Warner Bros. Discovery Bidding War: Paramount, Comcast, Netflix & Antitrust | Adonis Hoffman

I do want to talk to you about what's going on. Another media issue, and this relates to Warner Brothers Discovery bidding war. So a major deadline is approaching. Some of the biggest names in media are trying to figure out do they want to buy Warner Brothers. Paramount, Comcast and Netflix are all preparing their bids. There's a lot of ins and outs of this also relates to antitrust and consolidation. In just a few minutes, I'm going to share with you a conversation I had with a top attorney and former top legal counsel to the Federal Communication Commission in Washington, D.C. adonis Hoffman. He'll be joining us in a minute on a recorded interview I did. And now it's time for our media roundup. Joining me today is Adonis Hoffman. He is the editor and publisher of American Capital Media, and he's a former senior legal counsel to the Federal Communications Commission. Adonis, how are you today?

Doing well, T.J. thanks for having me.

Let's dive right in. Warner Brothers Discovery has now launched a full strategic review, and its board is openly weighing everything from a breakup of the company to an outright sale, a part of that process. They are quietly rewriting CEO David Zaslav's contract so his stock options stay protected if there is a change in control. Now, this is an attractive media property. All kinds of people want it. Initially, people said there's no way Netflix would want this. They've expressed interest. And Paramount, which seems to be interested in everything these days, is also interested. What do you foresee here?

Well, first of all, this is a really interesting time in the media space. There's so much consolidation going on. You can imagine that those who have the wherewithal, those companies that have the wherewithal, are essentially looking at their shoppers. They are on shopping sprees. And Paramount, Paramount sky, the most recent iteration of that, is now one of the largest acquirers, potential acquirers of other assets, and they have tremendous aspirations to be bigger. So when the prospect of Warner Brothers Discovery became a reality that it was possible to acquire a company like Warner Brothers, Paramount was the first to toss its hat in the ring. And in fact, under its new leader, David Ellison, who happens to be the son of one of the world's most wealthy individuals, Larry Ellison of Oracle, I think he's the number two or three, depending on the day. Number one, richest man in the world. David Ellison has noticed the world that he's very interested and probably very capable of acquiring Warner Brothers Discovery. It would be a wonderful feather in his cap and certainly would.

That does raise the question, is it A feather and a cap and a prestige, a vanity thing. There have been some, like tech commentator Scott Galloway, who say that all media these days is just a plaything for Nepo babies because they're not really that profitable. It's something you do when you already have billions of dollars from daddy. Do you think that's a fair assessment?

Well, not necessarily. I mean, I watch the media space fairly well. I mean, there are real dollars involved in media. I mean, you wouldn't have very smart business people, David Zaslav and others involved as media owners if there was not profit in the, in the, in the business. So.

But it doesn't seem to have the exciting growth that some streaming properties do, or what Tic Tac does. I mean, TikTok, if you look at what CNN is doing in terms of its viewership, which is one of the properties under this umbrella, it's societal impact, its positioning in the zeitgeist, it's just overall viewers and advertising revenue. It's in a shrinking market, isn't it?

You put your finger on one of the, really, the tough challenges and issues that the media industry is fac so linear television, for example, what we grew up watching, the networks and those in local television, is a declining business by every single account. Every financial analyst, they all recognize that it's a declining business because consumer tastes, viewer tastes, are changing. We want to have our media on our telephones or on our laptops, et cetera. We don't want to sit in front of a television and watch it. So that's the, That's a reality.

That's a marketplace, or at least not from the Channel 3. I mean, there is a lot of research showing, even with my own show filtered, that people are watching it on a big tv, but they're watching it because there's an app on their TV that says YouTube or that says HBO or Apple Plus.

That is correct.

They're not looking for where's my ABC affiliate?

