Today, let’s talk about the big Paramount-Warner Bros. Discovery merger.

This deal could reshape all of media and entertainment if and when it closes. That’s still an if, which we’ll come back to — right now Paramount head David Ellison is very much acting like he’s over the finish line after outbidding Netflix, which walked away after what seemed like a done deal. 

There’s a lot going on here, including the biggest question I’ve had throughout this entire saga: Why would anyone want to buy Warner, which has basically killed every acquirer it’s had for the last quarter century? I’m serious: first AOL, then AT&T, then Discovery — a lot of people have tried to change their fortunes by acquiring Warner Bros. Yet while the individuals might have walked away richer, their companies usually ended up saddled with a brutal combination of debt and regret. So why? Why do this — and why now?

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Back in January, I asked Puck’s Julia Alexander to walk me through Netflix’s reasoning, and today I’m digging into Paramount’s with Rich Greenfield, a media and entertainment analyst and co-founder of research firm LightShed Partners. You’ll hear me ask Rich a lot about the structure of this deal, and the strategy that’s supposed to help David Ellison pay for it. But there’s no getting around the numbers: Paramount is roughly 40 times smaller than Netflix by market cap, yet it offered to pay 30 percent more for Warner Bros.

You don’t need a fancy finance background to see the bigger picture here: At its core, this deal is about debt — a lot of debt. Paramount is borrowing tens of billions of dollars to make this deal happen. It has nowhere close to the amount of money needed to buy Warner for the price it had to offer to scare away Netflix. 

A vast majority of the rest of the funds is coming from David Ellison’s billionaire dad, Larry Ellison. His personal fortune depends almost entirely on his Oracle stock. This is the same stock that is tied up for better and for worse with AI hype. So why is Larry Ellison willing to trade his lucrative Oracle stock for shares in a media company? And what, exactly, is David Ellison’s plan here, besides slashing a huge number of jobs when the debt bill comes due?

Certainly, the Ellisons think they can succeed where many, many others have failed — and surely they think AI has something to do with their plans. But Paramount wouldn’t be the first company killed by a Warner deal, and it really might not be the last. 

Okay: Rich Greenfield of LightShed Partners on Paramount’s deal to buy Warner Bros. Here we go. 

This interview has been lightly edited for length and clarity. 

Rich Greenfield, you are a co-founder and analyst at LightShed Partners. Welcome to Decoder.

Thanks for having me.

I feel like we have spent a lot of time writing and posting around each other. It’s really exciting to talk to you, especially about Warner Bros./Paramount, where I think you have a depth of knowledge and expertise. Here’s my first question for you. My thesis, it might be the core thesis I have for the entire media industry, maybe the entire telecom industry, is that if you buy Warner, you kill yourself. And yet everyone always wants to buy Warner. Why doesn’t the industry understand that buying Warner is what leads to a quick and speedy demise?

I mean, because you’re going back to AOL–

I worked at AOL when they were spinning off Time Warner. I remember this very clearly.

To be fair, AOL was the thing that died, not Time Warner. 

[Laughs] No, Time Warner persists, like a zombie that will kill again. It will do it again. Even after this, I’m sure.

It is crazy how many times this asset has been traded around. I do think it is fair that sort of merging with this company has been historically the kiss of death. Obviously, the Ellison family is out to prove that it isn’t true.

Look, I think the reality is this industry’s undergoing massive transformation. The pace of change in media is moving at a pretty incredible rate for a business that, if you went back to the mid ’90s, like cable networks were a good, solid business, the movie studio business was growing, and international was exploding. Think about where we are now. Linear TV is dying. 

Yes, sports and news are still doing very, very well. The NFL is an incredible property. Sports and news are fine. But traditional, linear television, the people that are listening to us on this podcast are not going home and watching their favorite show on NBC Thursday nights, the way you and I did when we were growing up. You wouldn’t even think of doing that. There is so much in terms of streaming, let alone this small company called YouTube, that dominates TV time spent.

You think about going to the movies. Think about the movie business. Attendance is down 27 percent from pre-pandemic levels, and that’s at the box office. Ticket prices are up over 25 percent. So literally, butts in seats are over 50 percent lower than just six years ago. That’s mind boggling. Think about how much this business is under distress right now.

