Last week, Warner Bros. Discovery (WBD) announced plans to sell Warner Bros. Pictures, DC Studios and streaming service HBO Max to Netflix, following a bidding war that also ended with a hostile takeover bid by Paramount. The planned sale would create a mammoth streaming and production giant with intellectual property rights to beloved franchises including Batman and Harry Potter. It’s also sure to draw scrutiny from antitrust enforcers at the Department of Justice (DOJ).
Is this a step toward more viewer-friendly competition, or toward entertainment monopolization? What about Paramount’s bid? Even President Trump is concerned about the situation. But the answers aren’t obvious.
The merging parties argue that Netflix subscribers could benefit from an expanded content library and bundled services with HBO Max at lower prices. They also expect “at least $2-3 billion of cost savings per year by the third year” and combined resources that could foster more content and allow for bigger creative risks.
Importantly, the deal could create a stronger competitor against other diversified media giants including Amazon and AppleTV, which are subsidized by their respective e-commerce and mobile/computing platforms. Recent antitrust verdicts recognize the importance of such scale for competitiveness in digital markets. A 2023 U.S. District Court decision approved Microsoft’s merger with gaming studio Activision Blizzard, as it allowed games to reach a wider audience while creating a stronger competitor against market leader Sony.
Disney+ recently announced a foray into AI tools allowing users to generate and share their own content using proprietary characters and worlds. Combining Netflix’s user-targeting algorithms with WBD’s intellectual properties could create a comparable alternative. The new company may develop AI models and tools without risking the types of copyright infringement claims that have already ended in expensive settlements and licensing deals.
Yet there are potential concerns. Netflix is known for exclusive content and disfavoring theatrical releases outside of narrow, award-show-timed windows. WBD is America’s third-largest theatrical content supplier and shares content with other streaming services. Netflix could presumably restrict content for both rival streaming services and theaters and possibly raise prices without losing customers.
All of this is speculatory. The merger violates antitrust law if it’s likely to lead to less quality and innovation or higher prices, and if these harms to consumers won’t be offset by benefits — subject, of course, to the interpretation of enforcers and judges.
The DOJ would find it easier to block the merger if it can persuade a court that Netflix-WBD would corner 30% of its market, making the deal presumptively anticompetitive and forcing the companies to rebut this claim.
Expect enforcers to define a market of “video-on-demand” subscription streaming services, including Amazon, Hulu, HBO Max, Netflix, Paramount+, Disney+, Apple TV, Peacock and others. Based on recent decisions, market share will likely be measured by viewing hours. This puts Netflix (20%) and HBO Max (15%) at an estimated 35%.
Netflix and WBD may suggest a broader entertainment market where subscription streaming, ad-supported video (like YouTube), social media and video games compete for user dollars and eyeballs, netting a much lower market share.
Based on the recent FTC v. Meta decision, the court could opt for something in between. Meta successfully argued that consumers readily switch and substitute between apps like Facebook, Instagram, Youtube and Tiktok for video content. But some services are more likely than others to be seen as substitutes for Netflix and HBO Max content.
Regardless, courts must still consider the merger’s effect on competition. Netflix-WBD could try settling with the DOJ by making contractual assurances, such as committing to theatrically release future WBD content. These agreements can be costly to monitor and can lead to future disputes over firms keeping their commitments, as the 2010 Ticketmaster-Live Nation merger demonstrates. But they can also preserve competitive benefits, mitigate potential harms and save the DOJ the trouble and costs of uncertain litigation.
Alternatively, WBD’s shareholders may yet consider Paramount’s offer for their entire business at a higher share price. Backed by the president’s son-in-law, Qatar and Saudi Arabia, it would raise some political controversy. But this combined entity’s lower market share (26%) and Paramount’s historical support for theatrical releases may smooth some antitrust hurdles.
In the end, consumers will win if courts and enforcers act based on evidence. If consumer behavior and other economic and real-world data show that a merger will limit vigorous competition and result in higher prices and less quality or innovation, the government is entitled to act. If not, enforcers should acknowledge that in rapidly evolving digital media markets, scale means being able to stay competitive and make bold investments that herald the next generation of entertainment innovation.
In more ways than one, we’ll be watching.
The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of Fortune.
Former President Donald Trump and Vice President Kamala Harris face off in the ABC presidential debate on Sept. 10, 2024.
Getty Images
With the U.S. election less than a month away, the country and its corporations are staring down two drastically different options.
For airlines, banks, electric vehicle makers, health-care companies, media firms, restaurants and tech giants, the outcome of the presidential contest could result in stark differences in the rules they’ll face, the mergers they’ll be allowed to pursue, and the taxes they’ll pay.
During his last time in power, former President Donald Trump slashed the corporate tax rate, imposed tariffs on Chinese goods, and sought to cut regulation and red tape and discourage immigration, ideas he’s expected to push again if he wins a second term.
In contrast, Vice President Kamala Harris has endorsed hiking the tax rate on corporations to 28% from the 21% rate enacted under Trump, a move that would require congressional approval. Most business executives expect Harris to broadly continue President Joe Biden‘s policies, including his war on so-called junk fees across industries.
Personnel is policy, as the saying goes, so the ramifications of the presidential race won’t become clear until the winner begins appointments for as many as a dozen key bodies, including the Treasury, Justice Department, Federal Trade Commission, and Consumer Financial Protection Bureau.
CNBC examined the stakes of the 2024 presidential election for some of corporate America’s biggest sectors. Here’s what a Harris or Trump administration could mean for business:
The result of the presidential election could affect everything from what airlines owe consumers for flight disruptions to how much it costs to build an aircraft in the United States.
The Biden Department of Transportation, led by Secretary Pete Buttigieg, has taken a hard line on filling what it considers to be holes in air traveler protections. It has established or proposed new rules on issues including refunds for cancellations, family seating and service fee disclosures, a measure airlines have challenged in court.
“Who’s in that DOT seat matters,” said Jonathan Kletzel, who heads the travel, transportation and logistics practice at PwC.
The current Democratic administration has also fought industry consolidation, winning two antitrust lawsuits that blocked a partnership between American Airlines and JetBlue Airways in the Northeast and JetBlue’s now-scuttled plan to buy budget carrier Spirit Airlines.
The previous Trump administration didn’t pursue those types of consumer protections. Industry members say that under Trump, they would expect a more favorable environment for mergers, though four airlines already control more than three-quarters of the U.S. market.
On the aerospace side, Boeing and the hundreds of suppliers that support it are seeking stability more than anything else.
Trump has said on the campaign trail that he supports additional tariffs of 10% or 20% and higher duties on goods from China. That could drive up the cost of producing aircraft and other components for aerospace companies, just as a labor and skills shortage after the pandemic drives up expenses.
Tariffs could also challenge the industry, if they spark retaliatory taxes or trade barriers to China and other countries, which are major buyers of aircraft from Boeing, a top U.S. exporter.
Big banks such as JPMorgan Chase faced an onslaught of new rules this year as Biden appointees pursued the most significant slate of regulations since the aftermath of the 2008 financial crisis.
Those efforts threaten tens of billions of dollars in industry revenue by slashing fees that banks impose on credit cards and overdrafts and radically revising the capital and risk framework they operate in. The fate of all of those measures is at risk if Trump is elected.
Trump is expected to nominate appointees for key financial regulators, including the CFPB, the Securities and Exchange Commission, the Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation that could result in a weakening or killing off completely of the myriad rules in play.
“The Biden administration’s regulatory agenda across sectors has been very ambitious, especially in finance, and large swaths of it stand to be rolled back by Trump appointees if he wins,” said Tobin Marcus, head of U.S. policy at Wolfe Research.
Bank CEOs and consultants say it would be a relief if aspects of the Biden era — an aggressive CFPB, regulators who discouraged most mergers and elongated times for deal approvals — were dialed back.
“It certainly helps if the president is Republican, and the odds tilt more favorably for the industry if it’s a Republican sweep” in Congress, said the CEO of a bank with nearly $100 billion in assets who declined to be identified speaking about regulators.
Still, some observers point out that Trump 2.0 might not be as friendly to the industry as his first time in office.
Trump’s vice presidential pick, Sen. JD Vance, of Ohio, has often criticized Wall Street banks, and Trump last month began pushing an idea to cap credit card interest rates at 10%, a move that if enacted would have seismic implications for the industry.
Bankers also say that Harris won’t necessarily cater to traditional Democratic Party ideas that have made life tougher for banks. Unless Democrats seize both chambers of Congress as well as the presidency, it may be difficult to get agency heads approved if they’re considered partisan picks, experts note.
“I would not write off the vice president as someone who’s automatically going to go more progressive,” said Lindsey Johnson, head of the Consumer Bankers Association, a trade group for big U.S. retail banks.
Electric vehicles have become a polarizing issue between Democrats and Republicans, especially in swing states such as Michigan that rely on the auto industry. There could be major changes in regulations and incentives for EVs if Trump regains power, a fact that’s placed the industry in a temporary limbo.
“Depending on the election in the U.S., we may have mandates; we may not,” Volkswagen Group of America CEO Pablo Di Si said Sept. 24 during an Automotive News conference. “Am I going to make any decisions on future investments right now? Obviously not. We’re waiting to see.”
