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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
There is no more heartbreaking moment in a romantic film than when the hero is rebuffed by the object of his affection. “It would be the honour of a lifetime to be your partner,” David Ellison, Paramount chief executive and son of one of the world’s richest men, wrote in desperation after his six proposals were spurned. He soon found out the reason for the silence.
When the distressing news came through that David Zaslav, head of Warner Bros Discovery, had instead agreed an $83bn deal with Netflix, Ellison did not take no for an answer. Paramount launched a hostile $108bn bid for the company that controls the Hollywood studio founded in 1923 by the four Warner brothers.
Warner Bros’ dazzling film library ranges from Al Jolson’s The Jazz Singer in 1927 to the Harry Potter series. The studio has regularly attracted suitors and entered arranged alliances, from the $165bn AOL Time Warner merger in 2000 to AT&T’s $80bn takeover in 2018 and its $40bn merger with Discovery three years ago.
But marriages can be tough after the thrill is gone. That is generally true of mergers and especially true of Warner Bros. Its alliances with both AOL and AT&T were among the most disastrous deals of all time and the Warner Bros Discovery merger has fallen apart. Zaslav planned to break up the company before Ellison intervened.
Warner sits near Hollywood’s pinnacle, enticing media and technology companies that run out of other ideas for growth. It promises much, but the reality is often a let-down. “I lost 80 per cent of my worth and subsequently lost my job,” is how Ted Turner, founder of Warner’s CNN news network, once summarised the AOL merger.
Much of the corporate and personal value destruction has come from bitter culture clashes after the deals closed when public commitments to partnership foundered in practice. This time, Hollywood’s producers fear that Netflix would erode cinema releases and further curb profit-sharing. They view Paramount with suspicion because of Ellison’s courting of Donald Trump.
It is surprising for Netflix to take this risk, since it became an entertainment colossus largely on its own, rather than with takeovers. Greg Peters, co-chief executive, conceded this week that other Warner mergers had failed, but claimed it was often because the acquirer was an outsider to Hollywood: “They didn’t really understand what they were buying.”
The latest excitement about Warner is undiminished by experience. Zaslav is assured a higher price than in the 2022 deal, although Warner Bros Discovery had to write down the value of its television networks, including CNN, by $9.1bn last year. Wall Street expects a bidding war, and Netflix’s share price has fallen on fears about its exposure.
As with any hostile takeover battle, there is plenty of entertainment in the mudslinging going on behind the scenes — and sometimes in public — as suitors burnish their credentials and denigrate each other. “There will be no more competition in Hollywood if this deal is allowed to come to pass,” Ellison warned darkly on CNBC about the prospect of Netflix gaining Warner.
Netflix clearly has a challenge in getting its deal past antitrust regulators. It has more than 300mn streaming subscribers and would far outstrip competitors such as Disney+ by adding Warner’s HBO Max. It counters by citing its lower share of US television viewing time, a measure that puts YouTube top. Trump has said its streaming strength “could be a problem.”
Paramount’s difficulty is that $24bn of the $41bn equity for its bid comes from Saudi Arabia, Abu Dhabi and Qatar, although the Gulf state funds have relinquished governance rights. This has been backstopped in case of trouble by the Ellison family — David Ellison’s father is Larry, founder of the software company Oracle — and RedBird Capital, a US investment fund led by Gerry Cardinale.
David Ellison has no doubts: the $8bn merger of his Skydance production company with Paramount was only completed in August, and he immediately started chasing another studio. Netflix is similarly full of self-belief. “We’re not experts at doing large-scale M&A but we’ve done a lot of things historically that we didn’t know how to do,” Peters remarked disarmingly.
Cardinale dismissed any funding concerns about Paramount’s bid as “laughable” when I spoke to him this week, given that it is backed by Larry Ellison’s $250bn fortune. “This is the first time since Walt Disney that a family has controlled one of the major Hollywood studios. It is back to the future,” he said.
But the future is not simple. Whoever wins the hand of Warner Bros must put their plans into practice with the people who run its brands and networks. That is where previous efforts to make Warner live up to its shining promise fell through. Hollywood is a network of relationships and personalities who are very hard to please.
Taking over Warner Bros is always dangerous. In the studio’s 1971 film Dirty Harry, the detective played by Clint Eastwood points his gun at a criminal. “You’ve got to ask yourself one question: ‘Do I feel lucky?’ Well, do you, punk?’’ he inquires. Netflix and Paramount might ask themselves the same.