind of not down the middle in his hiring here. That was not mentioned. I don't know about this strategy. I think that if it is about politics, then maybe the best reaction is to lay low and cool the temperature a little bit.

17:49If it is about politics, though, maybe the strategy is to rile up D.C., the Republicans in D.C., so that maybe they start talking about federal preemption of state AG actions and stuff like that. Well, and if this is all about CNN and you have the state of California and these 11 states trying to prevent somebody from owning a particular news outlet, that's a First Amendment issue. It really is. Like if the, if the government should not be able to dictate who has the power over a news network, right? Yeah. At least for speech related reasons. If there are legitimate antitrust or legitimate business reasons for it, fine.

18:37But if this truly is, this is obviously why he did this op-ed. If this truly is a politically motivated action to prevent a Trump aligned billionaire from owning CNN, that's a, that's a first amendment issue in my view. Absolutely. But there's, you know, I think that, that, you know, CNN and who controls it is, is certainly a factor, maybe a key factor in what we're seeing, but it's not the only factor. And, and so they're playing it up and I, I understand the strategy for, for, for doing that. Um, but, uh, I think that, you know, the States will, will say that this isn't just about CNN. Yeah.

19:18Well, they already have. And, you know, whether that we believe them is another matter. That's for the judge. This episode is brought to you by Accenture. When your advertising operations fall out of sync, campaigns slow down, insights get buried, and opportunities get missed. That's why Spotify and Accenture are working together to reinvent the rhythm of ad sales using automation, analytics, and smarter workflows to simplify campaign delivery and access better data across the business. The result? Less time spent on operations, more time connecting brands with the moments and fandoms that matter most.

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21:17hails it a masterpiece. Lee Sung Jin's series remains an untouchable force. Beef, the most nominated limited series of the year, slash Spotify. All right, so you wrote a piece for Puck this past week about what's going on as we all wait for this to happen, which is everyone in town is in limbo. Everyone's thinking, you know, I've talked to people constantly. What's going to happen to my job? What's going to happen to my company? I see my counterpart at Paramount. I know that that person is aligned with Ellison. They're probably going to take my job. And people are looking elsewhere. And we had Amazon get sued by our guy, David Zasloff, in Warner Discovery because they hired an HBO marketing executive.

22:04And there were others as well. I know they went after Franny, who runs the content at HBO. They went after a bunch of other people. And this, to me, was a warning shot. Don't you dare try to break your contract before this deal closes. We are looking and we will sue if you do that. Yeah, I think that these people tend to be overlooked in the whole process. We tend to think of this as a news story about the merger without necessarily thinking about the people involved. There are people who are working at this company that are wondering whether they will still have a job in a year's time. Of course.

22:48I mean, I hung out with a friend of mine who's a Warner's exec last week, and she was saying the exact same thing. Everybody is speculating as to what's going to happen, and now that we have this delay, it's just like, ugh, more uncertainty. why shouldn't they be able to jump around what is the current state of the law on non-competes and breaching your contract to jump to a rival in california so so this is a it is a really kind of tricky issue because in california it's it's very anti-non-competes it's very uh you know employee friendly it likes the mobility um and but that being said there have been some courts in the in the past few years.

23:31Yeah, the Fox Netflix case. They found that the contract you have, if it's a fixed term and you are an executive at an entertainment company, you have to stick to your fixed term contract. Right, but it can't be a one-sided fixed term contract. It can't just be you have to stay here and we can fire you if you want at some point. So it has to be like a bargain. You're getting security. You sign that deal for four years. You know you're going to be paid for four years no matter what. Some companies have tried to get away with, you agreed to stay here for four years, but we can fire you whenever we want.

24:11And those are not okay. Right, right. So everybody should be looking at their contract today to find out what it actually says. So when it comes to this merger, there's a lot of things going on here. One is that the merger agreement itself, which I pointed out in my Puck story, you know, kind of compels Warner Brothers to enforce these restrictions. They, you know, Paramount believes that it's buying a certain workforce. They don't want everybody with one foot out the door. Exactly. You know, so so if Amazon starts, you know, recruiting and poaching their employees, you're right that this is a warning signal to everyone else.

24:51Don't even dare try to, you know, poach executives from us. I think it's a wuss move. Yeah. I think it's a wuss move. You know what? You know what's also good for keeping employees? Retention bonuses. But it's hard for them to do anything in the midst of this merger because, you know, their future corporate parent is coming in, but they can't exert any control. They can't really adjust too much compensation and all that. So it's a really difficult situation. And I guess one of the reasons why Paramount wanted this trial to happen sooner rather than later was because there are so many people who are wondering about the future.

25:40So that's probably their best point about why things should move. And it sucks for Peter Friedlander at Amazon. on. He's the head of TV and he was trying to build a team and going after great people that are at this company that is just subject to chaos all the time. And he couldn't hire the people he wanted. So he had to promote from within. Yeah. Yeah, absolutely. I mean, I think that everyone should be able to work wherever they want. And then again, you do sign a contract. I don't want to like... You sign a contract with one company, but then another company comes on and there's no guarantee that you're going to, you know, work there in the future.

26:15So at that point, I think, I don't know. There's no loyalty. Everybody will screw you. Get what you can while you can. That is my philosophy. All right. So everybody keeps asking me, and I'm sure you get this all the time. How long is this going to go? What's going to happen? Is there going to be a settlement? Like, give me your state of the case and the posture right now. Okay. Well, you know, like I said, I think that the settlements could kind of turn on stuff that happens, nothing inside the case itself. It could turn on the weather. Right. One thing that I haven't seen many people point out is this integration with the Writers Guild case.

26:58Because let's say the states decide that they will accept a CNN divestiture and they will settle with Paramount and everything like that. well, the Writers Guild case is still going forward, and the stipulation kind of covers them. The injunction covers them. So that really complicates a settlement here. So it's got to be a global settlement that makes the Writers Guild happy too. Yeah, it really does. And so Paramount finds themselves in a precarious position here, because it's getting very late in the calendar. And they have to negotiate with multiple different parties here. But the Writers Guild can't stop a merger.

27:44Well, right now, they agreed to kind of... Oh, they agreed because they agreed to consolidate the cases. Because of the stipulation, they agreed that they wouldn't consummate the merger until five days after a merits decision in both of these cases. Not just the state AG case, but the Writers Guild case as well. So when everyone starts talking about, you know, the states, you know, potentially settling it, what they're missing is the fact that, you know, the writers too have a big say in what's going to happen here. And so nobody should forget them. That being said, it would not surprise me if, you know, there's a settlement down the line.