So why buy it? This is my core question. There’s the history of it, which is that buying Warner will kill you, and you’d better have a good thesis about why it won’t. But historically, everyone’s idea is we’re going to take Warner’s assets and come up with some new distribution, and Warner’s assets will make our distribution powerful. That was AOL’s thesis.

Sure.

That was AT&T’s thesis. Down the line, that was even, to some extent, Discovery’s thesis, that we’re going to build a new streaming platform and that distribution powered by Warner’s assets will be successful. That never works. That might still be the Ellison thesis. It’s unclear. I want to come to that. So there’s the history there that these assets aren’t good enough to overcome the distribution challenges. And then there’s what you’re talking about, with AI in the corner. Why take this gamble?

Netflix launched streaming in 2007. I’m sure you remember the early days of Netflix streaming. I can’t even tell you how many people would come up to us and say, “Netflix has to buy a studio. There’s no way they can do this. This is crazy. If they want to be real in this business, they’ve got to go buy [a studio].” And I remember even with Amazon. And look, they did buy MGM, to be fair. 

But there was this long-held view that there was no way that you could build a robust studio all on your own. And Netflix did it. They proved that overpaying for talent, really outbidding the competition. Remember, they famously outbid HBO for House of Cards. And the rest is history in terms of building it.

There’s no doubt in my mind that David Ellison went out at Skydance and bought Paramount. That’s sort of his stake in the ground. It had a big Hollywood studio and had a streaming service. There was certainly the ability to just build. They did not need to buy another studio and a whole bunch of other linear TV assets for over $100 billion. I think in their minds, building it was going to take time. Replicating that Netflix model of ramping the technology, ramping the content, raising the price, having more money from the subscription to invest in more content, that whole flywheel that makes Netflix the size company that it is today. 

The Ellison family was not willing to be patient. They didn’t want to wait and build it slowly; they wanted to do it quickly. And the quickest way to do it was to leverage their family fortune to go out and buy Warner Bros. They believe this is an accelerant to their plan versus just going out and building it brick by brick. And we’ll see whether that ends up being successful.

Look, there is incredible IP sitting inside of Warner Bros. Now, the flip side is, you paid a lot for it. You also leveraged up to seven times. Seven times debt to EBITDA leverage; that’s a lot of debt that you’ve got to work off over the course of the next five years. Plus, you got a lot of linear TV, and like we were just talking about earlier on the podcast, nobody’s watching linear TV. And so you spent a lot of money to get assets that are in secular decline. 

I’m not David Ellison. I would not have done this transaction; I would have invested and built. They did not want to. They did not agree with our view, and they went out and did this transaction. They ended up paying a lot more than they had hoped to pay. I actually thought it was going to go even higher, but Netflix obviously bailed out, and they got it for $31 a share, which is still sort of a crazy price. But you know what? They believe they can make the math work on this, and look, time will tell.

Let’s talk about the math for a second, and then I want to come back to the strategy of it. It’s not all Ellison money, right? There’s some amount of syndication going on.

They could syndicate all of it. It could literally be zero Ellison money, and it could be all syndicated. Now, we have no idea. We presume that Middle East money will still be part of this in a substantial way. They’ve talked about several different sovereign wealth funds being involved. Whether that ultimately happens or not, or whether they syndicate this to US investors… again, I think the challenge of syndicating this right now is with stock trading. 

I know this is coming out in a few days after we record, but significantly below the $16 price where the Ellisons or their syndicated investors are investing, it’s obviously trading at a meaningful discount to that. And so most people could go into the public markets and build a position at a far lower price than where this transaction is occurring. I think that’s sort of the challenge on the syndication side, but we’ll see. I’m actually really interested to see what the ultimate investor base looks like.

The key part of the puzzle, at least in the Ellison deal as it got bigger and more lucrative, was the guarantee from Larry Ellison.

The only reason this transaction went to Paramount is that Larry stepped up and said two things. One, I am personally on the hook for all of the equity of this transaction. And then two, if for any reason the leverage is too high and the banks that are committing to the debt don’t want to fund the debt, I will put more cash into fixing the leverage issue myself. So Larry, effectively, made this transaction switch from Netflix to Paramount.

Okay, here’s my question about that. This is the first brush at AI that I think is going to come up several times in this conversation. If you’re Larry Ellison, your wealth is Oracle, and Oracle has been an unsexy but lucrative company for a long time. And suddenly it’s sexy again because you run a bunch of data centers and-

Maybe a little less sexy than six months ago, but go ahead.