Republicans, led by Trump, have largely condemned EVs, claiming they are being forced upon consumers and that they will ruin the U.S. automotive industry. Trump has vowed to roll back or eliminate many vehicle emissions standards under the Environmental Protection Agency and incentives to promote production and adoption of the vehicles.
If elected, he’s also expected to renew a battle with California and other states who set their own vehicle emissions standards.
“In a Republican win … We see higher variance and more potential for change,” UBS analyst Joseph Spak said in a Sept. 18 investor note.
In contrast, Democrats, including Harris, have historically supported EVs and incentives such as those under the Biden administration’s signature Inflation Reduction Act.
Harris hasn’t been as vocal a supporter of EVs lately amid slower-than-expected consumer adoption of the vehicles and consumer pushback. She has said she does not support an EV mandate such as the Zero-Emission Vehicles Act of 2019, which she cosponsored during her time as a senator, that would have required automakers to sell only electrified vehicles by 2040. Still, auto industry executives and officials expect a Harris presidency would be largely a continuation, though not a copy, of the past four years of Biden’s EV policy.
They expect some potential leniency on federal fuel economy regulations but minimal changes to the billions of dollars in incentives under the IRA.
Both Harris and Trump have called for sweeping changes to the costly, complicated and entrenched U.S. health-care system of doctors, insurers, drug manufacturers and middlemen, which costs the nation more than $4 trillion a year.
Despite spending more on health care than any other wealthy country, the U.S. has the lowest life expectancy at birth, the highest rate of people with multiple chronic diseases and the highest maternal and infant death rates, according to the Commonwealth Fund, an independent research group.
Meanwhile, roughly half of American adults say it is difficult to afford health-care costs, which can drive some into debt or lead them to put off necessary care, according to a May poll conducted by health policy research organization KFF.
Both Harris and Trump have taken aim at the pharmaceutical industry and proposed efforts to lower prescription drug prices in the U.S., which are nearly three times higher than those seen in other countries.
But many of Trump’s efforts to lower costs have been temporary or not immediately effective, health policy experts said. Meanwhile, Harris, if elected, can build on existing efforts of the Biden administration to deliver savings to more patients, they said.
Harris specifically plans to expand certain provisions of the IRA, part of which aims to lower health-care costs for seniors enrolled in Medicare. Harris cast the tie-breaking Senate vote to pass the law in 2022.
Her campaign says she plans to extend two provisions to all Americans, not just seniors: a $2,000 annual cap on out-of-pocket drug spending and a $35 limit on monthly insulin costs.
Harris also intends to accelerate and expand a provision allowing Medicare to directly negotiate drug prices with manufacturers for the first time. Drugmakers fiercely oppose those price talks, with some challenging the effort’s constitutionality in court.
Trump hasn’t publicly indicated what he intends to do about IRA provisions.
Some of Trump’s prior efforts to lower drug prices “didn’t really come into fruition” during his presidency, according to Dr. Mariana Socal, a professor of health policy and management at the Johns Hopkins Bloomberg School of Public Health.
For example, he planned to use executive action to have Medicare pay no more than the lowest price that select other developed countries pay for drugs, a proposal that was blocked by court action and later rescinded.
Trump also led multiple efforts to repeal the Affordable Care Act, including its expansion of Medicaid to low-income adults. In a campaign video in April, Trump said he was not running on terminating the ACA and would rather make it “much, much better and far less money,” though he has provided no specific plans.
He reiterated his belief that the ACA was “lousy health care” during his Sept. 10 debate with Harris. But when asked he did not offer a replacement proposal, saying only that he has “concepts of a plan.”
Top of mind for media executives is mergers and the path, or lack thereof, to push them through.
The media industry’s state of turmoil — shrinking audiences for traditional pay TV, the slowdown in advertising, and the rise of streaming and challenges in making it profitable — means its companies are often mentioned in discussions of acquisitions and consolidation.
While a merger between Paramount Global and Skydance Media is set to move forward, with plans to close in the first half of 2025, many in media have said the Biden administration has broadly chilled deal-making.
“We just need an opportunity for deregulation, so companies can consolidate and do what we need to do even better,” Warner Bros. Discovery CEO David Zaslav said in July at Allen & Co.’s annual Sun Valley conference.
Media mogul John Malone recently told MoffettNathanson analysts that some deals are a nonstarter with this current Justice Department, including mergers between companies in the telecommunications and cable broadband space.
Still, it’s unclear how the regulatory environment could or would change depending on which party is in office. Disney was allowed to acquire Fox Corp.’s assets when Trump was in office, but his administration sued to block AT&T’s merger with Time Warner. Meanwhile, under Biden’s presidency, a federal judge blocked the sale of Simon & Schuster to Penguin Random House, but Amazon’s acquisition of MGM was approved.
“My sense is, regardless of the election outcome, we are likely to remain in a similar tighter regulatory environment when looking at media industry dealmaking,” said Marc DeBevoise, CEO and board director of Brightcove, a streaming technology company.
When major media, and even tech, assets change hands, it could also mean increased scrutiny on those in control and whether it creates bias on the platforms.
“Overall, the government and FCC have always been most concerned with having a diversity of voices,” said Jonathan Miller, chief executive of Integrated Media, which specializes in digital media investment. “But then [Elon Musk’s purchase of Twitter] happened, and it’s clearly showing you can skew a platform to not just what the business needs, but to maybe your personal approach and whims,” he said.
Since Musk acquired the social media platform in 2022, changing its name to X, he has implemented sweeping changes including cutting staff and giving “amnesty” to previously suspended accounts, including Trump’s, which had been suspended following the Jan. 6, 2021, Capitol insurrection. Musk has also faced widespread criticism from civil rights groups for the amplification of bigotry on the platform.
Musk has publicly endorsed Trump, and was recently on the campaign trail with the former president. “As you can see, I’m not just MAGA, I’m Dark MAGA,” Musk said at a recent event. The billionaire has raised funds for Republican causes, and Trump has suggested Musk could eventually play a role in his administration if the Republican candidate were to be reelected.
During his first term, Trump took a particularly hard stance against journalists, and pursued investigations into leaks from his administration to news organizations. Under Biden, the White House has been notably more amenable to journalists.
Also top of mind for media executives — and government officials — is TikTok.
Lawmakers have argued that TikTok’s Chinese ownership could be a national security risk.
Earlier this year, Biden signed legislation that gives Chinese parent ByteDance until January to find a new owner for the platform or face a U.S. ban. TikTok has said the bill, the Protecting Americans From Foreign Adversary Controlled Applications Act, which passed with bipartisan support, violates the First Amendment. The platform has sued the government to stop a potential ban.
While Trump was in office, he attempted to ban TikTok through an executive order, but the effort failed. However, he has more recently switched to supporting the platform, arguing that without it there’s less competition against Meta’s Facebook and other social media.
Both Trump and Harris have endorsed plans to end taxes on restaurant workers’ tips, although how they would do so is likely to differ.
The food service and restaurant industry is the nation’s second-largest private-sector employer, with 15.5 million jobs, according to the National Restaurant Association. Roughly 2.2 million of those employees are tipped servers and bartenders, who could end up with more money in their pockets if their tips are no longer taxed.
Trump’s campaign hasn’t given much detail on how his administration would eliminate taxes on tips, but tax experts have warned that it could turn into a loophole for high earners. Claims from the Trump campaign that the Republican candidate is pro-labor have clashed with his record of appointing leaders to the National Labor Relations Board who have rolled back worker protections.
Meanwhile, Harris has said she’d only exempt workers who make $75,000 or less from paying income tax on their tips, but the money would still be subject to taxes toward Social Security and Medicare, the Washington Post previously reported.
In keeping with the campaign’s more labor-friendly approach, Harris is also pledging to eliminate the tip credit: In 37 states, employers only have to pay tipped workers the minimum wage as long as that hourly wage and tips add up to the area’s pay floor. Since 1991, the federal pay floor for tipped wages has been stuck at $2.13.
“In the short term, if [restaurants] have to pay higher wages to their waiters, they’re going to have to raise menu prices, which is going to lower demand,” said Michael Lynn, a tipping expert and Cornell University professor.
Whichever candidate comes out ahead in November will have to grapple with the rapidly evolving artificial intelligence sector.
Generative AI is the biggest story in tech since the launch of OpenAI’s ChatGPT in late 2022. It presents a conundrum for regulators, because it allows consumers to easily create text and images from simple queries, creating privacy and safety concerns.
Harris has said she and Biden “reject the false choice that suggests we can either protect the public or advance innovation.” Last year, the White House issued an executive order that led to the formation of the Commerce Department’s U.S. AI Safety Institute, which is evaluating AI models from OpenAI and Anthropic.
Trump has committed to repealing the executive order.
A second Trump administration might also attempt to challenge a Securities and Exchange Commission rule that requires companies to disclose cybersecurity incidents. The White House said in January that more transparency “will incentivize corporate executives to invest in cybersecurity and cyber risk management.”
