What Will It Take to End the Paramount–Warner Bros. Standoff?

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1:30Matt Belloni:It is Monday, August 17th. It's been about a week since I first reported in my Puck newsletter that David Ellison told his key staff he will move Paramount out of California. He doesn't get a settlement with the state attorneys general over the Warner Brothers merger by October 1st. That's six weeks from now. And almost immediately, the topic became pretty much the only thing people in town want to talk about. Everyone has a take. Ellison is either a spoiled brat threatening to collect his toys and run home. I got a lot of that, and you see it a lot online. Or he's doing the only thing left for a guy whose merger has been approved in nearly 70 countries, and he can't even get a meeting with the California Attorney General, Rob Bonta.

2:12Matt Belloni:Something David is just a pawn for his father, Larry, who already moved Oracle to Texas and Tennessee over taxes and regulation in California. Or that Larry is having second thoughts about the whole$110 billion deal and the move is a cost-cutting effort to keep the transaction alive. Lots of movement and rumors and gossip in this debate. Today, Paramount filed a motion demanding that the states be required to put up a huge bond for the order, keeping the merger from closing. It's another escalation of the fight. So we've got Lucas Shaw here to discuss. Today, it's the paramount exodus, question mark.

2:47Matt Belloni:How real is the threat to move the settlement calculus? And what would Ellison need to sell to get a deal done? From The Ringer and Puck, I'm Matt Belony, and this is The Town.

3:01Matt Belloni:Okay, we are here with Lucas Shaw, our normal Monday guy. Lucas, I'm very sorry to report. I hate to have to tell you this on the show, but I'm going to need to relocate this podcast from Los Angeles to Nashville if my demands are not met. How does your family feel about that? I guess I should wait to hear what your demands are first. I am going to need a competent closer for the Dodgers by October 1st. Matt demands the first pick in every box office draft for the next five years. That too. I'm going to need a number one pick so I can get Spider-Man and every year there's a Spider-Man movie. If not, sadly, I will need to move to Nashville for tax purposes.

3:46Matt Belloni:They're offering generous subsidies to take the town to Nashville. Well, you should take it up with Bill, right? Because that probably, I mean, Bill loves a good tax break. He can just relocate a lot of the ringer. Bill Simmons, yes. He would be supportive of this move, I'm sure. All right, I'm joking, but obviously the news of the past week, everybody's talking about this threat that David Ellison has made. He's going to up and take his toys elsewhere if he does not get what he wants, which is a settlement by October 1st of the Warner Mount litigation. now that we've seen all the posturing and all the op-eds and everybody commenting one way or the other do you think that my initial report and the discourse over the past week do you think this has ultimately helped or hurt ellison's ability to get a deal here i feel like you should ask his camp um since i no i don't i mean obviously they're gonna say yes you know nobody was talking about this and there was nothing else they could do.

4:51Matt Belloni:And he was sitting there at a standstill with the state. Right. So they tried to achieve leverage. I get it. Yeah. And now a week later, Bonta has been asked about it on stage at a Politico event. And now Javier Becerra, the incoming governor of California, has expressed his desire for a settlement. We have all the reports about Gavin Newsom, the current governor, wanting a settlement. It's now become this thing that people have opinions about. I think it is hard to distinguish that threat from the larger pressure campaign that the Ellisons have been waging. Okay. Because there was reporting about Gavin Newsom trying to, you know, get involved in this before.

5:32Well, all this stuff has been happening at the same time, I guess, because there was the initial stuff about Ellison threatening to leave came out about a month ago or whatever it was in semifore. I feel like it's tied in with their efforts to lobby different politicians and industry figures and basically say like we need you to try to bring bond to the settlement talks the same stuff with the theater owners that they've done they are trying they're using a similar playbook that they used in the case of the netflix deal where they like they sort of lost something that they didn't think they were going to lose and so then they try to mount an unyielding pressure campaign through friends and allies to get what they want.

6:19Matt Belloni:And publicly. Remember, Ellison put out those statements saying that, you know, you have to deal with us. You know, you didn't call me back. You ghosted me on text. I still think that the Nashville threat does as much harm as good. I don't really think it helps him. How so? Other than villainizing Ellison himself. Right. Because it undermines the deal that he is, the whole rationale for the deal he's proposing. I continue to think... He's positioned himself as the Hollywood savior. As a savior of Hollywood. I want the two studios to live under one banner, etc., etc. Yeah. So I don't think that this helps his case there at all.