And it's that capability that is really presenting the traditional legacy media companies with their most formidable challenge to date, which is, you know, how do you maintain your business model on one hand and then deal with streaming challenges from technology companies, firms who will have much deeper pockets who have, you know, they really have. They have their finger on the pulse of most viewers. How do you stay in touch? How do you stay up, keep pace with, with that level of competition? And that's really what's happening. We see that Paramount, Warner Brothers are studios and movie producers along with television producers, but we see it in the local markets as well. And it's a challenge today. Now, I do want to point out, I think, an important point, and that is the business of local television, for example, which is declining, is still very much a cash producing cow. Now, is it at the same level as a Google or an Amazon or Netflix? No, Those are the 20,000 pound gorillas, if you will. But there is a. There's some value in both financial value and other societal value in having these other legacy types of media productions.

Well, there is some big legacy there, obviously, with Paramount having already acquired CBS and you and I remember the days of Walter Cronkite where that was the ultimate authority for a lot of people. Slightly younger CNN was that voice of authority. And now that could be acquired potentially by the same company. And in the current regulatory environment, it seems like they're going to have no problem buying whatever they want. But in, let's say, normal times, there might be a lot of concern that one company is essentially controlling so many news organizations now with sort of a clear political favoritism for one faction. Do you think that's even going to be discussed or that's irrelevant as long as we have the current administration?

Well, it's not irrelevant because we still have antitrust laws and we still have review that are conducted by the Department of Justice, by the Federal Trade Commission, by the Federal Communications Commission. The standards are changing and the standards can be the regulatory standards. While there are regulations in place. There's also, as you can imagine, an evolution and some say a pendulum that swings back and forth depending on the political party in power. But the fact is that under this administration there seems to be an appetite for consolidation, at least in terms of the party line. Now, we've seen that has not always played out true to form because there have been some fits and starts in the Paramount, even the Sky Paramount acquisition. There were some conditions that were not necessarily traditional. Normally I've been involved with a lot of mergers from the regulatory side. Normally you look at the public interest, you look at competition, you look at monopoly power, et cetera. Well, those things were looked at, but there were some other conditions that were imposed by the fcc. For example, the dissolution of certain diversity programs, the dissolute making sure that conservative voices would be preserved in the successor company. Those are relatively new behavioral conditions that were imposed on this merger. Divestiture was not so much a part of it. And typically in a merger you get two things. You either have to divest assets to stay under a certain cap and you have to adhere to some conditions.

And that will relate to an issue we're going to that will relate to an issue that we're going to speak about in just a few minutes revolving around nexstar. But Adonis, for our viewers who don't know, you advise a lot of media companies on mergers and acquisitions. What would be your advice to someone like David, the owner of Paramount, on if he does buy all of Time Warner, should he then instantly spin off and just sell cnn, for example, as parts? Because there have been those who suggested he doesn't really want the headache of every time CNN does a negative story about someone he likes having to get criticism from either party. He already owns cbs. Does David Ellison really want the headache of owning two separate big brand name news organizations or would he be better off just spinning it off?

Well, it's an interesting question, TJ I don't know David Ellison personally. I know some people who work very closely with him and I don't, you know, pretend to be in his head. But I would suggest that from all outward signs, it appears that he is very acquisitive and very aspirational and ambitious. And I don't think that the notion of owning two competing or two, you know, two big cable producers in the same space would be in any way a detriment or, or a, an impediment to what he wants to do. Now, that having been said, I think there are certain economies of scale so that the bigger you are one, you've got so much leverage in the advertising space, which you alluded to earlier. You also have the capability to push out as much content over as many distribution channels as you can. So there is value in scale. And last but not least, we know that the tech firms, the tech companies that are increasingly becoming more interested in media properties and media acquisition. You know, think of the NFL watching the I used to laugh Thursday night at football, I watched NFL on Amazon Prime. And that is a trend that is going to just continue more because they can afford to pay so much more than the legacy media company. So I do think that scale has tremendous value in this marketplace from a competitive, competitive standpoint. And it's just a fact of life. Consolidation is going to happen. It's happening. It happened in the airline industry, it's happened in the banking industry, and it's just a fact of economic life. Now, we may not like that. And with consolidation comes some really important societal challenges, which is you talked about it, diversity of opinion and perspectives. That's something that we have to deal with. But it is very Much a trend. And I don't believe that, all things considered, that Mr. Ellison is going to have much difficulty. His difficulty is getting to the price that Warner Brothers Discovery believe that they're.

