As the clock ticked on a sale of the Warner Bros. empire, Netflix, Comcast and Paramount made a full-court press to snap up the David Zaslav-run studio conglomerate and crown jewel assets like HBO. Behind the scenes, the players made the case to the Warner Bros. Discovery board about why they should go with their multibillion-dollar bid — and the jockeying intensified over the past several days.
Netflix emerged with a deal (codenamed “Project Noble”), unveiling a $82.7 billion acquisition offer early on Dec. 5 that includes a whopping $5.8 billion breakup fee, with Warners shareholders receiving $23.25 in cash and $4.50 in shares of Netflix common stock for each share of WBD common stock. If that deal does go through, it will close in about 12 to 18 months, the companies say.
But, in a preview of what may be to come in that lengthy window before the ink is dried on the closing, there’ll be significant attention on regulatory concerns.
David Ellison’s Paramount, which had been aggressive in pursuing an outright acquisition of all of Warner Bros. Discovery, had sent multiple letters to Warners outlining its case, while also singling out why Netflix and Comcast’s offers are more fraught. On Dec. 1, a 4,000-plus word letter was sent from lawyers hired by Paramount outlining the reasons why Netflix’s offer poses “substantial risks” and Comcast’s bid offers “unique and significant risks” to getting to the end zone of a deal close.
“While a proposed Paramount/WBD transaction would be pro-competitive and likely have a favorable and relatively smooth approval process by regulators, a transaction with either Netflix or Comcast would face grave uncertainty and significant opposition by competition law enforcement agencies in the U.S. and abroad,” wrote attorneys for Latham & Watkins and Cravath on behalf of Paramount in the regulatory letter viewed by The Hollywood Reporter.
Netflix is interested in acquiring the studio and streaming business (the Warner Bros. studio, HBO and HBO Max), whereas Paramount was offering to buy the relatively embattled cable channels division, too (TNT, TBS, CNN, HGTV and Food Network). Comcast’s offer would spin off NBCUniversal into Warner Bros. Discovery in what may be a stock-heavy transaction.
Paramount is seen as the studio conglomerate that is arguably closest with the Trump administration given Oracle founder Larry Ellison and son David Ellison’s friendly rapport with the White House. That’s a card that the Paramount team may look to play as the sale process unfolds. Warners had outlined a plan to have a deal or a spin off in place by the end of the year.
A separate Paramount letter drafted by attorneys at Quinn Emanuel that leaked on Thursday took issue with“a tilted and unfair process” and took several swipes at Netflix, suggesting that Warners management viewed the streaming giant more favorably than Paramount.
Below are a few selections from the attack line talking points in the Dec. 1 Paramount letter by Latham & Watkins and Cravath as the Ellison team makes its case. One example: Netflix withholding Warner Bros. movies from theaters gets cited multiple times in the Paramount letter and may be a major emerging narrative should the streaming giant seal its deal for Warners.
Paramount’s attorneys on Netflix’s bid:
► “WBD has positioned HBO Max as an important challenger to Netflix’s SVOD dominance, particularly in Europe. Regulators around the world will rightfully scrutinize the loss of competition to the dominant Netflix streamer and any Netflix-WBD deal’s impact on both streaming customers and content creators in each of these jurisdictions.”
► “Netflix does not have the same incentive to release films in theaters and will be incentivized to use WBD’s world-class IP library to entrench Netflix’s streaming dominance while also harming theatrical distribution, talent and moviegoers.”
► “Netflix, if combined with WBD, will reduce the number of films for broad theatrical release, further pushing consumers away from theaters to streaming and harming those theaters which are already struggling. Given that the co-CEO of Netflix has called brick-and-mortar movie theaters an “outdated” concept, Netflix ownership of WBD’s studio would continue the trend toward more empty seats in theaters as Netflix shifts its movies away from initial runs in theaters.”
► “Netflix’s recently reported statements that it would continue to honor WBD’s theatrical commitments if it acquired WBD do not alleviate these concerns; they underscore them. These statements are inherently time-limited, transactional and defensive—aimed at blunting an obvious theory of harm that enforcers in the U.S. and outside the U.S. are expected to pursue. U.S. and European Commission enforcers will certainly look past short-term assurances and focus on ordinary-course documents to assess Netflix’s real incentives.”
► “Netflix’s attempts to define a market to include social media and short-form video platforms is doomed to fail – regulators in the US and abroad have rejected such a dubious approach, and they will do so here.”
► “When combined with the No. 4 player in the SVOD market— HBO Max—the resulting company would have a 43% share among global SVOD subscribers. This makes a deal presumptively illegal under U.S. law, which is even less restrictive than the laws in the myriad other jurisdictions that will evaluate the deal.”
► “Netflix has tried to obfuscate its dominant position in streaming by pointing to plainly different businesses like YouTube, Facebook, and TikTok. The U.S. Department of Justice, the Federal Trade Commission and other antitrust regulators have repeatedly and consistently rejected these kinds of unbounded, “everyone is a competitor” type of arguments. They reflect neither reality nor the historical practice of competition enforcers, and if regulators were to accept these claims it would mean giving up on merger enforcement in media and social media alike—the regulators have not and will not do that. WBD should expect that antitrust regulators around the world will start with the reality right in front of viewers around the world: Netflix is the world’s dominant streaming platform, and Netflix acquiring WBD assets will entrench and extend Netflix’s global dominance in a manner not allowed by domestic or foreign competition laws.”
► “Netflix’s likely response to the obvious facts of its dominance and the increase in market power that buying WBD assets would represent will likely be to deny the facts. You should see clearly through this, as any antitrust regulator will. Specifically, Netflix may argue that regulators should ignore the SVOD market and instead utilize a gerrymandered market definition that includes services like YouTube, TikTok, Instagram, and Facebook. This claim boils down to trying to mask Netflix’s dominance in SVOD by grouping together all internet-enabled video, media, social media, or otherwise. No regulator has ever accepted such a broad approach to market definition, and to do so would require regulators to give up on merger enforcement in media and social media alike.”
Dec. 5, 6 am PST This story has been updated throughout to reflect Netflix’s deal announcement.