7:02I think it also probably feeds into a political narrative that he doesn't like, which is it'll make him again look... conservative because he is railing against these like crazy leftists in California. Even if he is more moderate politically than his father, I think this will, because it is repeating a move that his dad has used, it will kind of more closely align their politics.

7:24Matt Belloni:See, I disagree a little there. I think that the political narrative actually helps because it frames the entire transaction as simply a political fight rather than some of the legitimate concerns about the size of this merged company and the power that it would have. I think Ellison and his allies would rather have the political conversation than they would the antitrust conversation. Yeah, that's probably true. But I'll, because they've been spending the whole time making it seem as this is a political witch hunt and it's all about CNN, even though they have provided almost no evidence of that.

8:03So yes, they might want to have the political argument.

8:07Matt Belloni:Well, the evidence is in the politicians citing that. I mean, people like Elizabeth Warren and even Rob Bonta have talked about the concentration of media power into these Trump billionaires' hands. That, to me, seems like decent evidence that the Democrats don't like this deal because of CNN. I think two things can be true. They cannot like the deal because they feel like it is a Trump-allied figure or aligned figure getting a major news organization, it can also be true that there are aspects of the deal that sort of like would naturally open themselves up to an antitrust review. True. And people always cite Fox Disney, where there was no pushback, really, to that deal.

8:55Matt Belloni:And a lot of the same concerns were there. Not the news concern, which is interesting, but the studio concern was certainly there. Right. But you could argue, couldn't you argue that the result of that deal, which was essentially the elimination of a studio, is one of the reasons why there has been more vocal opposition this time? Yeah. And why some of these interested parties like the DGA and IATSE in their statements have put out certain conditions that I think are the result of what they saw happen with Fox Disney. Right. Because, you know, that it's a good segue into talking about that because the guilds here have had very different positions on this merger.

9:36Matt Belloni:WGA absolutely hates it. Writers Guild, they don't want it. that every opportunity to attack Ellison, SAG as opposed to the merger. But DGA and IATSE put out this letter that essentially gives a path for a settlement in their eyes of what they think should happen. And some of it is the 30 movies a year, the stuff that Ellison has already agreed to. But some of it is stuff that he's probably not going to agree to, like keeping these studios separate and having their back offices still remain separate and making sure that, yes, that they stay in Los Angeles, but also that there's a production commitment, that they make the movies and shows in the U.S., that they want a 120-day exclusive window before subscription video on demand.

10:28Matt Belloni:That's not what Ellison is offering. He's offering 90 days. and they want licensing to happen both inside the studio to third parties and taking content from third parties and running it on their platforms. Seems a little onerous. Well, it's a starting point in a negotiation. Yeah. I think they know that they're not going to get all of those things, but I could be wrong. Yeah, it has been interesting to see unions, movie theaters, all these different organizations sort of divided over how to respond to the deal. And I think that generally you have sort of the average worker being really opposed to it and some of the kind of larger, wealthier entities saying, let's just do it.

11:09Matt Belloni:Although IATSE is the below the line union. I think that was the surprising one. Yeah. Because you would think, because the Teamsters were very opposed. And IATSE has a lot of below the line workers, visual effects artists and people who work on sets and different below-the-line constituencies. I'm surprised they teamed with the DGA on this. Why? Because they are just people who wouldn't normally be aligned? Because the DGA has a reputation as being more studio-friendly. Often, they are the first to settle their deals with the studio. Christopher Nolan, he hasn't said anything publicly, but the president of the DGA is said to be a little bit more, a little bit friendlier with David Ellison and to see, see this, not as the WGA does, which is a threat to the overall industry.

12:06Matt Belloni:It surprised me that those two would align. Yeah, that makes sense. One thing that is absent in any of the DGA and IOTC requests are structural remedies. And that's where this deal is going to get done, right? None of these behavior. Rob Bonta says over and over in interviews that he is not interested in settling this matter just with an editorial board at CNN or with a commitment to release 30 movies a year. He wants divestments. He wants a change to this deal. And I wrote in my newsletter last week that the Ellisons keep saying certain things are not on the table. You know, all of these reports, CNN is not on the table.