Sure. But they just had earnings this week. They did okay. I think a lot of people thought the catastrophe was coming, and they overperformed estimates.

Sure.

So Oracle’s doing fine. The AI multiple is real for Oracle on some timeline. Why on earth would you trade out of the AI multiple of your Oracle stock, which is your legacy and your wealth, for a media multiple with this much debt? Because with that, unless you just love your son that much, I cannot think of another reason to make that trade.

Look, I think it really depends on how AI is going to transform these industries. I don’t think AI is going to mean a whole lot to the linear television business, so let’s just leave that to the side. But there’s a big open question. Does AI make studio IP, the content? Does it make it far more valuable?

The funny thing is, I love White Lotus. I think that show is such an original idea, and the storylines are so crazy. It’s hard to imagine AI coming up with that Walton Goggins scene in the restaurant. I don’t think AI is going to come up with an original idea like that. Can it replicate things that it sees? For sure. The question becomes: will AI lead to the creation of great content on its own? Do you need to go out and buy this much in the way of studio assets? Does it just make studio production cheaper? If the average big movie costs a couple of hundred million dollars, can you take 30, 40, 50, 60 percent of the cost out of the production? Because so much of it can be achieved through AI.

I think we don’t know those answers yet. What worries me, I’ll tell you, is that I believe that in the world of user-generated content, we spend a lot of time thinking about YouTube. YouTube content is going to get dramatically better with AI. There is no doubt about it. Everyone on planet Earth is going to be able to make far better content than they can today. Play around with any of the models today. You’re getting an early look, and sure, it’s only a few seconds of video, but within three years, everyone’s going to be able to make something truly meaningful.

What does that do? What is that competitive dynamic? How does that change? Will we have somebody sitting in their basement who can literally make a movie without the cost of using a movie studio? Those are things that are sort of hard to comprehend, but don’t seem unreasonable as you think about the pace of change. So the real question to me is sure, AI can make everything that sits inside of Paramount and Warner Bros combined cheaper to create. They can make a lot more with AI, but the flip side of this is that no one’s talking about how the competitive landscape will change over the next three to four years. 

Are all of these companies, I’m not even just saying Paramount, but are they under the threat of a sea of content that you can’t even comprehend? We think there’s a lot of content on YouTube, but if that content is multiple times better in quality and there’s even more of it being created because it’s so much easier and faster, what does that do to the value of any of this existing content? That’s the real worry, the thing that keeps me up at night.

All right. I’m going to ask you a question again, because I think you’ve actually raised the stakes on this question. If you are Larry Ellison and you are in the business of AI infrastructure, and that is your wealth and your legacy at Oracle, why would you trade one share of Oracle stock for Warner Bros. Discovery, which might be dead because of AI?

Dead is a strong word. I don’t like using dead from the standpoint of any of these companies. Maybe there’ll be smaller companies. Certainly, there’s more competition, which would point to that. I think the answer, honestly, is that we’ve seen a list — and we don’t have enough time on this podcast — of people that want to be in the media business, that want to be in the entertainment business, and want to be in the sports business.

Do you own sports teams because they’re incredible businesses, or do you own sports teams because they’re trophy assets? Without a doubt, there is a trophy asset aspect to this. And again, I don’t know, I can’t prove to you that this is Larry Ellison’s thinking, but I do think that there is sort of a bet on David. He’s 43 years old, and there’s a bet that someone can do Hollywood differently.

Time will tell whether this is successful or not, but there’s a belief that through the use of technology, they can achieve what nobody else has done. And that’s a very, very aggressive view, but that’s where they’re sitting. They think their technology will be better than Netflix, better than YouTube’s. They’re dumping Google Cloud, they’re dumping AWS. They’re moving everything to Oracle Cloud. So maybe that’s also part of the answer here. Is there an element of training and sort of leveraging what Oracle can do by having all of this content and user information?

I would say there’s a conventional wisdom thesis, right? That all of this technology will be used together in a way that maybe Hollywood was not smart enough to do, or smart enough to invest in, and that’s why Netflix cleaned their clock, and that’s why YouTube is starting to eat them alive. And I know you’ve made that point many times.

Sure.

