Blueprint: Who Controls Hollywood After the $111B Merger

Reid Mercer: Boop, boop, boop. Grant: Welcome back to Blueprint, everybody. I'm here with Grant and oh man, today's episode is one for the books. Speaker 3: Hey, Reid Mercer. Yeah, big week, like genuinely big. Grant: So get this, WBD shareholders approved Paramount's $111 billion acquisition. According to Fortune, the vote took roughly 10 minutes, 10 minutes. Speaker 3: 10 minutes for $111 billion? Grant: For $111 billion, David Ellison just added HBO, CNN, Warner Bros. and CBS to his collection. Speaker 3: Wow. Grant: All of it. Speaker 3: And then, get this, shareholders turned right around and voted against Zaslav's exit package, up to $887 million, Grant: which is adorable because it's a non-binding vote he collects anyway. Speaker 3: I love a symbolic rebuke. Grant: But wait, there's more. Five Paramount Plus subs file the private antitrust lawsuit trying to block the whole thing. Per The Hollywood Reporter, DOJ still reviewing, California AG still circling. Speaker 3: So the shareholders said yes, the lawyers said hold on, and the regulators said maybe? Grant: Basically, meanwhile, Deadline reports SAG-AFTRA just locked a four year deal with the AMPTP, WGA done, DGA sits down May eleventh. Speaker 3: Three guilds, three deals, no strikes. I'll take it. But the question is whether those AI protections actually mean anything. Grant: That's the whole debate, and we're closing on what a three studio Hollywood means for the people not in those boardrooms. Speaker 3: Independent filmmakers, mid-budget productions, the people we actually care about. Grant: Okay, let's get into it. Studio consolidation is up first. Okay, so get this. April 23rd, a virtual shareholder meeting. The vote lasted about 10 minutes, and just like that, David Ellison now controls HBO, CNN, Warner Bros, DC, CBS, Paramount Plus, Nickelodeon, and around 59 cable networks under one roof. Speaker 3: Ten minutes; I'll spend longer picking a sandwich! Grant: Right; but here's what that vote actually means, number wise: according to Fortune, WBD shareholders approved selling the whole company to Paramount at thirty one dollars a share, including debt the deal is a hundred and eleven billion dollars! Speaker 3: And that thirty one dollars is the number to hold on to. Per the proxy statement, WBD's unaffected stock price was sitting at twelve dollars and fifty four cents. sent before all this started. So that's a 147% premium. Grant: Wow. Speaker 3: Shareholders who've been underwater for years just got paid. Grant: Yeah, yeah, yeah. And Paramount had to fight for it. This was a months-long bidding war, mostly against Netflix. Netflix had its own deal on the table, but when Paramount went to $31 a share, Netflix walked, and they didn't walk empty-handed. Speaker 3: The $2.8 billion breakup fee. Paramount covered with WBD-NETWORKS for terminating their agreement. CNBC confirmed the payment, so Ellison wrote Netflix a $2.8 billion check just to clear the runway. Grant: Must be nice. Speaker 3: I mean, Netflix ends up with $2.8 billion in cash and none of the cable debt. That's not losing a bidding war, that's winning a different game. Grant: So what does Ellison actually have now? According to Variety, it's CBS. Paramount Plus, HBO Max, Warner Bros Film Studio, CNN, DC, Nickelodeon, two newsrooms, two major streaming platforms, targeting a Q3 2026 close, assuming DOJ signs off. Speaker 3: That's the variable nobody can price. The DOJ antitrust division acting head already said the deal won't get fast-tracked for political reasons. And there's a subscriber class action filed in California federal. The federal court, per the Hollywood Reporter, arguing the merger will reduce competition and spike prices. Grant: So we've got a shareholder vote in the 'Yes' column, but DOJ still pending, European regulators still reviewing and active litigation. Speaker 3: Right. The vote clears one hurdle. It doesn't close the deal. And here's the thing that I keep coming back to: the same shareholders who just said yes to this merger in the same meeting also voted on something else entirely. Grant: Oh, you're going to love this part because the answer to who actually gets paid in this deal is more complicated than it looks. What does it cost to hand someone the keys to two studios and two streaming services? So, same meeting, same shareholders, same ten minutes, and then they turned around and voted against Zaslav's exit package. Speaker 3: Which is where the story gets genuinely interesting. Grant: Okay, so get this. According to Variety and Deadline, the full package lands at up to eight hundred and eighty seven million dollars. That's thirty four point two million cash severance. 