Trump’s running mate, Vance, co-sponsored a bill designed to end the rule. Andrew Garbarino, the House Republican who introduced an identical bill, has said the SEC rule increases cybersecurity risk and overlaps with existing law on incident reporting.
Also at stake in the election is the fate of dealmaking for tech investors and executives.
With Lina Khan helming the FTC, the top tech companies have been largely thwarted from making big acquisitions, though the Justice Department and European regulators have also created hurdles.
Tech transaction volume peaked at $1.5 trillion in 2021, then plummeted to $544 billion last year and $465 billion in 2024 as of September, according to Dealogic.
Many in the tech industry are critical of Khan and want her to be replaced should Harris win in November. Meanwhile, Vance, who worked in venture capital before entering politics, said as recently as February — before he was chosen as Trump’s running mate — that Khan was “doing a pretty good job.”
Khan, whom Biden nominated in 2021, has challenged Amazon and Meta on antitrust grounds and has said the FTC will investigate AI investments at Alphabet, Amazon and Microsoft.
Shari Redstone arrives at the Allen & Co. Sun Valley Conference on July 9, 2024 in Sun Valley, Idaho. Getty Images
Today (June 9) marks the start of this year’s Allen & Co. conference in Sun Valley, Idaho. Known as the “summer camp for billionaires,” the annual get-together has since 1983 drawn in industry leaders across media, tech, politics and finance. Each year, the wealthy and elite touch down in private jets at the nearby Friedman Memorial airport, which describes the conference as its “annual fly-in event” and today experienced delays due to flight volume.
Convening at the Sun Valley Lodge, attendees will spend the next few days networking and attending private lectures on topics like national security, health care and education.
“There might have been other scenarios that could have played out in other ways, but this seems to be currently the scenario for the moment.”
Those were Sony Pictures Chairman and CEO Tom Rothman‘s thoughts tonight when Deadline asked him at the NYC premiere of Apple’s Fly Me to the Moonfor his take on the big news going around town, read the pending $8 billion Skydance–Paramount deal.
Sony Pictures Entertainment teamed with Apollo to make a $26 billion go at Paramount Global, signing an NDA in mid-May. Those talks didn’t make as much noise as Skydance’s courtship of Paramount Global. The notion is that Sony’s pursuit of Paramount would be embattled by government regulations which prohibit a foreign company from having any ownership of a U.S. Broadcast network.
However, despite all directions pointing toward a Skydance-Paramount Global deal, there’s still that 45-day go-shop period for a better offer to emerge. If one comes to fruition, Skydance will get a hefty $400 million breakup fee from Paramount.
Continued Rothman tonight, “The only thing I will say, I have great respect for David Ellison and I think he is a very capable executive, and if it ends up going that way in the end, in the end, I’m sure he’ll do a fine job.” Once the Skydance Paramount Global deal is approved, the expectation being later in 2025, Ellison becomes the new Chairman and CEO of the new corporation.
Unlike Paramount which has been saddled with debt from launching streaming service Paramount+, Sony remains an arms dealer, and financially nimble studio. The Culver City lot is distributing the Greg Berlanti directed romantic comedy Fly Me to the Moon which stars Channing Tatum and Scarlett Johansson and opens this Friday. The movie is one of three Apple Original Films that Sony won distribution deals for following Napoleon ($221.3M) and the Jon Watts directed George Clooney-Brad Pitt crime thriller Wolfs opening on Sept. 20.
Fly Me to the Moon is the second big, starry romantic comedy for Sony post pandemic following their profitable, $220M-plus grossing Syndey Sweeney-Glen Powell title Anyone But You which played over the holidays. While streaming has dominated the rom-com genre, Rothman doesn’t believe the female moviegoing audience for those titles have been lost.
“My take is if you build it, they will come. They can’t go to movies that don’t exist,” Rothman told Deadline at Manhattan’s AMC Lincoln Plaza Cinema.
“Romantic comedies have been a perennial genre in the movies since The Philadelphia Story. They’re not going away,” he added.
“Great and kudos to Apple, this is a fun, classy film,” the Sony Pictures Motion Picture Group Chairman and CEO said about Fly Me to the Moon, “The reviews are terrific for the movie and well deserved.”
Sony recently jumpstarted the sleepy summer box office with Bad Boys: Ride or Die which is approaching $180M stateside, $426.5M WW and has had a family hit in Alcon’s The Garfield Movie which stands at $91M in U.S./Canada, $245M WW.
CBS and Paramount Global have filed a response to a discrimination lawsuit by a writer who claimed he wasn’t hired because he was a straight, white man.
Brian Beneker filed his suit in March, complaining that he was not hired as a staff writer for the series SEAL Team solely for reason of his race, sex, and/or sexual orientation.
“Defendants failed to hire or promote Mr. Beneker due to his race, sex, and heterosexuality,” the complaint from longtime SEAL Team script coordinator and freelance scribe Beneker read.
Beneker said in the complaint that he suffered by not being part of “the favored hiring groups; that is, they were nonwhite, LGBTQ, or female,” and the “illegal policy” of increasing diversity, equity and inclusion measures.
“This balancing policy has created a situation where heterosexual, white men need ‘extra’ qualifications (including military experience or previous writing credits) to be hired as staff writers when compared to their nonwhite, LGBTQ, or female peers, who require no such ‘extra’ qualifications,” the filing added.
CBS responded today and asked for a quick dismissal.
CBS “has a constitutional right under the First Amendment to select the writers whose work shapes CBS’s artistic enterprise,” the motion filed today read. CBS also asserted that aspects of Beneker’s complaint are time-barred and fail to state a claim on which relief can be granted.
“The First Amendment bars Beneker’s claims in full. The First Amendment embodies a core principle of speaker’s autonomy that bars the government from dictating to expressive enterprises like CBS what to say and how to say it. It therefore displaces applications of statutes, including anti-discrimination laws, that would force an expressive enterprise to compromise its own message.”
Holding CBS liable for not hiring him “would prevent CBS from hiring the storytellers whom CBS believes are best suited to tell the stories CBS wants to produce and broadcast. Granting relief to Beneker would impair CBS’s ability to speak on its own terms.”
The request for a dismissal will be heard on July 15 in Central District Court in Los Angeles.
Warren Buffett unveiled Chubb as his secret buy and Berkshire Hathaway’s equity portfolio had some other changes in the first quarter, according to a new regulatory filing. Firstly, the Omaha-based conglomerate tweaked his energy exposure last quarter, adding to its Occidental Petroleum holding slightly and trimming the Chevron stake. Berkshire has been steadily increasing its Occidental bet since it first took a position in the first quarter of 2022. It was previously disclosed that Buffett trimmed Berkshire’s Apple holding by 13% in the first quarter. He said he sold a portion of the large stake for tax reasons after reaping enormous gains. He implied the sale could be a means of avoiding an even higher tax bill down the road if tax rates rise to help plug a ballooning U.S. fiscal deficit. Other than these changes, Berkshire’s top 10 holdings remained unchanged last quarter. In terms of smaller stakes, the conglomerate slashed its stake in building materials manufacturer Louisiana-Pacific by about 6%. Berkshire also exited its HP stake last quarter. Buffett told shareholders at Berkshire’s annual meeting earlier this month that he dumped the Paramount stake entirely at a loss .
After weeks of negotiations, Skydance’s proposed merger with Paramount Global appears to be on the ropes.
Paramount’s special board committee appears to have cooled on the offer, which would have seen the David Ellison-led studio, joined by financial partners RedBird Capital and KKR, acquire controlling shareholder Shari Redstone’s stake in the company and then merge Skydance into Paramount, keeping it as a publicly-traded company, with new leadership at the helm.
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Skydance had been in a 30-day exclusive negotiating window, and had proposed a revised offer last weekend that would have offered some sweeteners for Paramount common shareholders, some of whom had been vocally opposed to the deal. That window ends today, and is not likely to be extended.
Another source close to the deal says that talks between the sides continue.
Paramount has another offer on the table: A $26 billion all-cash deal from Apollo and Sony Pictures. It is not immediately clear what the status of that deal is, though it would carry substantially more regulatory concerns, due to Apollo’s existing ownership of broadcast TV stations, and Sony’s status as a Japanese company.
Redstone is said to be unenthusiastic about that deal.
The end of the Skydance talks capped off an eventful week for Paramount, with the company parting ways with its CEO Bob Bakish on Monday, replacing him with a trio of executives working in an “office of the CEO.”
While Bakish had largely declined to comment on the deal chatter, he told analysts on the company’s fourth-quarter earnings call that he was focused on creating value for all shareholders (emphasis his), suggesting that there was daylight between him and Redstone, and friction that could have led to his ouster.
Bakish’s departure followed the news that four board members would not be standing for reelection at the company’s next annual meeting, set for June 4. It was not immediately clear what sparked their decision, though there was speculation that it could be related to deal talks.
With the Skydance deal seemingly off, and the Apollo-Sony deal’s regulatory viability in question, Paramount may need to find its own path forward under its new leaders Brian Robbins, George Cheeks and Chris McCarthy.