I’ve talked to people who have built the streamers, I know you have too, and they’re kind of like, “This problem is more solved than you think. There’s no more to get out of the core technology of video streaming. There might be more to get out of recommendations, but you need all the people opening the app and then taking the recommendations and spending more time in the app for that to actually work. And we haven’t solved the problem of getting more people to open the app.” I haven’t heard that from any of the Ellison pitches around Warner.

First of all, I wish I could bottle what you just said, because it is singularly the most important thing that everyone in this business needs to understand. This is all about time spent, right? Daily use activities. You open up Instagram every day. You open up TikTok multiple times every day. The reason Netflix and YouTube are as successful as they are is that when you come home from work, you’re not even going to find an existing show. You’re turning it on because you know you’re going to be entertained.

You open up Paramount Plus because there’s an episode of Yellowstone you want to watch, or you open up HBO Max because the new episode of The Pitt hit last night at nine o’clock, and you want to watch that new episode. And then you turn it off until next week when the next episode comes out. They are not places where you just go to be entertained.

The question is, and here is the multi-billion dollar success or failure of this transaction, even if you throw far more content, far better technology, and a ton of marketing, which is what the plan at Paramount is, right? The plan is to do all three of those things over the course of the next two years as they integrate Paramount with Warner Bros. Even if you do that, can you meaningfully move the needle on daily engagement?

Because the internet is historically winner-take-most. Pick your category, you know it better than I do. The question is, honestly, even if you do all of those things, has the world already picked its winners? Like Disney tried, right? Disney really went at this. They ramped up content to an incredible level. There was a new series on Disney+ every few weeks. There was a lot of content, and it didn’t really move the needle enough.

And so the question is, can Paramount do what Disney couldn’t? Can they actually break into a daily use application? I mean, Prime Video, even with all the sports that they’ve spent on, hasn’t really achieved that. I’ll be honest with you, Nilay, I’m not sure it’s possible, because people have chosen their platforms. Their behavior is that they open up Netflix or they open up YouTube. Can you get them to open up Paramount every single day? Can you do that? I don’t know.

You mentioned the three phases, right? They’re going to invest in production. Maybe they’ll have more content because production will cost less because of AI. Then there’s technology, which you talked about. They’re going to invest a lot in technology. And then you talked about marketing. I do want to come to marketing because the marketing piece seems really important to me.

Yeah.

The technology piece, this is my universe. I’m looking at David Ellison talking about migrating everything to one platform and then building on that platform. And I think, well, Warner tied itself in knots trying to do this, and it accomplished nothing effectively. Have you heard a good argument for why you would immediately incur this cost, other than that all of the content will be on one app?

Look, if you look at Disney+ as just a starting place, they brought on Adam Smith, who came from Google. Adam is CTO and CPO, chief product officer. The new Disney+ does look far better. There’s actually a recommendation algorithm now. It actually has trending content. It’s personalized to you. It’s still early days, but I do think it’s helping with engagement.

Again, I don’t think it’s helping enough, because I think they need a lot more content. Tech in and of itself is not the answer. You need the content to be with it. But I do think that if you have any hopes of driving engagement, you need a great platform. And both the Paramount and Warner Bros. platforms are not good. They are not competitive with where Netflix was three or four years ago.

The dirty little secret that no one’s talking about is that if you look at Netflix’s platform now, it’s completely dynamic. There isn’t a set platform. It completely changes based on the time of day and how you’re using it. It is a constantly morphing platform. All of these companies, including Paramount, are trying to build what Netflix was like three or four or five years ago. Yeah.

I mean, open up any of these apps. They can’t even make the cover art play video. It is so outdated in terms of what the technology stacks of these companies are. And so I think that the recognition at Paramount is that we need to unify all this first. 

And again, I think one of the big tells on this whole transaction is, can the Oracle cloud actually handle this? Because I don’t believe, and you check me if I’m wrong on this, but I don’t believe there’s anybody in the streaming media space that uses the Oracle Cloud. TikTok does, but that’s short-form vertical video. Streaming sports, streaming live events, news, and live TV — nobody is using Oracle’s cloud. This is going to be the first company ever to use Oracle’s cloud for this purpose. And they’re doing it this summer for Paramount, and then, obviously, I would assume next summer for Warner Bros. They say it’s going to be 50 percent faster at half the cost than Google and Amazon’s cloud. 