517 million in equity and up to 335 million the company agreed to pay to cover his IRS excise tax bill. Speaker 3: That last piece is the one that broke people's brains. ISS, one of the biggest proxy advisory firms out there, called it one of the highest golden parachute estimates ever observed. They called the tax reimbursement problematic specifically. Grant: Problematic, that's the polite version. Speaker 3: Right. Glass Lewis went further, called it a considerable and unnecessary cost to shareholders. But here's the thing, Reid Mercer, and this is my institutional finance background talking. The vote is non-binding. Board can pay it anyway. That's just how say-on-pay works. Grant: So shareholders literally voted no and Zaslav collects. Speaker 3: Yep, the rebuke is real. The check is also real. Grant: Democracy In Action Speaker 3: Look, I'm not defending it, but this is the pressure valve versus the actual veto problem. Grant: Uh huh. Speaker 3: Advisory votes let shareholders register displeasure; they do not stop anything. Grant: What kills me is the timing. Deadline noted the tax gross up was added to Zaslav's contract on March tenth—thirteen days after the Paramount deal was announced on February twenty seventh. Speaker 3: Thirteen days! Very subtle. Grant: Glass Lewis made that exact point: they said shareholders never had a real chance to weigh that provision before the deal was structured around it. Speaker 3: And the wild card? If the deal closes in twenty twenty seven instead of this fall, that three hundred Reid Mercer: $135 million tax reimbursement drops to zero under IRS rules, Grant: So the regulatory clock is literally costing Zaslav money by the quarter. Reid Mercer: which is a good segue, actually, because if shareholders couldn't block the payout, the question becomes who can block the deal itself? Grant: And that answer runs straight through the DOJ, a handful of state attorneys general, and a California federal courthouse. More on that. Reid Mercer: That's exactly where we're headed. Grant: So the shareholders said yes, the lawyers immediately said hold on. Reid Mercer: Fast turnaround. Five Paramount Plus subscribers filed a private antitrust suit April 30th in Northern California federal court. They're arguing Section 7 of the Clayton Act, arguing the deal reduces competition across streaming, theatrical distribution, and national news. Grant: Streaming theaters and news, that is a wide net. Reid Mercer: It is. And look, Paramount called it without merit before the ink was even dry. Private antitrust suits rarely win outright, but here's what I think they actually do. Grant: Pressure valve. Reid Mercer: Exactly. They slow the clock. They keep the DOJ and state AGs politically uncomfortable, and the Clayton Act's triple damages provision gives plaintiffs real financial leverage if they survive a motion to dismiss. Grant: Meanwhile, Reuters reported the DOJ sent subpoenas and subpoenas back in late March. Studio output, content rights, streaming competition, movie theaters, all of it under the microscope. And as of right now, clearance is still pending. Reid Mercer: Brother Reid, Reid Mercer, you don't actually buy that, do you? The Trump administration has been openly friendly with the Ellisons. There's a reason state AGs aren't waiting around. Grant: Oh, I'm aware. California AG Rob Bonta has an open investigation. Speaker 3: He's already on record saying these two haven't cleared scrutiny and his office intends to be vigorous. The theory from the state AGs is basically if the feds wave it through for political reasons, we step in. Reid Mercer: And that backstop strategy has real teeth now. The Rap pointed out state AGs just beat Live Nation on monopoly grounds after the DOJ settled. They have a playbook. Speaker 3: Fair point, though winning outrights and forcing a ban- The behavioral remedy are two very different outcomes. California got T-Mobile to hold headcount for three years after failing to block that deal entirely. And Paramount baked in a $7 billion termination fee payable to WBD if regulators kill the deal, plus a $0.25 per share ticking fee for every quarter past September 30th without a close. Grant: $7 billion. That is Paramount saying out loud. Reid Mercer: We think we clear this, and if we're wrong, here's the insurance