Paramount-Skydance to Acquire Warner Bros. Discovery, Netflix Steps Back

One side wanted it more—almost $28 billion more. The endlessly long and hectic process it took for Skydance to finally merge with Paramount took another turn with Netflix pulling out of its agreed-upon deal to buy Warner Bros. Discovery, paving the way for Paramount Skydance to absorb the entirety of Warner Bros. Discovery.

The Numbers Game

Netflix essentially offered $82.7 billion for just the Warner Bros. Discovery film and TV studios arm and HBO Max [1], while Paramount-Skydance, after its best and final bid, is going to pay $111 billion in cash to buy all of WBD [1]. Netflix had four days to decide if it wanted to match that offer, and it didn’t even accept four hours to decide to walk away [1]. With NFLX’s stock price falling as shareholders questioned the value of buying a legacy studio, pressure had been mounting on Netflix since the deal was announced in December. Netflix stated that while WBD was a “nice to have,” it never considered WBD a “must have at any price” [1].

Paramount-Skydance’s Pursuit

Paramount-Skydance and David Ellison clearly felt differently. The deal is a seismic turn of events for Hollywood. While some were wary of a disrupting company like Netflix taking over a studio with 100 years of history, Netflix was vowing to make Netflix, Warner Bros., HBO, and Warner Bros. Television distinct entities and keep things largely as they’ve been. It was suddenly talking the talk on movie theaters and touting the success of Warner Bros. At the box office and the Oscars. CEO Ted Sarandos had talked about the deal as though it were a “vertical merger” between two “complimentary” businesses, keeping around the internal film and production capabilities and the theatrical distribution, while using HBO Max to expand what Netflix could offer its subscribers [1].

What Does the Paramount Deal Mean?

The Paramount deal raises a lot more questions, many that Ellison will attempt to answer in the coming days and months as he unveils his vision for WBD. The immediate feeling is that this deal is less like Amazon absorbing MGM but Disney absorbing Fox, combining two legacy studios with similar businesses into one. It could mean fewer movies and shows in the long run, just as Disney and Fox went from producing roughly 30 movies a year separately to now closer to 20. Paramount has said it intends to keep the volume up, but that’s a tall task for any studio no matter the size. With multiple TV arms, dozens of cable channels, five streaming services between the two companies (HBO Max, Paramount+ with Showtime, Discovery+, CNN All Access, Pluto), a larger sports portfolio, CBS News and CNN, and two LA-based studio lots, there’s a whole lot of overlap now between the two that needs to gain sorted.

Regulatory Hurdles and Financing

The biggest question hanging over the last two months of uncertainty with Paramount’s hostile takeover efforts was Paramount’s assertion that it would be able to get a merger past regulatory scrutiny more easily than Netflix would [2]. Netflix would’ve had a combined 400 million SVOD subscribers with the WBD merger, raising big antitrust concerns about the number of streaming options available to consumers. David Ellison’s father Larry Ellison, one of the richest men in the world, is guaranteeing the deal’s financing and is likewise close with President Trump, so the anecdotal belief is that he would have a better chance getting the stamp of approval from the Trump administration than Netflix would [2]. WBD shareholders needn’t worry regardless, because Paramount as part of its latest deal has agreed to kick in even more money for every quarter beyond the end of September that this deal doesn’t close [3].

Layoffs and Cost Savings

Paramount-Skydance began laying off roughly 2,000 employees between the merged companies as part of what would wind up being $3 billion in cost savings [1]. Ellison said he saw roughly $6 billion in potential cost savings within Warner Bros. Discovery. Paramount as of its most recent 10-K SEC filing disclosed that it has 17,600 employees, down from as many as 24,500 just three years earlier. Warner Bros. Discovery has somewhere in the range of 35,000 employees. There’s a lot of other areas where Paramount can find savings, but it’s safe to say there’s going to be a lot of layoffs. You now have employees doing similar jobs at two film studios, including production and distribution, you have employees at similar cable channels like Cartoon Network and Nickelodeon, duplicative international arms, marketing teams, administrative personnel, and so much more. When Disney acquired Fox, up to 4,000 people lost their jobs. This could be a similar bloodbath.

The Future of Brands and Streaming

WBD CEO David Zaslav proudly touted that it has an industry-leading 30 Oscar nominations this year at the Academy Awards. Paramount has zero nominations this year. The WB Pictures brand is clearly valuable, as is the studio’s incredible library that Paramount will now control of everything from Harry Potter, “Lord of the Rings,” DC, “Friends,” “The Conjuring,” and so much more. But would Paramount continue to distinguish between WB films and Paramount movies, not to mention New Line, DC, and Warner Bros. Animation that each have their own separate leaders, or would it be much like how Disney has turned the 20th Century Studios banner into just a label?

Paramount+ just revealed that it has 79 million subscribers globally, while WBD said that between HBO Max, Discovery+, and the linear HBO, it had 131.6 million streaming subscribers [2]. In terms of content and subs, it might seem like a no-brainer that HBO Max, with the brand name as well, would be kept around and is the superior streaming option. It would not be a surprise if HBO Max didn’t survive.

Cable Channels and CNN

WBD has been in the process of spinning off its cable channels, something that would’ve set up Netflix to buy WBD but depart behind the part of the company that has been dwindling in value. Paramount put a kibosh on that and will now own its own big network of cable channels along with all of WBD’s. Those include TNT, TBS, Turner Classic Movies, OWN, HGTV, Food Network, Discovery Channel, TLC, Adult Swim, and of course CNN that now join MTV, VH1, BET, Nickelodeon, Comedy Central, Paramount Network, and more.

It’s hard to ignore the narrative online that buying WBD was a means of acquiring CNN and putting its stamp on the news network prior to the mid-term elections.