All eyes are going to be on Oracle. I mean, I’m sure you could have guests on, can Oracle actually do this? It’s going to be a great question and a great thing to watch.

Yeah. And again, I think the experience we’re seeing as Oracle tries to become a big hyperscaler player in AI and as Oracle tries to run the TikTok platform, you can see the seams. It is just obvious where the seams are. You mentioned Netflix is ahead. Oracle’s architecture is older than everyone’s architecture in specific ways. I’m very curious. I think these are big questions, too.

They are confident that Oracle can do it. Maybe this also speaks to why this transaction’s occurring, right? Like, “Hey, if Oracle can do this and prove that they can actually achieve this, even if there are growing pains, can they start to attract other players onto their platform?” I have no idea, but I guess that’s maybe an open question.

Right. But the other two players at scale that would meaningfully move the needle for Oracle are Netflix, which is deeply tied with AWS, and I don’t think will ever leave AWS, and YouTube, which, for very obvious reasons, is not going to leave Google. You can collect every smaller streamer in the world, and your AI workload is still going to be a huge part of your profit there.

So again, the arguments here for Oracle all seem to land on, “Well, David is Larry’s son,” and maybe that’s fine. As you said, maybe it’s just a trophy asset. But when you talk about content production going up at higher efficiency because of AI, that’s an efficiency argument, right? We’re at a lower cost.

When you talk about technology, it’s still an efficiency argument. And then you get to marketing. And marketing just feels like pure cost, because breaking through in a world where there’s an ever-increasing supply of content and saying, “Watch this show, and not that one,” through marketing alone seems impossible.

I’m not sure how you do it. And the amount that you might have to spend to get people to open this new app and spend more time there to watch new IP, a new issue, and some existing IP, seems so high that it will necessarily dwarf whatever efficiencies you get from content production and technology. I can’t make that math work either.

Warner Brothers and Paramount are actually not very good at marketing their own service themselves. Both of them actually rely on another company to do most of their legwork. Both of them rely on Amazon channels heavily. Paramount even more so than Warner’s. But a huge portion of their subscriber bases resides on Amazon’s channels. 

Remember, when you’re on Amazon channels, Amazon handles the marketing. You don’t use your app. I mean, you could log into your app, but most people just use the Amazon Prime Video app and watch their HBO. They’re watching The Pitt on Prime Channels, or they’re watching 1883 on Prime Channels. They’re never using their app. I think one of the huge, huge issues that is not getting enough attention in technology circles and media circles right now is whether David Ellison and team are going to pull out of these channel stores, whether it’s Amazon’s channel store or Roku’s channel store. Even Google has YouTube Primetime Channels.

These channel stores have been solving the issue that you just raised. It is really hard to get subscribers. It is very expensive and difficult. And they’ve relied on these channel stores, and Amazon’s built a monstrous business. I give them a lot of credit. I mean, the fact that Apple TV Plus is a prime channel shows you how much has changed over the last five or six years, and how hard it is to grow the streaming video business. But if you’re Ellison, who doesn’t use channel stores?

There are two companies that don’t use channel stores: Netflix and Disney. If you’re Ellison and you want to be considered in that top echelon, that top tier, do you have the guts to go it alone? I think that’s going to be a huge signal to how big his ambitions are. Is he really willing to go out? As you just said, it’s very expensive to go out and market and retain. And again, it’s not just getting the subscribers. You have to have enough content and a good enough underlying technology to keep people coming back every single day. Otherwise, they churn. 

The enemy of this business is churn. It was funny, I think one of the things that Netflix was most excited about when they were looking at the Warner Brothers acquisition was that they were stunned by how high churn was in every single market around the world for HBO. So, that’s a huge issue.

Right. Because people sign up for one show, and then they leave. Game of Thrones is over, I’m gone.

Correct. That’s the problem. This keeps coming back to one core problem. Sure, the algorithm. Sure, the technology. But not enough content. Not enough content to keep you there. You don’t get immersed in the world of HBO Max. You don’t get immersed in the world of Paramount Plus. These are lightly used applications. And look, their time spent figures show that.

You mentioned all of this in the context of cable, news, and sports. News and sports are also incredibly sticky. People just stick around for those things. They will literally tune in on time for those things. That might be declining for linear TV, but you can see Netflix is investing in live video, and so is YouTube. It feels like every time we talk to anyone on YouTube, they’re like, “You should just go live more.”