“Going forward, we are finalizing a new long-term plan to best position this storied company to reach new and greater heights in our rapidly changing world,” the trio wrote to employees shortly after taking the helm of the company.
A source says that the executives are prepared to lead the company long-term, and confirmed that a formal strategic plan will be communicated to staff in the coming weeks.
Paramount shares are down about 5 percent for the day.
Spokespersons for Paramount, Skydance, Shari Redstone and the board special committee all declined to comment.
As consumers watch their wallets, companies have felt pressure from investors to do the same. Executives have sought to show shareholders that they’re adjusting to consumer demand as it returns to typical patterns or even softens, as well as aggressively countering higher expenses.
Airlines, automakers, media companies and package giant UPS are all digesting new labor contracts that gave raises to tens of thousands of workers and drove costs higher.
Companies in years past could get away with passing on higher costs to customers who were willing to splurge on everything from new appliances to beach vacations. But businesses’ pricing power has waned, so executives are looking for other ways to manage the budget â or squeeze out more profits, said Gregory Daco, chief economist for EY.
“You are in an environment where cost fatigue is very much part of the equation for consumers and business leaders,” Daco said. “The cost of most everything is much higher than it was before the pandemic, whether it’s goods, inputs, equipment, labor, even interest rates.”
There are some exceptions to the recent cost-cutting wave: Walmart, for example, said last month that it would build or convert more than 150 stores over the next five years, along with a more than $9 billion investment to modernize many of its current stores.
And some companies, such as banks, already made deep cuts. Five of the largest banks, including Wells Fargo and Goldman Sachs, together eliminated more than 20,000 jobs in 2023. Now, they’re awaiting interest rate cuts by the Federal Reserve that would free up cash for pent-up mergers and acquisitions.
But cost reductions unveiled in even just the first few weeks of the year amount to tens of thousands of jobs and billions of dollars. In January, U.S. companies announced 82,307 job cuts, more than double the number in December, while still down 20% from a year ago, according to Challenger, Gray and Christmas.
And the tightening of months prior is already showing up in financial reports.
So far this earnings season, results have indicated that companies have focused on driving profits higher without the tailwind of big price increases and sales growth.
As of mid-February, more than three-quarters of the S&P 500 had reported fourth-quarter results, with far more earnings beats than revenue beats. The quarter’s earnings, measured by a composite of S&P 500 companies, are on pace to rise nearly 10%. Revenues, however, are up a more modest 3.4%.
And the layoffs haven’t been contained to tech. UPS said it was axing 12,000 jobs, saving the company $1 billion, CEO Carol Tome said late last month, citing softer demand. Many of the largest retail, media and entertainment companies have also announced workforce reductions, in addition to other cuts.
Warner Bros. Discovery has slashed content spending and headcount as part of $4 billion in total cost savings from the merger of Discovery and WarnerMedia. Disney initially promised $5.5 billion in cost reductions in 2023, fueled by 7,000 layoffs. The company has since increased its savings promise to $7.5 billion, and executives suggested in its Feb. 7 quarterly earnings report that it may exceed that target.
JetBlue Airways, which hasn’t posted an annual profit since before the pandemic, is deferring about $2.5 billion in capital expenditures on new Airbus planes to the end of the decade, culling unprofitable routes and redeploying aircraft in addition to the worker buyouts.
Some cuts are even making their way to the front of the cabin. United Airlines, which also posted a profit in 2023, at the start of this year said it would serve first-class meals only on flights more than 900 miles, up from 800 miles previously. “On flights that are 301 to 900 miles, United First customers can expect an offering from the premium snack basket,” according to an internal post.
Several of the country’s largest automakers, such as General Motors and Ford Motor, have lowered spending by billions of dollars through reduced or delayed investments on all-electric vehicles. The U.S.-based companies as well as others, such as Netherlands-based Stellantis, have recently reduced headcount and payroll through voluntary buyouts or layoffs.
Even Chipotle, which reported more foot traffic and sales at its restaurants in the most recently reported quarter, is chasing higher productivity by testing an avocado-scooping robot called the Autocado that shortens the time it takes to make guacamole. It’s also testing another robot that can put together burrito bowls and salads. The robots, if expanded to other stores, could help cut costs by minimizing food waste or reducing the number of workers needed for those tasks.
Industry experts have chalked up some recent cuts to companies catching their breath â and taking a hard look at how they operate â after an unusual four-year stretch caused by the pandemic and its fallout.
EY’s Daco said the past few years have been marked by a mismatch in supply and demand when it comes to goods, services and even workers.
Customers went on shopping sprees, fueled by government stimulus and less experience-related spending. Airlines saw demand disappear and then skyrocket. Companies furloughed workers in the early pandemic and then struggled to fill jobs.
He said he expects companies this year to “search for an equilibrium.”
“You’re seeing a rebalancing happening in the labor markets, in the capital markets,” he said. “And that rebalancing is still going to play out and gradually lead to a more sustainable environment of lower inflation and lower interest rates, and perhaps a little bit slower growth.”
The auto industry, for example, faced a supply issue during much of the Covid pandemic but is now facing a potential demand problem. Inventories of new vehicles are rising â surpassing 2.5 million units and 71 days’ supply toward the end of 2023, up 57% year over year, according to Cox Automotive â forcing automakers to extend more discounts in an effort to move cars and trucks off dealer lots.
Automakers have also been contending with slower-than-expected adoption of EVs.
David Silverman, a retail analyst at Fitch Ratings, said companies are “feeling a bit heavy as sales growth moderates and maybe even declines.”
Cost cuts at UPS, Hasbro and Levi all followed sales declines in the most recent fiscal quarter. Macy’s, which reports earnings later this month, has said it expects same-store sales to drop, and there’s early evidence that may come to bear: Consumers pulled back on spending in January, with retail sales falling 0.8%, more than economists expected, according to the latest federal data.
Most major retailers, including Walmart, Target and Home Depot, will report earnings in the coming weeks.
Credit ratings agency Fitch said it doesn’t expect the U.S. economy to tip into recession, but it does anticipate a continued pullback in discretionary spending.
“Part of companies’ decision to lower their expense structure is in line with their views that 2024 may not be a fantastic year from a top-line-growth standpoint,” Silverman said.
Plus, he added, companies have had to find cash to fund investments in newer technology such as infrastructure that supports e-commerce, a resilient supply chain or investments in artificial intelligence.
Companies may have another reason to cut costs now, too. As they see other companies shrinking the size of their workforces or budgets, there’s safety in numbers.
Or as Silverman noted, “layoffs beget layoffs.”
“As companies have started to announce them it becomes normalized,” he said. “There’s less of a stigma.”
Even with rolling layoffs, the labor market remains strong, which may help explain why Wall Street has by and large rewarded those companies that have found areas to save and returned profits to shareholders.
Shares of Meta, for example, almost tripled in price in 2023 in that “year of efficiency,” making the stock the second-best gainer in the S&P 500, behind only Nvidia. After laying off more than 20,000 workers in 2023, Meta on Feb. 2 announced its first-ever dividend and said it expanded its share buyback authorization by $50 billion.
UPS, fresh from job cuts, said it would raise its quarterly dividend by a penny.
Overall, dividends paid by companies in the S&P 500 rose 5.05% last year, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, and he estimated they will likely increase nearly 5.3% this year.
â CNBC’s Michael Wayland, Alex Sherman, Robert Hum, Amelia Lucas and Jonathan Vanian contributed to this story.
Disclosure: Comcast owns NBCUniversal, the parent company of CNBC.
Glen Powell and Sydney Sweeney star in Sony’s “Anyone But You.”
Sony
Released just before the crowded Christmas movie season, Sony’s “Anyone But You” seemed destined to be anything but a box-office hit â especially after it tallied just $6 million in ticket sales during its opening weekend.
However, the film’s box-office success was as much of a slow burn as the romance between its main characters played by rising stars Glen Powell and Sydney Sweeney.
In the seven weeks since, the romantic comedy has tallied $170 million globally, including $80 million from domestic theaters, according to data from Comscore. The film had a reported budget of just $25 million.
A sleeper hit at the box office, the film is a “healthy sign” for the romantic comedy genre and other mid-budget Hollywood flicks, said Scott Meslow, author of “From Hollywood With Love: The Rise and Fall (and Rise Again) of the Romantic Comedy.” But it remains to be seen if other rom-coms can repeat its success.
As studios chased big-budget superhero flicks after the success of Marvel’s interconnected cinematic universe, Christopher Nolan’s Batman trilogy and DC Studios’ “Man of Steel,” the rom-com found itself on the cutting room floor â and then as padding for streaming services.
Between 2004 and 2010, Hollywood consistently released between 15 and 25 romantic comedy or romance films each year. But from 2011 through last year, there were less than 15 new rom-com or romance releases per year, with most years falling below 10.
Meslow said there was no rom-com “kill shot,” a film or series of films that sparked the decline in theatrical releases of the genre.
Instead, it came after media companies changed their priorities.
“Studios are, at the end of the day, businesses,” Will Gluck, the writer-director of “Anything But You” and the filmmaker behind “Easy A” and “Friends with Benefits,” told CNBC. “So, if they start to see a certain thing is successful, they’re going to try to replicate that success. So, I don’t think there’s an inherent bias against rom-coms and comedies.”