12:50Matt Belloni:But at what point do things get on the table that were not on the table? There's no way for the Ellisons to say definitively that they will not sell CNN because they haven't sat down to negotiate yet. Yeah, sure. If they're willing to walk away over CNN. Great. But this is all posturing. We don't know what's on the table yet. Yeah, I mean, agreed. Both sides have spent the last few months posturing trying to. Well, other than the suit itself, of course. trying to maximize the odds of them getting their outcome. And I don't think we know what the settlement can be. We don't even know when Bonta says that there has to be structural remedies, if he really means it, or if he is just doing that to, again, maximize the leverage he has on whatever settlement talks.

13:39The question for him, I guess, because what this has all been about from the Ellison side is getting him to the table. And this will sort of get at the idea of how how strong Bonta thinks his case is. Because if you really believe that the deal is illegal, you have no reason to settle, right? But if you think you're going to win, you say, you know what? I don't care about these international territories. There's no antitrust case in those. These are not big businesses over there. This is all about the US. The federal government didn't do their job, so we're going to go after it. But if he has any doubt in his case, or if he - Well, you always have doubt.

14:15Right, but as a litigator, you always have doubt. There's no sure thing. If he has sufficient doubt plus sufficient pressure, that is what makes him go, you know what? Fine. Let's like figure out what could work.

14:26Matt Belloni:And just looking at this from above, there's sufficient doubt. I mean, maybe not at the trial court, but you get this in front of an appeals court. And the argument that these three markets are distinct markets, there's weaknesses in all of them. You know, they're trying to define the market for theatrical films without including Amazon MGM, Lionsgate or A24. for. They're trying to say that the market for cable channel distribution is distinct from streaming. When you look at the cable distributors these days, they're also distributing the streaming services. You can get Disney Plus and HBO Max with your cable provider without paying extra money in most cases.

15:10Matt Belloni:So the channels there have competition. There's weaknesses in all of these arguments. And then you look at the pressure side and we have this guy's boss. I mean, not technically, but the guy that's about to be this guy's boss, Javier Becerra, is saying that he wants a deal, you know, boardrooms, not courtrooms. I think that what he is saying and what you hear some people say and feel is. I don't like this deal, but I don't think that it will ultimately be found to be illegal if they if it's going to happen it should happen now as opposed to six months a year 18 months two years from now because the longer it gets drawn out the worse it is for everyone you you sort of you you it's it's it's a double loss because not only does the deal end up happening but you weaken both of these companies in the process yeah and that's a narrative that i think is getting out there now there's an op-ed in the la times this weekend who knows if paramount was behind that or not, but this notion that in delay, everybody loses.

16:15Matt Belloni:And we saw that in the Time Warner merger that was held up by the Trump administration for almost two years. And by the time Time Warner closed with AT &T, the streaming wars were over and Netflix had gotten so far ahead that, you know, I don't think AT &T would have been the company to battle Netflix, regardless of when they closed their deal, but it was even harder two years later. And we're seeing that now. I mean, just the decisions that are being made at these companies, they can't, their hands are tied. You know, they've got executives whose deals are about to run out. Casey Bloys' deal at HBO is up next year.

16:56Matt Belloni:Are they going to have to figure out what to do with Casey Bloys before this deal closes? And is he going to want to stick around for that uncertainty? all across the companies they have these problems and it just it it does beg the question what is this combined company going to be even if and when ellison gets it well that's i mean that gets at another kind of fun argument debate in this whole process which is the one that um that aria manual i mean a lot of people have put out there i mean ellison has put it out there for some reason the aria op-ed is stuck in my head about sort of basically if this doesn't happen then these companies will collapse and like we must do this to save the industry right which i don't believe i think warner's could survive both companies could survive there was i you know i there was a really good i forget who um who sent it to me but sort of the argument that like the ellisons bought a really weak company in paramount right and so they had two options and we've talked about this.

18:00They could have chosen to invest a lot of money into Paramount and to stabilize it. And instead of before doing that, they decided to go and swallow something else and thinking that squishing it together. But I think if the Ellisons had adequately invested in Paramount and Warner had had an owner that wasn't just loaded up with debt, both of the companies could have survived. Would they be thriving? Would they be, you know, a bigger streaming service than Netflix? Of course not. But that's not necessarily what they have to be. There's a version of this of HBO Max that is still very profitable and very successful.