By the time you listen to this podcast, the Oscars will have happened.

Yeah. And YouTube invested in that.

In three years, the Oscars are going to be on YouTube. So yeah, talk about live events.

A big piece of the Paramount deal that Netflix didn’t want is CNN, and CNN is still sticky. There’s a war in Iran going on. This is when CNN proves its value to everyone. That they’re just going to-

I sort of disagree, Nilay. I mean, viewership-wise, no.

Well, this is when you want it, right? World War.

War or no war, there’s nobody watching CNN. The numbers are a ghost of their former selves. The business of CNN is literally evaporating in front of your eyes.

Sure. Let me make the argument about CNN’s value.

Okay.

And look, I run a newsroom. I have a lot of feelings about the business of making news. If you want to distribute content to the largest number of people, you would just go to YouTube. You just put the stuff on YouTube. We put our stuff on YouTube. YouTube pays you nothing. Effectively, you cannot run a business on YouTube’s partnership dollars.

They pay you a few shekels. You get a few pennies off of it.

A little bit. But I don’t know a single YouTube creator who’s like, “I can live and die on YouTube alone.”

Probably Mr. Beast.

No, Mr. Beast loses money on YouTube alone. All of his money is marketing—

Chocolate bars?

Yep. He’s figured it out. And his rates are so high that no one else can afford to pay his brand deals. So he had to move into physical products so that he could market his own products at a high enough margin because no one could afford the ad rates he wanted to charge. This is an incredible, whole other PhD thesis of a Decoder episode.

[Laughs] Keep going.

But no one can make money on YouTube alone. If you want to run a newsroom at CNN’s scale, of which there are vanishingly few in the world right now, and they’re getting smaller, you need some other money to do it. You cannot just distribute everything on YouTube. 

Maybe if CNN did distribute everything on YouTube, it would have a much larger audience. So, they’re stuck in a distribution puzzle that maybe no one will ever solve. Unless you own lucrative enough distribution, you cannot afford to run a thing the size of CNN. This is why their business is shrinking, because to go get CNN, you pretty much have to watch linear cable, and no one’s going to do that anymore. And that thing is under a lot of pressure.

Ellison wanted this business. He was like, “I’m going to buy the whole thing. I’m going to buy the linear business.” The only linear asset of any value is CNN. He made some promises that sweeping changes would come to CNN, to the White House, but there is a war in Iran. His investors are going to be Middle Eastern, it seems like. That all seems like a puzzle that is such a big distraction from the problems you’ve already laid out in the core streaming business. Why pick that up, too?

I think you’re missing the core reason why they bought the linear TV assets. There are two reasons. One, they really believed, and I think ultimately it proved correct. They were the only ones willing to buy these terrible assets. These are such shitty assets. I think I can say shitty, right?

These are such shitty assets. Nobody else on planet Earth wanted to buy these assets. So when Comcast and Netflix were looking at this, because you remember you had effectively three bidders, they only wanted to buy the studio and streaming business. They had no interest in the global linear networks business. So, Ellison thought he was giving himself an advantage by buying assets that nobody else wanted. But there’s another piece of this. Go back to where we started much earlier on this podcast, we were talking about the leverage in this transaction. That this is effectively a very highly leveraged buyout. You’re levering up seven times. There is a ton of debt in this transaction.

These linear cable networks, while not good businesses, do throw off a lot of cash. So, they’re in secular decline. Ellison and team don’t deny that. These are secular declining assets. They need that cash flow. The math on this transaction actually wouldn’t work without those assets. You couldn’t lever up to this leverage without buying those assets.

And so, I think it is very much like solving a math equation and knowing you had to have those assets, plus the view that, “Hey, you’d be in a better position to buy this company because Netflix didn’t want them.” And so, actually, I think their willingness to buy it all helped them relative to Netflix’s bid.

I mean, it seems like it didn’t help them because Netflix had won, until the Trump administration got involved.

Look, that’s the narrative that I’ve certainly seen people talk about. I don’t think that was the reason why this deal fell apart. The Trump administration could have sued them. Remember, just go back a little bit in time. The Trump administration tried to stop AT&T from buying Time Warner. And actually, it went to court, and thankfully, we’re still a nation of laws, as my partner Walt Pisik likes to say. 

