More Sanguine About Paramount's Warner Bros. Bid: Needham's Martin

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00:00It's one of these situations where there's the Wall Street view on this deal, the structure of

00:06the deal, and then there's the, what does this mean for Hollywood? And the reason I'm so excited

00:11to have you on the program is I think we could probably talk about both. But this is the first

00:15opportunity I've had to talk to you about two competing bids. I set the stage for it on Netflix's

00:20offer, Cash and Stock, and Paramount's offer. What is your position at this time and what is

00:26your research into the competing bids? So, I mean, I think the kudos have to go to Zaslav

00:33for creating this auction for an asset that's worth $12. We're now at $30 a share. And now

00:40we've here over the tape this morning that both Paramount and Netflix have said they could

00:44go higher. So, so far we have a 300% like premium over what the assets were trading at before

00:52the auction rumors. So, first of all, kudos to David Zaslav and the Warner Brothers team

00:59for selling an asset dear. In terms of who wins, you know, we are much more sanguine about

01:06Paramount's or Peace Guy is its tickered regulatory ability to get it through the Trump administration.

01:12You know, we think that there are real issues with Netflix being successful, not only with

01:19Hollywood talent who see this as anti-competitive. I sit in Hollywood as anti-competitive, especially

01:26because Netflix has said repeatedly it does not believe in the theatrical box office release

01:31window. And so all of Hollywood is scared to death that if suddenly Netflix owned Warner Brothers,

01:37that within five years, they would stop releasing films in the theatrical box office, which is why

01:42we've seen pressure on the exhibitors also. So I think Hollywood is really negative, or let me say

01:48it this way, much more negative about Netflix taking over Warner Brothers than Peace Guy. So I would say

01:55that. And on the money side, let me jump in real quick on the money side. We will get to Hollywood,

02:01particularly technology, because, you know, Netflix's competency is the algorithm to an extent,

02:05and the library and the content. But I just want to go back and back to basics and what you said,

02:10$12 with Warner Brothers Discovery. You're not the first person to make this point, Laura, but just explain

02:17the basics to our audience, please. People do feel that the value of what either entity ends up getting

02:24may not be at $27.75 for the studio streaming or 30 for the whole enchilada, as I keep saying.

02:31Right. So, I mean, I'm comparing the trading price for WBD, Warner Brothers, for like a year,

02:41essentially. It was falling, and it hit about a $12 price before the first rumor of a Peace Guy bid

02:47started the stock moving up. And then I can't remember the Larry Ellison first bid or the David

02:55Ellison first bid, but now we're up at $30 a share for the whole thing. And that includes 27 from Netflix,

03:00for studios, plus the idea is there'd be a $2, $3 stub left trading for the networks division,

03:09which would add up to $30 also. But in theory, so anyway, I'm saying we're like at $30 for the

03:15comparable asset that was trading at $12 before the auction began for this asset.

03:21I think there's a lot of value in that answer, because the next question is, of course, about

03:26antitrust and what the combined entities would look like in either case. You said you believe,

03:33or you're more sanguine about Paramount Skydance combined with Warner Brothers Discovery. Why?

03:39Okay. So in streaming, in the streaming industry, Netflix has over 300 million global subscribers,

03:49and HBO Max has 150. So together, there's some duplication there, but let's just call it 450

03:56subscribers, which is like 40% of the streaming market. Whereas Paramount, or Peace Guy it's now

04:02called, has 75 million subscribers that you would add to the HBO, which is 150. So now you're 225

04:10million subscribers, much smaller market share of streaming than if you can buy Netflix, which is

04:17the industry leader with Warner Brothers HBO Max, you know, streaming asset. So I would say that's one

04:24reason. And then the Hollywood Studios, as you know, Netflix is one of the largest global creators of

04:31content. And they would combine it with Warner Brothers, which is one of the largest global

04:36creators of content. They have different windows, meaning distribution windows, meaning Netflix

04:42primarily creates for television, direct to streaming, the television screen. And Warner Brothers

04:48primarily creates content for both TV, but also the film business. It's a big film distributor. So I think

04:56the idea is putting these two huge content creators together would dampen competition for

05:01talent and lower prices for talent and also raise prices for consumer. That is not a concern with

05:08Peace Guy buying Warner Brothers.

05:11Laura, we have less than a minute. Netflix would argue, and I am simplifying that, you know, it would

05:16simplify it for the consumer. You know, having HBO Max, Netflix, people have multiple subscriptions,

05:22but it sounds like you don't think that that argument will make traction.

05:25Oh, no, it would simplify it for the consumer. But if they collapse, the thinking is they would collapse

05:32Netflix and HBO Max. Great. But what happens to the price? The consumer is going to get a much higher

05:39price if you add those two things together. So it's simpler. But really, monopoly policy isn't based on

05:45simplicity versus complexity. It's based on the price to the consumer and consumer welfare. And price is part of

05:51consumer welfare. Actually, simplicity is not in the laws as a driving factor. But price is. And price

05:59would go up for consumers if they combine those two assets, I think.

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