policy. Grant: Which is either confidence or hubris, depending on what Rob Bonta does next-and speaking of what happens after it clears, the abstract antitrust arguments are about to get very concrete. Reid Mercer: You mean what actually lands in subscribers' laps. Paramount Plus and HBO Max becoming one service-that's the next question. Grant: So here's where the abstract gets concrete: two streaming services, one roof. And zero clarity on what that actually looks like for subscribers. Right, so Ellison confirmed on an investor call back in March Paramount Plus and HBO Max are combining into a single platform, over 200 million direct-to-consumer subscribers on paper. Reid Mercer: On paper being the key phrase. Antenna's research Research puts U.S. overlap at seven point six million people already paying for both. Those aren't additive subs, they're duplicates. Grant: Yeah, you're not doubling the audience, you're just reorganizing it. Reid Mercer: The revenue number is what I keep coming back to. The combined streaming entity would sit around seventeen point nine billion dollars annually, third by revenue behind Netflix and Disney. That's legitimately significant, but does third by revenue actually let you compete with Netflix? Honestly, not necessarily. Scale gives you pricing leverage, not programming budget. Those are different things. And the subscriber lawsuit is making exactly that argument. The Hollywood Reporter covered it. The plaintiffs say the combined platform raises prices and reduces output, both at once. Paramount's counters that scale creates a stronger Netflix competitor. It's competitor. Grant: Here's the thing, though. Both can be true. Short term, you probably get a price hike. Long term, maybe you get a better funded platform. The timeline matters. Reid Mercer: I push back a little. The debt load on this combined entity is projected at around $79 billion. You can't carry that and dramatically increase content spend at the same time. Grant: So the Netflix competition argument has a math problem. Reid Mercer: problem-a pretty serious one-and the pricing strategy is already moving that direction; Paramount+ raised prices in January before the deal even closed. Speaker 3: Ahead of schedule with the subscriber revenue extraction. Got it. Reid Mercer: And look, what nobody knows yet-the brand name, the pricing tiers, which content libraries survive the cut-Ellison said HBO stays HBO, operates with Grant: Yeah. Reid Mercer: independence, but that's a vibe, not a contract. That's a vibe, not a contract should be the tagline for this entire deal. Honestly, and the people whose contracts actually are up for negotiation-the writers, directors, and actors-their deals get bargained against a buyer pool that just shrank again. Which is where this story goes next. Grant: Shifting gears to labor, and this is where the merger story hits the ground floor: the DGA officially opens talks with the AMPTP today, May eleventh. Contract expires June thirtieth. Reid Mercer: And they're walking in with two finished deals already on the table: WGA ratified a four-year contract at ninety percent approval according to Deadline; SAG-AFTRA wrapped up May second. Pattern bargaining is basically set. Grant: Right. and WGA negotiating chair John August told The Wrap to The Wrap: "The companies came ready to talk on day one." That's a direct contrast to 2023, when 191 combined strike days happened partly because the AMPTP wouldn't even discuss AI at the table. Reid Mercer: So to you, that's the studios learning their lesson. Grant: I mean, kind of. The speed is real. WGA wrapped in three weeks. That's genuinely fast. Reid Mercer: Wow. I'm on both sides a little bit. Coming to the table fast is different from changing the conditions that created the last strike. The DGA's own health plan has run negative for two years straight. That's not fixed by a handshake. Fair. Grant: And Chris... Reid Mercer: Christopher Nolan, who's literally running the DGA right now, told Deadline he doesn't think a five-year deal is realistic. His exact framing, if they'd agreed to five years in March 2020, where would they be today? Grant: Guy makes Oppenheimer, then asks the best negotiating question of the cycle. Reid Mercer: Honestly. But here's the thing, Grant: the DGA negotiated a seventy six percent bump in foreign streaming residuals in twenty twenty three, then an additional fifty percent residual boost for the most watched titles after the strikes. They enter this table with real leverage from that