And ultimately, who won? Time Warner and AT&T. The transaction went through against the government, and actually against the DOJ’s, obviously, lawsuit. And so I think Netflix would have won and ultimately could have gotten this transaction, because there was no monopoly at Netflix. But you know what? It doesn’t matter. Netflix walked away. And I do think that Ellison, being willing to buy all of it, was an advantage, and ultimately was determinative for the board.

Let me ask you some tactical questions about what happens next in this deal. And then I want to zoom out to it, so one big idea to wrap up, because we’ve touched on it several times now, and I’m curious about your take on it. 

But tactically, Ellison made an appearance on the Warner lot, and he said, “This has been a turbulent process, but it’s over now.” And I thought to myself, “It’s not over.” The Trump administration might rubber-stamp this, but some of the states are going to sue. The European Union has a point of view on mergers that is very different from the Trump administration’s. 

What is actually next? Is it over, or are we going to have some fights?

Look, I’d be surprised if this transaction didn’t close. Again, I don’t think there are monopoly issues here. Is there a lot of scary aspects to Hollywood combining two studios, and is there going to be mass bloodshed on the cable network side?

Yeah. How many layoffs are there going to be?

Cable network side? Look, actually, let me ask you a question. How many people do you think work at CNN today globally?

Tens of thousands is my guess.

No, that’s too many — 3,000 people.

Okay.

Three thousand. My guess is that in two years after this transaction is closed, that number will be less than half. They’re going to just gut CNN. It’s going to be a much, much smaller business than it is.

You think they’re going to roll it into CBS News?

It’s hard. There are union issues. I mean, Les Moonves used to talk about merging CBS and CNN. People thought that was going to happen for years. Union labor is a huge issue; one being a union and one not. So, how that works out and how you combine those, I honestly don’t know. So, we’ll see.

But look, I do think this transaction closes. I don’t think there’s a regulatory way to stop this transaction. But the main question, answering your question, is how soon does it close? Paramount thinks this will close before the end of September. I think the way the stock is trading, with a double-digit spread to where the $31 is, would tell you investors are worried this is a Q4 or even a Q1 2027 event. And so, how long this actually takes to close is still an issue of major debate.

Right. I do think the states are going to make a lot of noise and extract some concessions, particularly California. 

But what’s the concession? What concession would you give here?

I can think of a bunch. I think California wants to make sure a bunch of labor stays in California, and not turn into AI labor. I think they will find some way to extract that concession.

I think there are a lot of questions about whether they’re going to close the lots, which they keep talking about, but never quite confirming that they’re not going to close one or two of the Paramount or Warner lots. A lot of people work at those lots. There’s a lot there that you can break up.

You wouldn’t close a lot. If you didn’t want to own two lots… I mean, yes, I’ve heard the stories of building a theme park on one of them. But leave that aside, there are plenty of companies that are in this space that would love one. I mean, Netflix would love to own a studio lot.

Yeah.

There’s no doubt about it. So if there was a studio lot for sale, I have no doubt that a player on the up and coming would love to own a studio lot because they’re scarce resources. So I think the real question is just if they don’t sell the lot, they keep it, do they actually keep making as many movies as they say?

Now, look, the right answer should be whether or not you’re making movies for movie theaters. You need to make a lot more content than Paramount and Warner Bros. collectively make. If you want to be a player in streaming, you need to be creating double the content. Now, maybe not all of that in California. Netflix is all about global content. They’re building a huge studio in New Jersey.

I think this is less about keeping specific jobs in California than about whether there is going to be a massive ramp in content. Paramount says there will be. They need to make a lot more content than they’re making today. Now they have to put their money where their mouth is.

Here’s my other very tactical question about all this. Tom Cruise makes Mission Impossible movies. He makes Top Gun movies. He’s done it with Skydance for years. I’m confident he’s very excited about having a big studio partner in David Ellison. He’s not allowed to shoot anyone who appears to be Chinese in those movies because that’s a big market for those movies. This has been a culture war issue for years. We make the big blockbusters, and maybe we’re sanding off the edges to avoid offending the Chinese audience.

These investors are going to be Middle Eastern. Who’s Tom Cruise going to shoot in these movies? Because that seems like another hot-button culture war issue that the Ellison family is running right into.

