RESOLVING THE LEDGER
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Another week, another turn of the screw in the Paramount – Warner Bros. Discovery merger — aka David Ellison vs. the creative community. Microdramas may be all the rage in Hollywood, but they've got nothing on what's currently playing out in state attorneys general offices, C-suites and op-ed pages. With a host of players lining up on both sides of the deal and the AG's picking up a major victory this week in their case against the merger, The Hollywood Reporter thought it a good moment for two staffers covering the story, Steven Zeitchik and Alex Weprin, to sit down and talk about it. Steven Zeitchik: Well, it's been an eventful week. The judge basically handed the AGs major leverage by setting the trial all the way in March instead of in the fall, which will cost Par (and gift WB shareholders) hundreds of millions of dollars in penalty fees, I think it's about $7 million per day. This puts tons of pressure on Ellison to make a deal, doesn't it?
Alex Weprin: I think they will need to try and figure out what they can do to get a settlement done. The AGs want structural remedies, and I wonder if there are enough things they could divest to appease them. Basic cable channels? There are ways to do that. Film studios? I'm not so sure. SZ: Ya, I think the question is what the floor is for the AGs and what the ceiling is for Ellison, and do they overlap. I feel like he'd probably be willing to part with a Nick or MTV to get it done since he's really more of a film guy, but would that be enough for Rob Bonta et al? There are also theatrical commitments beyond just words but not sure how that would work. A CNN divestiture would be a big political win but as you've noted the AG's have staked their case on consolidation, not political speech. They can still spin it though as "diversity of voices" or some such. Settlements have a way of healing all wounds. AW: I think Paramount needs CNN more than just about any of the other cable assets — it is simply more profitable and more stable than the other WBD cable channels. The cost savings from merging CBS and CNN could also be significant. If the antitrust case is based on pay-TV channel penetration, they could probably carve out a nice chunk of channels, and maybe just keep CNN and a couple more to keep everything below the limits. SZ: Yeah I can't see Ellison being at all willing to part with it. But how far does he go to fight — does he want a messy trial and billions in shareholder penalty fees or are is he incentivized to make it go away quicker? Would he settle for an ombudsman/oversight board? Selling a minority stake? It's hard to see where there's common ground here, and the AGs are feeling their oats. AW: I think he'd be thrilled with an oversight board, I just can't imagine that would appease the AGs. They may smell blood in the water. And again, cable TV is in many ways easier because the past year has seen spinoffs and sales, so you can imagine how it would work. He wants the Warners film studio, there's no obvious structural remedy there, right? SZ: I don't see how the studio gets taken out of this. Some commitment to a certain number of movies would be the only possible solution but how do you enforce that governmentally and is it even legal? Part of the problem here is that the critics are opposed to consolidation but consolidation is why he's doing this! So I don't see how you make everyone happy. The other chip of course is HBO. That's obviously a huge one for the creative community — the crown jewel and big buyer — and one they would be THRILLED to see not go with Ellison. But is there any way he lets that go? Maybe if he was really, really, in a gun to his head situation. Maybe. AW: I think HBO and HBO Max are the key gaining streaming scale for them, so I think it is a must have for him. The good news for Ellison is that the AG's case is so focused on basic cable that they don't even touch HBO, which would make it an odd chess piece to play. I think that AMC and Regal Cinemas CEOs, meanwhile, are angling for a binding commitment to make a minimum of 30 movies per year for an extended period of time. There is precedent: When Comcast acquired NBCUniversal, they agreed to certain conditions for seven years. SZ: Interesting re: Comcast, I'd forgotten about that. And yeah, the Max+Plus juggernaut is a real selling point for him. Honestly that's the rare case where I think the whole need-to-compete-with-the-tech-guys argument holds water. With the number of subs each has (though there's probably a fair bit of overlap) the combined Max-Paramount Plus really would be a pretty staunch competitor to Netflix, Amazon and Disney+ (and I guess a surging Peacock and Apple to a rather, um, lesser extent). So basically if we had to predict it feels like a few cable channels get spun off and the studio commits to a theatrical floor of some kind and both sides call it a win. Who wins in that scenario? Is the creative community appeased? Should they be? AW: I don't think there's any scenario that appeases the creative community, but selling off a bunch of cable channels (maybe or maybe not including CNN) would be a start, and a binding commitment to 30 films for an extended period would please the theater owners. The issue for writers, actors, etc is that it will still mean one less buyer for their wares, and that is a harder nut to crack. Here's a wildcard: What if they … cut a deal with Netflix? Maybe sell Netflix the film distribution division, one of the WBD sub-studios, some IP? Maybe sell some cable channels to Versant or private equity? SZ: Wow, Netflix coming back in for anything meaningful would be a true — dare I say — Game of Thrones -like twist. It's hard to imagine the creative community being appeased by THAT, since they were even more worried about Netflix than they were Par given the former's anti-theatrical stance. But it would certainly address monopoly/consolidation fears. As for the cable channels to private equity, that would ...
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