Studios saw action or superhero movies with $200 million budgets and billions in box-office returns as a priority over smaller-budget films, which may have been profitable, but less so in comparison. Now, as superheroes fall out of favor and Wall Street wants to see profitability from direct-to-consumer streaming platforms, the romantic comedy genre is poised for a comeback.
Gluck’s “Anyone But You” proves audiences will still turn up for romantic comedies in theaters.
The film’s performance builds on the success of two rom-coms from 2022. Paramount’s “The Lost City” generated nearly $200 million at the global box office on a budget of under $75 million. Universal’s “Ticket to Paradise” snared nearly $170 million globally on a budget of $60 million.
While “Anyone But You” had a slow start at the box office, ticket sales increased in both its second and third weekend in theaters. And when sales started to dip, they fell just 27% or less in each of the next five weeks. Typically, films will see sales drop around 50% to 70% in each week after their opening weekend.
Gluck attributes much of the film’s box-office popularity to word of mouth and the power of TikTok.
In the wake of its release, users on the social media platform began making short videos of themselves singing and dancing to Natasha Bedingfield’s 2004 single “Unwritten.” The song is featured in the film, and cast and crew are seen singing and dancing to it during the final credits.
“It would not surprise me at all if this became a textbook case of modern Hollywood marketing,” Meslow said. “It’s really harnessed TikTok and the stars’ presence on it better than probably any movie ever released.”
Hollywood will now find out if “Anyone But You” is a unicorn or a replicable theatrical strategy. The film benefited from several key factors, including a blockbuster-free January and limited direct competition.
But the industry is already leaning into a strategy that relies on potential sleeper hits like “Anyone But You.”
Major studios have pledged to bring more mid-budget films back to theaters. Those movies are able to fill the gaps between large tentpole features and provide consistent box-office dollars. More films also means more chances for studios to advertise future releases to the public.
While some films will still be released only on streaming platforms, Hollywood has rediscovered the importance of theatrical as part of overall downstream revenue. A film’s debut in theaters creates buzz and a sense of quality that follows it through on-demand sales and onto streaming platforms.
Notably, Sony’s “No Hard Feelings,” which tallied $83.8 million globally in 2023 on a budget of $45 million, became a top-streaming film on Netflix when it was released on the platform in October.
Gluck, who enjoys taking on a wide variety of projects, expects he will continue to write and direct films like “Anyone But You” going forward.
“I think I’d rather take a gamble on a mid- to low-budget movie than a $200 million movie,” Gluck said. “Because my whole career has been mid-level budget movies. But to me, the fun part is always outperforming. It is always great when the expectations are low … it’s just it’s really fun to be written off and outperform.”
Disclosure: Comcast is the parent company of NBCUniversal and CNBC.
Media giants spent most of 2023 looking for signs of a turnaround in advertising spending after several years of a soft market. Despite some rosy predictions, they’re still searching.
The situation could force vulnerable companies to consider merger-and-acquisition options as the content marketplace realigns around streaming economics, which generally are not as lucrative as linear TV ad margins.
At the beginning of 2023, executives were hoping to get past the pain. “2023 will also be an important year with respect to advertising, where we’re looking forward to an improvement in the market in the back half of the year,” Paramount Global CEO Bob Bakish told investors in February. The ad market “is going to stay weak for the first half of this year, then recover,” Jeff Shell declared in January, before he was ousted as NBCUniversal CEO for sexual misconduct three months later.
Warner Bros. Discovery saw TV advertising fall 13% in the third quarter of 2023, to $1.71 billion. Paramount Global registered a 14% dip in the same category, to the same figure, while NBCU logged a decline of 8.4% to $1.91 billion. Disney noted “a decrease in advertising revenue” at ABC and its local TV stations and “a modest increase in advertising revenue” at ESPN and around its other sports programming. Even Fox, which relies more directly on sports, saw its overall ad revenue fall by 1.6%.
These results challenge the conventional wisdom that TV advertising will grow even with declining ratings because major advertisers can’t resist the power of the medium’s mass-market reach. Many observers were surprised to see the double-digit drops at Paramount Global and WB Discovery, both of which are heavily dependent on big bucks from ads to bolster the bottom line.
“It’s becoming increasingly clear now that much like 2023, 2024 will have its share of complexity, particularly as it relates to the possibility of continued sluggish advertising trends,” Gunnar Wiedenfels, WB Discovery’s chief financial officer, said in November. “We don’t see when this is going to turn.”
It’s no secret that advertisers have been tighter with their dollars due to fears of a recession. They’re also grappling with the disruption created by viewers moving from live linear TV to on-demand streaming platforms. “A lot of advertisers are still showing budgetary caution,” says Katie Klein, chief investment officer at Omnicom Group’s PHD media buying agency.
Observers say the steepness of the Q3 decline has been a factor in Paramount Global chair Shari Redstone’s decision to consider whether the time has come for her to sell the family empire.
To be sure, 2023 had plenty of unusual headwinds that also dented sales, like the Hollywood labor strikes that crimped production of movies and TV shows, which prompted entertainment giants to cut their own marketing expenditures. The strike by United Auto Workers, too, meant that big spenders including General Motors and Ford had to pull back on marketing. Spikes in mortgage rates kept big insurance and financial-services companies from tapping into home-buying. Tech giants have also cut ad spending in recent months, according to media buyers. When the outlook is unclear, it’s easier for advertisers to commit to digital media, which can often be bought in real time according to algorithms that define consumer audiences. Much of TV needs to be purchased months in advance of actual business plans.
But don’t count TV out yet. “I do believe you will see a return to spending in some of the traditional linear channels,” says David Sederbaum, executive VP and head of video investment at ad giant Dentsu. “But make no mistake,” he warns. The average viewer’s preference for streaming is “real and persistent and permanent, and the availability of content like sports on streaming platforms will only continue to grow.”
Hollywood’s Dilemma
Traditional TV is in steady decline, but entertainment giants still rely on revenue from linear channels
Would the combination of Warner Bros. Discovery and Paramount Global — two companies heavily tied to the declining legacy TV biz — make financial sense?
Investors reacted to news of early talks between Warner Bros. Discovery and Paramount about a potential merger, which broke just prior to market close Wednesday. In early trading Thursday, shares of Paramount Global and WBD were both down around 4%.
Year to date, Paramount Global shares are down more than 9%. Meanwhile, Warner Bros. Discovery shares are up more than 22% so far in 2023.
Wall Street wasn’t completely surprised to hear about WBD and Paramount Global’s merger talks, with many observers anticipating near-term M&A activity in the sector. “[W]e think these desperate times for media companies are leading them to explore desperate measures,” MoffettNathanson analyst Robert Fishman opined in a Dec. 21 research note.
Paramount Global’s shares rose more than 12% earlier this month on word that Paramount Global chair Shari Redstone had discussed her sale of her shares of National Amusements Inc. (representing a controlling stake in Paramount) with Skydance Media’s David Ellison. Those talks were first reported by Puck on Dec. 7.
The talks between WBD and Paramount are at the very earliest stage, with Warner Bros. Discovery chief David Zaslav and Paramount Global CEO Bob Bakish having broached the possibility of a union at a Dec. 19 lunch meeting. Sources said Zaslav was motivated to explore a WBD-Paramount combination given the chatter about Skydance’s talks to buy out Redstone’s NAI stake. There are a number of questions about how a deal might come together.
And other M&A outcomes are certainly possible. Comcast/NBCUniversal is “the third leg to this M&A merry-go-round conversation,” as Comcast CEO Brian Roberts looks to scale up to compete with Disney, Fishman wrote in the note. “At the end of the day, Comcast may be the one strategic buyer with the capital structure and assets required to benefit either WBD or [Paramount] in a long-term viable way,” he wrote.
Terms of a potential Warner Bros. Discovery-Paramount Global merger aren’t known. But “WBD would likely be paying a hefty premium for a quickly declining linear TV business, allowing it to again double-down on its own pressured business,” Fishman noted.
Any cost-savings from a combined WBD-Paramount by shutting down Paramount+ “would be smaller than they appear as most content costs associated with the service would merely shift to back to linear rather than disappear,” Fishman added. “Even together, the two would struggle to build a scaled streaming service that would allow the combined company to remain viable as linear cash flows fade away.”
WBD acquiring Paramount Global’s shares in a mostly debt-driven deal would be a “bad idea,” Wells Fargo Securities’ Stephen Cahall wrote in a Thursday note to clients.
In such a scenario, assuming a 30% premium and 20%/80% ratio of equity/debt financing, the combined company would have an estimated $97 billion enterprise value — and whopping debt of around $70 billion. Pro-forma revenue would be $72 billion (50% coming from linear TV) and $13 billion in earnings before interest, taxes, depreciation and amortization (about 90% from linear TV business).
“WBD’s debt has been a problem since the merger, and this would only magnify melting ice cube sensitivities,” Cahall wrote. As of the end of Q3, Warner Bros. Discovery’s long-term debt was $43.5 billion, while Paramount Global’s was $15.6 billion.