baseline. Grant: Sure, but here's what I keep coming back to. The WGA deal includes AI notification requirements if studios license writer scripts for training according to Deadline. headline: notification, not prohibition. The DGA and SAG-AFTRA will push further, but the floor is still pretty low. Reid Mercer: And that's the collision point with everything we've been talking about today. You're bargaining AI protections, but the buyer pool just shrank. Three buyers instead of five or six means less competition for your leverage. Grant: Right. A good contract with fewer employers is still fewer employers. You win the negotiation. and lose the structural argument. Reid Mercer: And that structural argument? It doesn't just hit Gilts. You ready? Because what consolidation actually does to the people making the content, the indie producers, the mid-budget films, the genre diversity, that's a whole other level. And that buyer pool shrinkage you just named? Here's what it looks like on the ground: Variety reported the open letter opposing this merger hit four thousand one hundred ninety four signatures. De Niro, Sofia Coppola, Denis Villeneuve, Florence Pugh, over seventy five Oscar winners. Grant: And the argument isn't just jobs. It's about who can greenlight. Fewer studios means fewer decision makers, full stop. Reid Mercer: That's the number that actually matters, not the subscriber count. THE GREEN LIGHT COUNT Grant: Right; and Ellison's asset to that is his thirty films a year pledge, fifteen from each studio," he said it at CinemaCon, said it on Ernie's call. Reid Mercer: Okay, but here's the math problem: Warner Bros. released eleven films in twenty twenty five; Paramount released eight; together that's nineteen. He's pledging thirty. Grant: T.D. Cowen's analyst Doug Creutz said the historical max out of any studio is around 20 a year. Studios with the funds to do 30, like Disney and Universal, don't, because it's not profitable. So Reid Mercer: he's promising something that even well-capitalized studios actively choose not to do. Grant: And you're carrying $79 billion in debt while doing it. So even if you believe the number, the subscriber lawsuit of the Hollywood Reporter. The report it covered makes the specific point: the combined slate still means fewer green light seats at the table than before consolidation started. Reid Mercer: Which is where I land: you can call thirty films a correction, a leaner slate, whatever, but you went from two studios deciding what gets made to one; that's not lean, that's a permanent seat removed from the table. Grant: I hear you. My counter-argument is that marginal projects that only got funded because of competition... Between two desperate studios probably shouldn't have been funded. The mid tier creative film maker who loses out may not be losing a great opportunity. Reid Mercer: But you're describing the middle class of creative work as if it's dead weight-the mid budget film, the documentary, the prestige drama, that's the training ground: you lose the training ground, you eventually lose the tent poles. Grant: That's a fair point; I just think the correction was coming regardless. Reid Mercer: So the two variables that decide how much of this stick? Sticks, the DOJ clearance, and the DGA talks that open May 11th, one determines whether the consolidation goes through at all, the other determines what the terms are for the people working inside it. Grant: And right now both are genuinely open that's not nothing Reid Mercer: Okay, so that's a wrap on a pretty wild episode. Grant: I mean, you don't cover a ten minute shareholder vote that hands someone control of half of Hollywood every day. Reid Mercer: Right, and the Zaslav pay vote was the moment for me. Shareholders said no, loudly, and it changed absolutely nothing. Grant: The rebuke is real, the check is also real. That's the whole ballgame. Reid Mercer: Pretty much sums it up. Look, here's my one sentence read on all of this: The industry is consolidating faster than anyone's figured out Figured out the plan for what comes after. Grant: And whether that's a correction or permanent damage to the people who make the actual stuff, well, that's the argument we'll be having for a while. Reid Mercer: Yeah, and we want to hear where you land on it. Email us at blueprint at hey matto.com or tag us on social. Grant: New episodes every Tuesday. If this one made you think, send it to a colleague. Reid Mercer: Thanks for being here. Grant: Always read Mercer. See you next week. Speaker 3: Oh