The reality is, one, they won’t even comment on who the investors are actually going to be. So we don’t know the answer to that. Let’s see who the investors are. Supposedly, these investors have no governance or no ability to vote on anything or have any influence. 

Whether they have a soft influence is obviously an issue of much debate that I’m sure regulators will have a field day with. But, look, at the end of the day, there is a lot of content that needs to get created. There is plenty of content that doesn’t have any of the issues that you’re talking about.

I’m just saying in Top Gun: Maverick, he finds a disused F-14 on a base.

Sure.

There’s only one country with a disused F-14 sitting on base. I literally see that you can point this problem at CNN, and I think a lot of people have pointed this problem at CNN, but if you want the blockbusters that Ellison seems to want, you are actually wading into geopolitics in another very specific way.

Sure.

And you might have an investor base that does not want you to wade into it in that way.

Look, I don’t think investors care about the geopolitical as much as they care about one thing, which is actually growing this business. The debate from investors is really one thing. We all know these companies are fat, and they can cut tons of costs. Everyone has proven that. What no one has proved is that you can actually grow, sustainably grow these businesses.

That’s what investors want. Can you make great content that people want to see, that drives subscribers, that leads to a good long-term streaming business that can overcome the collapse of the legacy businesses that you own, ones that you can’t do anything about? You can’t-

Yeah.

I don’t think you’re going to get more people to go to movie theaters. You’re not going to get more people to subscribe to linear TV. You can’t fix the endemic problems in this industry right now. The question is, can you build the new business big enough and have it grow fast enough to outrun the melting ice cube? That’s the number one question.

So this is where I want to end. This is the big idea that we’ve been coming around to this whole time. When you talk about the big businesses collapsing, my thesis is that their distribution collapsed. It all ended up on distribution platforms that basically don’t pay you money. 

Netflix is the last great distribution platform that pays high rates for content. Everything else pays you nothing. YouTube might pay you a couple of dollars because they started with a creator program, and they can’t turn it off. But YouTube Shorts pays a rate that is effectively nothing. 

Meta pays you literally zero.

Yeah. Instagram pays you literally zero.

Zero, literally.

TikTok, maybe.

And you still upload the content. That’s the best part about it.

And everyone’s still doing it. There’s an army of teenagers who are going to work for free, and that’s what you’re up against, no matter what. A lot of people have figured out ways to build different kinds of businesses in that environment, some of which are scaling, and some in which the production quality is increasing. There’s a universe of talk shows on YouTube now that have figured out how to make a thing that looks like a late-night talk show with that cost structure in those economics when the distribution is not paying you money.

How does anyone solve this? How do we get movies when I can open up TikTok and see most of A Few Good Men for free? It just doesn’t seem to matter when I can open up Instagram, and the IP theft is so rampant that creators are making AI videos with celebrities left and right. It doesn’t seem to matter, and no one’s shutting it down. The distribution problem is so big. 

You’re right. On the other hand, it’s actually a relatively simple answer. Make content people want to see. I mean, look at KPop Demon Hunters. Probably not the most artistically amazing movie you’ve ever seen. But you create content that has good music, interesting storytelling, something fresh and new that looks different than what they’ve seen before, and you had a hit that was the biggest movie of last year by a wide margin. Never played in movie theaters. Yes, I know it was in movie theaters for a couple of weekends-

I went with my daughter. It was-

By far, the biggest movie of 2025 was a Netflix movie. That’s something that Hollywood really hasn’t adjusted to. Look, the reason it was as big as it was, I believe, sure, the movie was good and all of that, but I actually think YouTube, social media, and Spotify had a huge impact on blowing the content up and really accelerating the reach.

I mean, I think that’s one of the things you’re seeing. The hits are getting bigger than ever before. The problem is they’re fewer and farther between. The reason Netflix has been more successful than everyone else is that they take a lot more shots on goal. And so, this all comes back to if Ellison wants to be successful, he’s got to take a lot more shots on goal, because this is a much harder business, but you can still have success.

Yeah.

You just have to take a lot of shots on goal and create a ton of content that keeps people engaged every single day.

Well, Rich, I have a feeling you and I are going to be talking about this deal as it winds through approvals and then execution many, many times in the years to come. Thank you so much for being on Decoder.

Thank you for having me.

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