In another potential M&A scenario, WBD and Paramount could merge in an all-stock deal, similar to the structure of Discovery’s deal for WarnerMedia. “This has the benefit of not requiring incremental debt, but [Paramount’s] controlling shareholders don’t cash out,” Cahall wrote. A third possible option: Warner Bros. Discovery acquires National Amusements Inc. for approximately $2 billion to get NAI’s Paramount Class A shares, giving Zaslav & Co. the ability to make divestitures prior to an all-stock merger of WBD-Paramount Global. “We see this as the lowest risk (i.e., best) option for WBD (smaller outlay),” according to the Wells Fargo analyst. “This also gives NAI immediate cash so may be most probable.”
The Paramount logo is seen on a building in Los Angeles on Nov. 13, 2023.
Nurphoto| Getty Images
Paramount Global shares surged Friday following reports from Deadline and Puck News that Skydance and RedBird Capital were exploring potentially taking over the media giant.
Paramount shares closed up more than 12% Friday. The company has a market cap of about $10.4 billion and its year to date share price is virtually flat, lagging the S&P 500’s 20% gain.
Paramount’s controlling shareholder, Shari Redstone, has been open to making big deals, especially as the company weathers the storms of declining revenue and streaming losses.
RedBird, controlled by longtime former Goldman Sachs partner Gerry Cardinale, is invested in a variety of media and sports assets, including David Ellison’s Skydance, which helped produce Paramount’s 2022 blockbuster “Top Gun: Maverick,” among other hits.
Linda Rene once proved instrumental in weaving blue-chip advertisers like Anheuser-Busch and General Motors into a fledgling CBS reality competition called “Survivor.” Two decades later, she is planning to get off the island.
Rene, an advertising-sales veteran who has worked at CBS for more than four decades, helped expand an industry practice known as product placement and was pivotal in crafting new deals that not only had advertisers providing vehicles and beverages as set dressing, but weaving their products into a show in ways that made them as prominent as some of the cast members. Marketers were able to cut deals with CBS that guaranteed them a notable presence in programs such as “The Amazing Race” or “NCIS,” while agreeing to buy up traditional commercials in the series that bolstered their in-show appearances.
Now, after working at CBS and its successor company, Paramount Global, as the head of primetime ad sales and brand partnerships for the broadcast network, Rene plans to exit at the end of 2023, the company confirmed Friday.
“Linda has paved new ground in the way we do business and has taught, motivated, and inspired those who worked with her,” said Jo Ann Ross and John Halley, chairman and president of Paramount’s ad sales operation, in a memo to staffers. They added: “Linda’s deep sense of integrity has made her an invaluable resource to the many advertising and CBS production clients she called on in a business that demands mutual respect. She was the architect of some of the earliest, deepest, and most longstanding multi-year client partnerships we have today.”
Rene joined CBS on January 4 of 1983 as a manager of sales planning on the west coast after working for a few years at the Omnicom ad agency DDB. While there, she started to work with movie studios like Universal and 20th Century Fox — clients whose big products were movies and programs. One of her clients took a job with CBS, and urged Rene to join. By 1986, she had moved to the east coast and was working as an account manager for the network’s ad-sales team — a role that was traditionally dominated by men.
Under Rene, CBS continued to create landmark ways to lace advertisers into programs. The network put a full bar sponsored by Anheuser-Busch, then Heineken, on to the set of the “The Late Late Show With James Corden.” In 2013, CBS found a way to tuck Microsoft devices and Toyota vehicles into a town cut off from the rest of the word in the sci-fi mini-series “Under The Dome.” General Motors’ Chevrolet became the exclusive auto sponsor of CBS’ “Hawaii Five-0” and had the heroes of the series driving its cars. Google and Philips Electronics have been able to help series like “The Late Show With Stephen Colbert” and “60 Minutes” add more time for content while getting plaudits for helping to make the feat possible.
To be sure, CBS could get a little aggressive with the practice. In one oft-cited example, the network allowed Subway to take up a full scene in “Five-0” that included mentions of its sandwiches in the dialogue. Why watch ads in a commercial break when you can put one into the show itself? On the whole, however, CBS has striven for organic appearances that don’t distract from the entertainment.
Rene’s exit is one of the first of a close-knit team of long-serving ad-sales executives who have worked for decades at CBS. When the company was merged with Viacom — a corporate sibling also controlled by the Redstone family’s National Amusements Inc. — the team remained, though some were assigned new responsibilities in keeping with an industry that is scrambling to keep ad dollars flowing even as TV audiences move to streaming and digital viewing.
The executive’s departure marks the end of an era for the many of us fortunate enough to have worked alongside this trailblazer for our company and our industry,” Ross and Halley said in their memo.
Add Walt Disney Co. DIS, Warner Bros. Discovery Inc. WBD, Comcast Corp. CMCSA and Paramount Global PARA to the growing list of major brands pausing advertising on Elon Musk’s embattled X. Lions Gate Entertainment Corp. LGF.A also said it would be pulling ads, just as its Hunger Games prequel is hitting movie theaters. The media giants follow Apple Inc. AAPL and IBM Corp. IBM who halted marketing — and tens of millions of dollars a year — as Musk faces blowback over antisemitic abuse on his social media platform as well as his own comments.
NEW YORK, NEW YORK – OCTOBER 31: Rebecca Damon joins SAG-AFTRA members on strike during Halloween on October 31, 2023 in New York City. The strike, which began on July 14, entered its 100th day on October 21st as the actors’ union and Hollywood studios and streamers failed to reach an agreement. (Photo by John Nacion/Getty Images)
John Nacion | Getty Images Entertainment | Getty Images
SAG-AFTRA actors aren’t totally on board with Hollywood studios’ latest labor agreement pitch.
The Screen Actors Guild-American Federation of Television and Radio Artists said there were still “several essential items” that they couldn’t agree with during their negotiations with the Alliance of Motion Picture and Television Producers, including artificial intelligence guidelines.
Studios put forth this “last, best and final offer” over the weekend, with top executives making clear that they would not make further concessions. SAG-AFTRA spent time Sunday and Monday evaluating the deal.
It is unclear if the AMPTP will return to the table to continue bargaining or if talks will officially shutdown.
Representatives from the AMPTP did not immediately respond to CNBC’s request for comment.
Hollywood actors initiated a work stoppage in mid-July as initial negotiations broke down with studios including Disney, Paramount, Universal, Netflix and Warner Bros. Discovery. They resumed talks for a short period of time in early October, but those broke down for several weeks.
Later in the month, talks resumed again, but so far, SAG-AFTRA and the AMPTP have been unable to reach a deal.
Television and film performers were looking to improve wages, working conditions, and health and pension benefits, as well as establish guardrails for the use of AI in future television and film productions. Additionally, the union sought more transparency from streaming services about viewership so that residual payments can be made equitable to linear TV.
The 116 day strike has disrupted marketing campaigns and prevented production from commencing on a significant portion of Hollywood’s film and television projects.
Disclosure: Comcast is the parent company of NBCUniversal and CNBC. NBCUniversal is a member of the Alliance of Motion Picture and Television Producers.
Hollywood’s writers and studios have a preliminary labor agreement.
Talks between the Writers Guild of America and the Alliance of Motion Picture and Television Producers resumed last week after months of starts and stops, ultimately leading to a tentative deal that would end the ongoing writers strike.
The WGA and AMPTP are still drafting the final contract language.
“What we have won in this contract — most particularly, everything we have gained since May 2nd — is due to the willingness of this membership to exercise its power, to demonstrate its solidarity, to walk side-by-side, to endure the pain and uncertainty of the past 146 days,” the WGA negotiation committee wrote in a letter to members Sunday night. “It is the leverage generated by your strike, in concert with the extraordinary support of our union siblings, that finally brought the companies back to the table to make a deal.”
Striking members of the Writers Guild of America and supporters march toward the La Brea Tar Pits in Los Angeles, June 21, 2023.
Irfan Khan | Los Angeles Times | Getty Images
Hollywood scribes initiated a work stoppage in early May as negotiations broke down with studios including Disney, Paramount, Universal and Warner Bros. Discovery. Television and film writers sought protections against the use of artificial intelligence, in addition to increases in compensation for streamed content.
The WGA did not disclose what provisions ultimately made it into the preliminary contract, but told union members that “this deal is exceptional — with meaningful gains and protections for writers in every sector of the membership.”
Once the WGA and AMPTP agree on the language within the contract, the negotiating committee will vote on whether to recommend the agreement and send it to the Writers Guild of America West Board and the Writers Guild of America East Council for approval. Then, the board and council will vote on whether to authorize a contract ratification vote by membership.
WGA leadership noted that the strike is not over and no members of the guild are to return to work until the agreement is officially ratified. Members were encouraged to continue standing in solidarity with striking actors on the picket lines.
President Joe Biden, who often touts his pro-union stances, cheered the agreement as he prepares to head to a United Auto Workers’ picket line Tuesday in Michigan.
“This agreement, including assurances related to artificial intelligence, did not come easily,” Biden said in a statement released by the White House on Monday. “But its formation is a testament to the power of collective bargaining. There simply is no substitute for employers and employees coming together to negotiate in good faith toward an agreement that makes a business stronger and secures the pay, benefits, and dignity that workers deserve.”