How do you price something that appears to be a declining. I mean, Time Warner makes a lot of things. Yeah, they own cnn, but they also own hbo. They have movie studios. They have a lot of things. And just news just came out today that for the last three months, 25 major Hollywood dramas and comedies have come out with big stars. The Meryl Streeps of the world, some of the top stars, every single one of them has failed to break through and to be a hit. I mean, not one. It's, you know, you think of movies as okay, you know, one out of three or one out of seven will do well, but you don't typically think of zero out of 25. So there are a lot of people saying this, this whole decline of the film industry is going to happen much, much faster. Coupled with news from earlier this week that the number one hit song, hit country music song in the entire country, according to Billboard, was completely AI generated. I mean, I look at those two factors together and that tells me, other than my own show, I would not want to own a media company because it just seems like they are on the wrong end of history now.

Well, you point out some very interesting and compelling facts. So audience appetite is changing. It's evolving, or it's certainly changing with respect to how audiences want to consume media. Two, the business of media has changed considerably. And the old rules that we thought would rule the day are changing. And companies are now entering this marketplace that have not been before. So I would say that essentially we've got a dynamic, immediate environment. Consumer tastes are changing. And by the way, streaming has not been necessarily the most profitable for most of the companies in.

I mean, well, the old legacy companies have. The old legacy companies have not really done well with streaming. They've lost a fortune, but arguably because they waited 20 years too late after Netflix got into it, before they got started. Right?

Sure, sure. Well, you know, you got the subscription model and just getting into that, into that space. So they're all trying to figure out in real time how to capitalize, how to leverage the values that they have and the assets that they have. And it's a story still being written. Honestly, TJ and I think you certainly are on the forefront, at the forefront of media understanding. You start off asking a question about valuation and valuation.

By the way, David Ellison, if you're watching, I will Sell this show for less than $350 million.

And I will, and I will co sign TJ. I will help you on that. I'll certainly co sign that and endorse it. But in terms of valuation, I'm no expert. Just for sake of integrity, I'm not an expert at or valuing media properties. But based on my experience looking at how these things have unfolded, media values are based on one what the board of directors says says it and what they want, what the market can bear. So, for example, a company that's going for $24 a share and that, that's trading at $20 a share, for example, may want to demand a premium of 25 to $25 a share or maybe up to $30 a share. And if they can get that in the marketplace, hey, bully for them and bully for the shareholders and, and the like. And that really is what drives it. Now, all the factors, market share up to that point, those are, they're varied. They're many and varied. However, once you get to that point, then it becomes a trading game. Who wants it now? Ellison has offered three times now. I think he's up to 24 was the last bid, perhaps 24, 25 per share. And it been reported that David Zaslav and the board of Warner Brothers Discovery wants to at least get $30 a share. So if that's the case, then we're in for a bidding war. And I think they're, they've put a deadline.

Well, I mean, the ideal bidding war, if you're tying Warner, is five different media companies and it certainly does bidding for you rather than just yourself with one bidder. There are many who speculate other big media companies just can't justify even the current price. They see it as, as declining. What other changes do you see happening right away if it is acquired in the most likely scenario with Paramount consuming them? I know some of my friends are worried that, wow, the first thing that's going to happen is Bill Maher is going to be fired. He's going to be. They're going to come out with a box of his things and walk him out of his studio for real time with Bill Maher and HBO and say, see you later. We don't need you anymore. And maybe that's too in the weeds. After all, south park still exists on Paramount Properties, but it does concern people about consolidation of viewpoints and ideas, which does lead us to the next story that we have to talk about where you're also an expert. By the way, our guest Today is Adonis Hoffman. He's a well known advisor to media companies. He's a former senior legal counsel to the Federal Communications Commission and he's the editor and publisher of American Capital Media. You can find out more about him by going to adonishoffman.com and we'll put that in the show notes as well. So next up, nextar Media is trying to buy rival broadcaster Is it Tegna? Am I even pronouncing it correctly?