18:29Now, if you decide that they're better together, that's fine. But we've also seen this happen a couple of times with Warner Brothers where it gets bought. Someone says, this is the solution and it ends up not being the solution. Now, this is different. Younger guy, lots of money, long-term commitment. So maybe this is finally the correct answer. But we have generally seen that big deals don't tend to solve things. They tend to complicate things.

18:52Matt Belloni:True. Two things there, though. First is, at least from the Paramount point of view, they don't believe that any investment is going to scale the company. Then they probably shouldn't have bought it. At this point in the streaming wars, that Netflix and Disney and Amazon are so far ahead that they could spend hundreds of billions of dollars on content. And yeah, it would raise subscriber numbers. but it wouldn't raise them to the degree that is necessary to compete. Plus, with this deal, they take out one of their competitors. You know, they acquire one of the competitors. Now, obviously, they're not going to make that argument in court, but that's a factor here.

19:37Matt Belloni:They're not going to have to compete against the HBO Max of the world. So that's one. And then the second argument, I think, is, yes, Warner could survive. But the way that Warner Discovery is set up right now and the incentives that its shareholders and board have put in place, it's going to be sold again. I made this joke in my newsletter that David Zaslav is the terminator of getting paid. He will not stop until they find another deal. And yes, he's working on behalf of the shareholders and the shareholders get a big premium in this deal or potentially in another deal. But this notion that this deal falls apart and Warner Brothers is just going to go back to its old self and continue chugging along.

20:24Matt Belloni:No, this entire transaction with Discovery was set up to flip the company to somebody else. They wanted to bolt their dying TV company onto a better asset. I actually don't think that's true. I agree with the second, the first point you were making, which is that, you know, the notion that you can. And I've heard this from people who are like loudly against the deal. They've acknowledged that if you block the deal, you can't just go back to normal. They don't really know what the alternative is. But I don't think Warner Brothers Discovery was set up to just sell it in three years. I think that David Zaslav really wanted to like run the company and be the king of Hollywood and enjoyed that.

21:06And it just didn't go the way he wanted it to. So much as I don't think AT &T bought Warner Brothers Discover or Time Warner at the time to spin it in five years. They had a plan. They tried to execute it. It didn't work.

21:17Matt Belloni:Well, but that's a different company. They're much larger. I do think that they saw where the line was going and that they would eventually need to sell to a tech company, they thought, or maybe combine with a rival. I think that they needed to. I think that it was simpler than that and that they needed to merge with something else to save discovery and hope that they could figure it out. And if they didn't figure it out, they figured they could flip it. But I don't think the intent from the beginning was to flip it. It became clear pretty quickly that the numbers were not working as much as they cut.

21:48But I believe David Zaslav when he tells people that he did not want to sell. That's why he was doing the spin instead of trying to sell it. I think he liked running Warner Brothers.

21:57Matt Belloni:I think he was doing the spin to sell the studio separately. And he knew that Netflix was sitting there at one point that they were going to buy it. But that's separate. Now, Warners could survive, but don't you agree that there's going to be some deal? And that's the element of the anti-merger argument that I've never been able to square, is I'm not hearing alternatives. Their alternative would be let Warner remain Warner. And legally prevent any other buyer from engaging. Well, it wouldn't legally prevent any other buyer. But I also think that I've seen that argument. That's like a total straw man argument.

22:35but um that's only if you believe what that there's no that if paramount can't do it nobody can paramount is paramount basically runs the exact same business a merger of two companies that do the same thing of course there are a lot of other businesses that that would not combine two studios would not combine two bundles of cable networks and we've seen two other bidders already emerge in comcast and netflix i agree that there probably will be some kind of deal even if it's as simple as the spin. But I don't think that this, I don't buy this argument that if Paramount can't do it, nobody can.

23:09Matt Belloni:I agree, but that's separate from the argument that there are no suitors out there. Like there are other companies that would emerge for some or all of these assets, maybe not taking the cable networks, but those could be spun off or bought by somebody else. There's a lot of companies that would like to own HBO Max and Warner Brothers. Yeah. We saw two of them emerge last time. Maybe this time there will be more. Maybe the price would go down because the Ellisons are not in it as a bidder. I think you and I both still believe that this deal is going to ultimately happen and there will be some kind of settlement and it is sort of a matter of when.

23:53But yes, if it got blocked or if David Ellison decided to pack up his tools and go home, I'm sure other people would emerge to buy HBO and Warner Brothers.

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