Following negotiations with writers, the AMPTP will need to turn its attention to SAG-AFTRA. The acting guild’s members have been on strike since mid-July and are seeking contract updates similar to those requested by the writers.
Hollywood performers are looking to improve wages, working conditions, and health and pension benefits, as well as establish guardrails for the use of AI in future television and film productions. Additionally, the union is seeking more transparency from streaming services about viewership so that residual payments can be made equitable to linear TV.
“SAG-AFTRA congratulates the WGA on reaching a tentative agreement with the AMPTP after 146 days of incredible strength, resiliency and solidarity on the picket lines,” the Screen Actors Guild-American Federation of Television and Radio Artists wrote in a statement Sunday. “While we look forward to reviewing the WGA and AMPTP’s tentative agreement, we remain committed to achieving the necessary terms for our members.”
Disclosure: Comcast is the parent company of NBCUniversal and CNBC. NBCUniversal is a member of the Alliance of Motion Picture and Television Producers.
People carry signs as SAG-AFTRA members walk the picket line in solidarity with striking WGA workers outside Netflix offices in Los Angeles, July 11, 2023.
Mario Tama | Getty Images News | Getty Images
Picket signs have lined the gates of Hollywood’s studios for nearly five months, as the industry’s writers and actors rally for AI protections, better wages and a cut of streaming profits.
The problem is streaming isn’t yet profitable for many studios.
Sparked by the creation of Netflix’s direct-to-consumer platform in 2007, streaming has upended the economics of the media industry. Yet, it’s still unclear whether it’s a sustainable business model for the future.
“Without sounding hyperbolic, the change in the economics of the North American media industry in the last five years has been breathtaking,” said Steven Schiffman, an adjunct professor at Georgetown University.
Legacy media companies like Disney, Warner Bros. Discovery, Paramount and NBCUniversal scrambled to compete with Netflix when it began creating original content in 2013 and slowly pulled market share over the next five years. The studios padded their platforms with massive content libraries and the promise of new original shows and films for consumers.
However, the subscription-based streaming model proves vastly different than the ad-revenue-fueled traditional TV bundle. High licensing costs and low revenues per subscriber quickly caught up with studios, which had previously placated shareholders with massive subscription growth.
Netflix was the first streamer to report a loss in subscribers in 2022, sending its stock and other media companies spiraling. Disney has followed suit. Since then, both have set subscription numbers aside in favor of advertising, a password-sharing crackdown and raising prices.
Media companies also have begun slashing content spending budgets. Disney CEO Bob Iger has promised the company will focus on quality over quantity when it comes to both its streaming and theatrical businesses, pointing to Marvel as an example of too much content.
Yet streaming remains the focus for all of these companies as consumers rapidly cut the cord and opt for streaming. To make up for the losses, media organizations are now relying on methods that once made the traditional bundle so successful.
“What’s the fundamental solution? In some way, shape or form, it’s everything brought together,” said CEO Ken Solomon of the Tennis Channel, owned by Sinclair, of the various business models in media. “It’s about understanding where to put a little more resources and how they all are glued together to satisfy the consumer.”
Two strategies media companies long relied upon — windowing content to various platforms and creating more cable channels to reap higher fees from the bundle — proved lucrative and still reap profits.
“This gun has been cocking itself for decades,” said Solomon, noting that the pay TV bundle was a good value proposition until it became too expensive for consumers. That gave Netflix an opening to upend how the entertainment industry makes and spends money.
Legacy media companies scrambled to follow suit, unsure if the model actually worked. But they were desperate to keep up with changing consumer demand, and in the process they depleted other revenue streams.
Now turmoil rules the industry. Companies like Disney and Warner Bros. Discovery are in the midst of reorganizations — slashing jobs and content costs while trying various ways to piece together profits.
An image from Netflix’s “Stranger Things.”
Source: Netflix
“All of these companies spent more money than they likely should have,” said Marc DeBevoise, CEO and board director of Brightcove, a streaming technology company.
Netflix, with a considerable head start, is the only company to make a profit off of streaming. “For everyone else, it’s still dictated by linear TV,” said UBS analyst John Hodulik. “That’s a problem as the decline in customers accelerates and streaming is not a big enough opportunity to offset that.”
Although subscriber growth initially ramped up streaming subscriber growth and bolstered many media stocks, it was short-lived. Fears of a recession, inflation and rising interest rates led Wall Street to reassess these companies and focus on profitability as subscriber growth slowed.
Netflix’s entrance into media signaled the beginning of a content arms race that, ultimately, hasn’t paid off for any media company.
Content spending ballooned across the industry, with each company spending tens of billions of dollars for new shows and films in an effort to lure in new subscribers — and keep the ones they already had.
“The networks had aligned with their streaming services and taken all the elasticity out of it. They were throwing money at a problem and hoping that it was going to solve itself,” said Solomon. “There was no economics behind it.”
Race to launch
Netflix — launched streaming service in January 2007, first original content launched February 2013
Hulu — launched streaming service in March 2008
Paramount+ — launched as CBS All Access in October 2014, rebranded as Paramount+ in March 2021
Disney+ — launched streaming service in November 2019
Peacock — launched streaming service in April 2020
Max — launched as HBO Max in May 2020, rebranded as Max in May 2023
There were also massive one-off licensing deals for shows like “The Office,”“Friends” and “Seinfeld,” which viewers were actively watching on repeat.
Studios even struck exclusive contracts with some of Hollywood’s biggest writer-producers — Ryan Murphy, Shonda Rhimes, J.J. Abrams, Kenya Barris and the duo of David Benioff and D.B. Weiss — in the hope that they could create new projects that could capture the attention of audiences.
Show budgets draw a lot of attention these days. But Jonathan Miller, a former Hulu board member and current CEO of Integrated Media, doesn’t recall that being a focus when it was just the four major broadcast networks creating all of the content.
DeBevoise, a former ViacomCBS (now Paramount) executive, said he doesn’t remember greenlighting a show, including “Star Trek Discovery,” in the mid-2010s at CBS for more than $10 million an episode, noting many were “much, much less expensive.”
Meanwhile, Solomon, who once ran Universal Studios Television, recalled when his budgets for top TV shows like “Law & Order” were below $2 million an episode. “I thought budgets were out of control back then,” he said.
Shonda Rhimes attends 2018 Vanity Fair Oscar Party on March 4, 2018 in Beverly Hills, CA.
Presley Ann | Patrick McMullan | Getty Images
Disney sought to capitalize on the success of its Marvel Cinematic Universe by developing more than a dozen superhero shows for its Disney+ platform. Although the seasons were shortened, often only six to 10 episodes, each episode cost around $25 million. Similar production budgets were seen for the company’s foray into the new live-action Star Wars TV series.
Netflix has poured money into multiple seasons of political drama “The Crown,” science fiction darling “Stranger Things” and a series based on The Witcher video game franchise. Production costs per episode for these series ranged from $11 million to $30 million.
And Warner Bros. Discovery is adding more Game of Thrones series to its catalog of direct-to-consumer offerings with “House of the Dragon,” which cost around $20 million per episode, and the upcoming “A Knight of the Seven Kingdoms: The Hedge Knight,” which has not begun filming.
Meanwhile, e-commerce giant Amazon shelled out a record $465 million on its first season of a Lord of the Rings prequel series, which was met with tepid responses from critics and fans alike.
“The price of content isn’t always determinant of success. ‘The Simpsons’ were crudely animated initially, right? So, it’s not necessarily that if you go spend a lot of money, it works,” Solomon said.
Bart Simpson plays esports in an episode of “The Simpsons” that aired on March 17, 2019.
Fox
At the same time the economics for actors, writers and the industry as a whole changed.
“The problem is that the cost increases don’t make sense given the revenue models. Something got broken in this part of the business if that kind of increase happened and actors and writers don’t feel like they got their fair share,” DeBevoise said.
While many of Hollywood’s biggest studios are publicly traded and must share quarterly financial reports, there are no rules about providing streaming-viewership data. This lack of transparency has made recent contract negotiations between studios and the industry’s writers and actors especially contentious.
“There’s a frustration about how these people can get together and share this information and come up with something that is reasonable for both sides,” said Schiffman, the Georgetown professor. “But until that happens, in my view, this thing goes on until next year.”
Streaming studios, in particular, have long been reluctant to share data around viewership and don’t want compensation to be tied to the popularity of shows, including those that have been licensed from other studios.
This is in stark contrast to how linear television has handled popular shows. Traditionally, studios pay residuals, long-term payments, to those who worked on film and television shows after their initial release. Actors and writers get paid every time an episode or film runs on broadcast or cable television or when someone buys a DVD or Blu-ray Disc.
When it comes to streaming, there are no residual payments. Studios that get a licensing fee pass on a small sum to actors and writers, but no additional compensation is given if the show performs well on the platform. Actors, in particular, are looking to change this.
“Why I think the streaming model has been a difficult model for the actors and writers, and I was part of helping that model, is that there was a fundamental shift of long-term versus short-term economics that likely wasn’t properly understood or explained,” said DeBevoise.
