Paramount Skydance outbid Netflix for Warner Bros. Discovery, but the Hollywood-shaking agreement isn’t a done deal.
WBD had planned to sell its studio and streaming assets to Netflix. Paramount wouldn’t give up its pursuit of WBD, including its cable networks, however. After 10 offers, WBD’s board finally said Paramount’s latest bid was better, and Netflix decided to bow out.
Still, Paramount and its CEO, David Ellison, need regulatory approval in the US and abroad, which WBD CEO David Zaslav told employees could take six to 18 months, Business Insider reported.
In the meantime, everyone from actors to zealous fans of TV and movies has questions about the deal. Business Insider set out to answer them by hosting an Ask Me Anything Q&A session on the r/MediaMergers subreddit.
Below are some of the top questions, along with Business Insider senior reporter James Faris’ answers, based on reporting, company statements, and informed analysis. The Reddit Q&A has been edited for length and clarity.
What are the biggest risks to this deal collapsing? Also, what are the chances it will spill into next year before closing (if it does)?
The biggest risk to the Paramount-WBD deal now is regulatory. David Ellison and his father, Larry, the billionaire Oracle cofounder helping backstop the $110 billion deal, certainly aren’t backing out. And neither are WBD shareholders, since they’d lose a lot of value if they didn’t take this deal with Netflix out of the picture.
As far as the timing, WBD’s Zaslav told staffers during a town hall last Friday that the Paramount-WBD deal approval process could last six to 18 months.
Paramount has agreed to pay a so-called “ticking fee” of $0.25 per share, or about $650 million, every quarter that its deal doesn’t get regulatory approval, starting on September 30.
Is this deal going to be held up in court?
While many analysts and insiders expect the US regulatory process for this deal to be relatively painless, Paramount may face harder challenges at the state level and abroad, including in Europe.
Even if regulators don’t block the Paramount-Warner deal, they could slow it down, costing the Ellisons time and money.
What is the biggest financial risk that the Ellisons are taking on?
The biggest risk here is that the combined Paramount-WBD doesn’t grow earnings fast enough and gets crushed by the massive debt load it’s taking on. (This was also an issue faced by WBD.)
Paramount-Warner will have tens of billions in debt it must pay down, in part by cutting costs, as WBD did. However, growing earnings is also crucial, and it’s very difficult to “cut to growth,” so that’s a challenge ahead of Ellison.
Was it ever an option for Warner Bros. to remain independent after the potential split with Discovery? Alternatively, was there an attempt to sell Discovery to Paramount while Warner Bros. maintained its independence?
No, there was never a realistic plan for Warner Bros. to be independent, since it controls the highly coveted studio and HBO assets that Paramount, Netflix, and Comcast were fighting over.
WBD’s cable networks would have become their own company if Netflix had won the bidding war, since the streaming giant only wanted the studio and streaming side.
Paramount, on the other hand, wanted to buy all of WBD before it broke itself apart.
WBD was formed when Discovery CEO David Zaslav believed that joining forces with Warner Bros. would create a media powerhouse. He took on a ton of debt and promised investors billions of dollars in cost cuts and earnings growth.
WBD’s revenue declined instead of growing, and its stock sank. Zaslav then tried a different strategy by formulating a plan to split off the company’s declining cable TV assets.
As a public company, WBD had to sell itself to the bidder the board believed would deliver the highest value to shareholders. WBD was worth about $10 per share before all the split-and-sale rumors began. So when someone eventually offers to buy the company at $31 per share, the board essentially has to sell.
What are they going to name the new company? Warner Skydance ParaBros? Mount Discovery sounds like a mouthful.
Ellison hasn’t said yet, but there are four names between the two companies: Paramount, Skydance, Warner (Bros.), and Discovery.
If I were Ellison, I’d call the new company “Paramount Warner.” I get the sense they want to make Paramount a household name, and Warner is what many call the WBD assets anyway.
And if Ellison wants to keep the Skydance name alive, the official company name could be: “Paramount Warner, A Skydance Corporation.”
Do you think the studio is viable? Or will it be sold off again in a few years?
Paramount has said that it’s planning to keep Paramount Pictures and Warner Bros. Studios brands separate, with an ambitious goal of producing a combined 30 movies a year.
As to whether there will be another sale in a few years, that will likely depend on whether Paramount can successfully grow earnings while paying down the debt load it’s taking on.
That’s no easy task — just ask WBD.
Netflix has been the clear winner of the streaming wars. Does this deal change its strategy at all?
Netflix is also widely seen as a winner in this deal since it’s collecting a $2.8 billion breakup fee, while driving up the WBD purchase price for an emerging rival.
Netflix could invest that money — and the tens of billions it was planning to put into Warner Bros. — into original and licensed content.
While Paramount-WBD tries to play catch-up in the fight for engagement, Netflix is looking to extend its lead over other paid streamers. Netflix also wants to close the gap with YouTube and take attention from free streamers and social media apps like TikTok and Instagram.
And if in a few years the Paramount-WBD deal doesn’t work out, Netflix could potentially swoop in and buy assets.
Do you think Zaslav and other WB officials are annoyed that Netflix bowed out? It seemed like they wanted Netflix, but Ellison finally raised his bid.
Before WBD floated its split plan last December, the stock was trading around $10 per share. Paramount has agreed to pay more than 3x that amount.
So while the purchase price could have gone even higher if Netflix decided to bid again, WBD execs can’t complain about the hundreds of millions of dollars they’re set to rake in.
Both studios have a lot of movies that are in development. What are the risks to those movies? Are TV shows more at risk compared to movies?
In the near term, not much, since this deal won’t close anytime soon.
The bigger question is whether Paramount-WBD will spend as much on content as company leaders have said they would.
What’s going to happen to the studio lots? Will they work from both or consolidate to one campus?
Ellison highlighted the combined “real estate footprint” as one of the five main areas of cost savings in the WBD deal, so offices will definitely get consolidated.
As for the lots, that’s still an open question. If one studio lot goes up for sale, would Netflix be a buyer?
What kind of involvement does Saudi Arabia have? Will there be any concerns about the content side?
My colleague Peter Kafka has been asking that question. Saudi Arabia, Abu Dhabi, and Qatar were financial backers in earlier versions of Paramount’s bid, but Paramount won’t say whether they’re still involved.
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