Mergers-and-acquisitions specialists weighed in on the Paramount-Warner Bros. Discovery merger Thursday, which appears just days from closing despite an 11th-hour legal hiccup.
The $110 billion deal is on track to close in the next two weeks after a settlement of two antitrust lawsuits on Monday, though a federal judge delayed a hearing where she was due to review the settlement.
Assuming it does finally close, the transaction “is evidence that, really, tech has won,” said David Hernand, a partner at the Simpson Thacher law firm, during a panel at the Financial Times Business of Entertainment Summit. “Tech came in and said, ‘We can build a better mousetrap on the distribution side.’ Distribution – when we’re talking about electronic distribution, whether it’s cable or internet – is moving atoms, and tech companies are really good at that, as it turns out.”
Forced to go up against Apple, YouTube, Netflix, Amazon and others, “the traditional companies that relied on broadcast and cable as a form of distribution are trying to play catch-up and figure out how they’re going to play in this world.”
Hernand’s firm is not involved in the Paramount deal, but two other panelists were stakeholders in the transaction.
Aaron Sobel, a private equity partner at Apollo Global Management, which provided one-third of the financing for the merger, said it will give a traditional player a fighting chance against Big Tech. “I don’t think you can overstate how important getting that deal done was,” he said. “You had two companies that arguably couldn’t have existed without combining, and having someone like [Paramount CEO David Ellison] support the business is huge.”
Prior to the merger, he added, “We were at a crossroads in the industry, where if that deal hadn’t gotten done … Netflix was gonna take over the world. Now, you’re seeing the pendulum really swing back to more traditional media, which is kind of ironic. And David is really betting on IP and what’s in that complex. So the fact that he’s the right owner for that and has the capital, obviously, to support that company, I don’t think you can overstate it.”
Alex Michael, senior managing director and global head of sports and entertainment for LionTree, which advised Paramount on the merger, called it “a big deal, literally and figuratively… It was a big domino that everyone was waiting for, and I think it’ll be exciting to see where we go from here.”
Sobel said the merger will have “so-many knock-on effects” in a positive way, across the theatrical movie business, distribution, production and “global movies and events.” Noting Hernand’s point, he said the deal was “against where the world was going. And I think there’s a lot of really exciting things that will come out of it.”
Netflix, whose chief content officer, Bela Bajaria, spoke just prior to the panel, was the next topic. The streaming giant had agreed to acquire the studio and streaming business of WBD last December. After more than a dozen offers, Paramount finally managed to unseat Netflix with a richer offer for all of WBD.
Netflix “kind of showed their hand by going after Warner Brothers, and with all due respect, look at their share price performance,” Sobel said. “The world knows what’s happening on engagement. If you don’t have really valuable IP, they’re going to shift to more traditional strategy over the next few years,” particularly with live events and sports. Noting that “what’s old is new again” for all players in media and entertainment, whether traditional or tech, he added, “I think a lot more of these companies are gonna look similar, not different.”
Paramount-WBD is far from the last transaction set to reshape the industry. The panel wrapped with a provocative audience question from an NBCUniversal exec who asked the panel what the best path forward for her company would be. Comcast over the summer announced it plans to spin off NBCU, projecting the move will be completed by mid-2027.
Hernand said the company should consider breaking up the portfolio “beyond what they’ve announced, meaning potentially separating NBC from Universal. “The more interesting move there would be combining Universal and Sony,” he added, acknowledging, “I know that would create a lot of outrage in Los Angeles.”
Sobel noted that Comcast Co-CEO and Chairman Brian Roberts and his family control the company, and so-called “controlled companies” are often limited in terms of M&A. If Roberts is “open to be more flexible on how his vote works and his exposure to the business, it should be broken up,” Sobel said. “I would think Netflix and Comcast down the digital and the media side should probably come together at some point.”