Media companies’ effort to make streaming profitable is drawing out many of the old business models that were successful in the past.
The subscription streaming model is being subsidized now by tried and true models like advertising, licensing content to other platforms, cracking down on password sharing, and windowing content to different platforms with longer stretches of time in between.
“Netflix understood finally, because of the Street, that subscriber numbers don’t mean jack, if the economics don’t pencil out,” said Peter Csathy, founder and chair of advisory firm Creative Media.
Even the pay TV bundle, despite rampant cord cutting by consumers, remains a reliable source of revenue.
The recent dispute between Charter Communications and Disney highlighted this fact, and led to Disney+ and ESPN+ being bundled with some pay TV subscriptions.
“We, the distributors, are funding the streaming experience. And it’s frankly a better content experience on streaming than what is provided to us on linear TV,” said Rob Thun, chief content officer at DirecTV. “These companies will cease to exist without the funding of distributors’ licensing fees. Perhaps this is a moment of awakening.”
Disney and even Netflix, which long resisted ads, are among the companies relying more on ad-supported offerings to boost subscriber growth and bring in another revenue stream, even as the ad market has been soft.
This is especially true as free, ad-supported streaming services like Fox Corp.’s Tubi and Paramount’s Pluto — which are likened to broadcast networks — have also exploded. Besides the parent companies leaning on the ad revenue from these platforms, other media companies, like Warner Bros. Discovery, are funneling content there for licensing fees.
“In terms of the business models, they all ‘work,’” said DeBevoise. He noted paid tiers for the more expensive, timely content will remain, while free and options with commercials will support the older library shows and movie. “There are going to be hybrid models that reincarnate the dual-revenue cable TV model with both a subscription fee and ads. It’s all going to be about price-to-value and time-to-value for the consumer.”
Disclosure: Comcast is the parent company of NBCUniversal and CNBC.
Chief executive officer of The Walt Disney Company Bob Iger and Mickey Mouse look on before ringing the opening bell at the New York Stock Exchange (NYSE), November 27, 2017 in New York City.
Getty Images
Usually when a person or company sells something, the primary motivation is getting back as much money as possible.
Disney‘s motivation to potentially sell ABC and its owned affiliates, linear cable networks and a minority stake in ESPN isn’t predicated on what these assets will fetch in a sale. It’s about signaling to investors the time has come to stop thinking about Disney as old media.
Disney’s market capitalization is about $156 billion. The company has about $45 billion in debt. Selling assets can help the entertainment giant lower its leverage ratio while buffering the continued losses from its streaming businesses.
Still, that’s not the prime rationale for why Disney Chief Executive Bob Iger told CNBC in July he’s contemplating selling off media assets — something he’s long resisted. Rather, a sale of ABC and linear cable networks would be a message to the investment community: The era of traditional TV is over. Disney is ready for its next chapter.
“Disney almost has a good bank and a bad bank at this point,” Wells Fargo analyst Steven Cahall said in a CNBC interview. “Streaming is its future. It’s its strongest asset, next to the parks. The linear business is something Disney has clearly signaled is going to be in decline. They’re not looking to necessarily protect it. If they can move some of that lower, negative-growth business off of the books and to a better, more logical operator, we think that’s good for the stock.”
Nexstar has held preliminary conversations with Disney to acquire ABC and its owned and operated affiliates, Bloomberg reported Thursday. Media mogul Byron Allen has made a preliminary offer to pay $10 billion for ABC and its affiliates along with cable networks FX and National Geographic, according to a person familiar with the matter.
Disney released a statement Thursday saying “while we are open to considering a variety of strategic options for our linear businesses, at this time The Walt Disney Company has made no decision with respect to the divestiture of ABC or any other property and any report to that effect is unfounded.”
The value of broadcast and cable networks has significantly declined from the 1990s and early 2000s as tens of millions of Americans have canceled cable in recent years.
Cahall values ABC and Disney’s eight owned affiliate networks at about $4.5 billion. That’s a far cry from the $19 billion Disney paid for Capital Cities/ABC in 1995 — the deal that brought Iger to the company.
ESPN has a valuation of about $30 billion, according KeyBanc Capital Markets analyst Brandon Nispel, “though we view it as a melting iceberg,” he added in a September note to clients. LightShed analyst Rich Greenfield values ESPN at closer to $20 billion.
Disney would like to keep a majority stake in ESPN, Iger told CNBC. It currently owns 80% of the sports media business, and Hearst owns the other 20%.
Disney’s most interesting decision may be deciding what to do with the ABC network. The company can easily sell off its eight owned and operated affiliate stations — located in markets including Chicago, New York and Los Angeles — without changing the trajectory of the media industry.
But divesting the ABC network would be a bold statement by Disney that it sees no future in the broadcast cable world of content distribution.
Selling ABC would be particularly jarring given Iger’s comments both to CNBC and in Disney’s last earnings conference call that he wants the company to stay in the sports business.
“The sports business stands tall and remains a good value proposition,” Iger said last month during Disney’s third-quarter earnings conference call. “We believe in the power of sports and the unique ability to convene and engage audiences.”
There’s clear value, at least for the next few years, in keeping a large broadcast network for major sports leagues. NBCUniversal executives hope ownership of the NBC network will convince the NBA that it should be cut into a new rights agreement to carry NBA games. NBC is a free over-the-air service and can increase the league’s reach, they plan to argue. Even if the world is transitioning to streaming, millions of Americans still use digital antennas to watch TV.
Currently, ESPN and ABC split sports rights. Selling ABC may trigger certain change-of-control provisions that force existing deals with pay TV operators or the leagues to be rewritten, according to people familiar with typical language around such deals.
Moving on from the network also may obstruct ESPN’s ability to land future sports rights deals. Without ownership of ABC, leagues may choose to sell rights to other companies, thus further weakening ESPN.
If Iger is true to his word and Disney stays in the sports broadcasting business, the company will have to weigh the negative externalities of losing ABC with the positive gains of showing investors it’s serious about shedding declining assets.
“Obviously, there’s complexity as it relates to decoupling the linear nets from ESPN, but nothing that we feel we can’t contend with if we were to ultimately create strategic realignment,” Iger said last month.
If Disney does land a deal to sell ABC, and investors cheer the move, it may also function as a catalyst for other large legacy media companies to sell their declining assets. NBCUniversal, Paramount Global and Warner Bros. Discovery all have legacy broadcast and cable networks in addition to their flagship streaming services.
Disney may become the leader in pushing the industry forward.
“We see this as a real bullish sign at Disney.” said Cahall. “There’s a lot going on now at Disney, between ESPN and partnerships and divesting some of this stuff. Disney is suddenly feeling a little more catalyst-rich than it was recently.”
– CNBC’s Lillian Rizzo contributed to this article.
Disclosure: Comcast owns NBCUniversal, the parent company of CNBC.
WATCH: Nexstar could ‘no doubt’ take ABC and monetize it really well, says Wells Fargo analyst
Neeraj Khemlani, president of CBS News, at the annual White House Correspondents’ Association Dinner in Washington, U.S., April 29, 2023.
Tom Brenner | Reuters
Neeraj Khemlani, the president and co-head of CBS News and Stations, is stepping down from his role, according to a Sunday report from Variety.
Khemlani told employees in a memo on Sunday he is leaving his current position for a new “multi-year first-look” deal at CBS where he will create content like documentaries, scripted series and books, the report said. In his current role, Khemlani is responsible for running CBS News, its local stations and popular programs like “Face the Nation,” “60 Minutes” and “CBS Evening News.”
“I’m so proud of what all of you have accomplished — the scores of journalistic wins, the superb storytelling, the creativity that enhanced every aspect of our programming — that has put this division on a stronger path forward,” Khemlani said in the memo, according to Variety.
Paramount, which owns CBS, did not immediately respond to a request for comment.
It is not immediately clear who will succeed Khemlani, but CBS could announce the new executive as soon as Monday, Variety said.
Khemlani began his tenure at CBS in April 2021. Before joining the network, Khemlani spent more than 10 years at Hearst, where he held a number of leadership roles like executive vice president of Hearst Newspapers, president of Hearst Entertainment and Syndication and chief creative officer.
Khemlani’s departure marks the latest major leadership shakeup at a news network this year. CNN’s Chris Licht left the company in June after he faced a rebellion among the network’s talent and staff.
Media companies have been grappling with a soft advertising market, particularly affecting the traditional TV business. Networks are also gearing up for what is expected to be another contentious election cycle in 2024.
As of market close Friday, shares of Paramount are down around 9.5% year to date. In the company’s earnings report for the quarter ended June 30, Paramount reported revenue of $7.62 billion for the quarter, down about 2% year-over-year, as the company’s TV segment was once again dragged down by lower advertising revenue.
Mark Avallone, president of Potomac Wealth Advisors, and Jeff Kilburg, CEO of KKM Financial, join ‘The Exchange’ to discuss stocks falling after the Moody’s downgrade, the case for buying regional banks, consolidation in the VIX and owning tech in an equal weighted manner.