Tegna? Yes.

Take in a $6.2 billion deal that would create by far the largest local TV owner in the United States. There is a catch. The combined company would reach 80% of American TV households. That's far above the current national ownership cap. Many people don't realize this, but no matter how rich you are, you can't just buy a TV station with a news broadcast. In every company or in every city in the country, there's a cap. You're not supposed to go beyond 39%. If this merger goes through, it would be 80%. Now. Things have changed a lot since you and I were watching TV as kids and we only have three choices and no Internet and no blogs or anything else. Walk our viewers and listeners through the evolution of this law and why it may or may not be applicable anymore.

So the thanks for that good survey introduction. TJ Essentially what we have in the regulations that govern television ownership and let me just draw some, let me sort of be very precise about the language because most Americans, if you don't work in this space, when you say television, you think of everything, everything that you see throughout on, on your, you know, on your device. Television in the context of the Federal Communications Commission or broadcast in the context the FCC and the regulations refers only to over the air broadcasters. So that's your local television station, wherever you may be, whether you're in New York or Ohio or Florida or where have you it's your local broadcast television who have licen from the government to broadcast. They compete for the licenses and they are offered a license and then that gives them the right to broadcast over the public airwaves. So it does not involve cable television. So let's, you know, make that clear distinction. We're not talking about cnn, we're not talking about MSNBC or even Fox News. And so the regulations governing television are pretty well defined. You know, that's why you in television, you can't say certain things because there's a, there's a decency and restrictions and, you know, profanity, etc. There are certain Advertising restrictions that apply to local television. That's why you can have, in the cable context, profanity, violence, etc. Unfettered, not so much in television.

So that's the public airwaves that were auctioned off.

Public airwaves.

At what point was the rule put in about you couldn't own stations in more than 39% of the country?

Yeah, the 39% cap, so to speak, has been an evolving standard. I don't, you're testing my recall in terms of the date and I should know that essentially it's been a reality for as long as I've been, it's.

Been many, many decades, though, many decade.

That that has been in place. And essentially what it, what it says in plain language is that no one broadcaster can own local television stations that broadcast to more than 39% of television viewing homes. So when you talk about 39%, you're talking about 39% of television viewing homes. So essentially the American sort of, the American public, I think this, this made.

A lot of sense because you didn't want to have like a William Randolph Hearst a few years later owning the news in every single market, just saying, well, I'm going to declare war and getting the whole world to buy into it because a third of the country is receiving that it's too much perceived power for one person or one organization.

Correct. It was, it was put in place at the time when there were concerns that one entity could do just what you said, control Messages and programs, etc. But those times have changed. We're now at a point where, for example, any Internet provider can, does provide its content to everyone. Anyone and everyone. And the argument that the broadcasters have been making, and I think it's a very legitimate rational argument, is that why should that one industry be saddled with regulations from a bygone era that apply only to them and don't apply to other media producers and content providers? It's a, it's a fairness issue. Excuse me. And it is something that makes sense in today's modern marketplace where the market, the media market has changed.

Well, it's definitely changed because, you know, certainly there was a time when I, I couldn't even imagine a day going by without me watching local news and network news from my local broadcast station. I haven't done that in years and I'm a news junkie, so I, I, in a sense and read, and read.

The, the physical paper on Sunday.

Right, Right. So they do have a lot more competition, there's no doubt about it. Because there really was an easy time when TV stations were the proverbial cash printing presses. You got a station in a mid sized market with a market growing and you were the family that got the license. Life was easy because you had a third of your population, a city of a million people, you had 330,000 of them watching your news every night. And it was an easy way to print money. Those days are long gone because now you have infinite competition with every YouTube, every TikTok, every video game, and they're fighting for little scraps. In general, I'm someone who thinks the United States government should be more aggressive at antitrust for things like Facebook. I don't think Facebook should have been allowed to acquire Instagram or WhatsApp. But I now feel sorry for local TV stations if they can sell to anyone, somehow get a lifeline, somehow get some synergy going so they can stay alive. So I do kind of feel that it's time to remove that 39% cap.

Well, you've just made the argument very persuasively and cogently and with great articulation that the broadcasters have been making for, are attempting to make, and they've actually been making this argument for quite some time to Congress and to the fcc. Now, under previous administrations, there has been not much receptivity to doing that. And even when I served at the FCC under the Obama administration and Democratic administration and previous to that in the Clinton administration, there was no appetite whatsoever for even looking at adjusting that cap. There is now and to the point, you made the most compelling argument, and I completely agree with it, and I've made this case both in print and otherwise, is that these broadcasters, and your sympathy is not lost, they are fighting for their lives against very well financed, you know, wealthy, large conglomerate or technology companies that could spend millions of billions of dollars and who have no regulatory restrictions. So you made the point. And, and I think it's one that hopefully will, will see early next year, mid next year changes so that these, these legacy companies, look, let's just look at it this way from a purely competitive perspective. If they cannot compete, then they can't compete in a level playing field. But what the broadcasters are saying is that they don't have a level playing field because they're restricted. They're carrying around the regulatory burden that does not exist with their competition. And that's a very smart and compelling argument.

And I would have scoffed at that argument 30 years ago, 20, maybe even 15 years ago. But in the current environment where Jeff Bezos has got a trillion dollar company and for what is the equivalent of you or me reaching into our pocket pulling out a little change. He could buy the whole thing, be in a grumpy mood and fire everyone, and it wouldn't even have an impact on his net worth or his company's market cap time change. There's no doubt about it.

You put your finger on another issue, tj, which you mentioned earlier and I wanted to come back to, and that is the tendency of media owners to come in and fire everybody or to, you know, change the organization so that it reflects a certain character. You know, I mean, that, that again, is a marketplace economic reality where we may not like the perspective that a, an owner has, but it certainly is his or her prerogative to come in and do that. And again, the market will determine whether that is a successful endeavor. So, for example, a company that wants to go completely to the right 247 has to engage in the marketplace and put out programming and etc. That will appeal to that particular consumer viewer base. Likewise, those who choose to go to the left, and the challenge is for those who really want to go down the middle. And just as a point of reference, company like nexstar has a cable property, Cable News Nation, which attempts to be the, you know, sort of the middle of the road. Not too far left, not too far right, but the news just as it is. And they're getting some traction because studies are showing that many Americans, particularly those of the middle independents, want. They want their news straight down the middle. They want. They don't want a left spin or a right spin. They want the news. Now, obviously there are those on the left who want to hear that perspective reflected and those on the right. But for many Americans, they want. Just give me, just tell me what happened.

Well, people, I mean, I'll quibble with that. People say that in the same way. They say, you know, I want to lose weight and I'm going to buy this diet book. And then they go to a Cheesecake factory and not exercise and eat. 10,000 people say all sorts of things. I mean, what Google and Facebook have understood is don't listen to what people say. Look at what they do. And they look at the algorithms. So if TJ just clicks on article after article that says, TJ has the best head of hair in the world, let's feed him more stories that say TJ's got a great head of hair. People want confirmation bias. They want to be told what they already think is true. And that's unfortunately the reality of all the social media feeds us through algorithms, what it tells we already want to hear whether it's true or not. I think that's the bigger problem, not a so called absence of straight news because one of the things we found, we're not going to get too deep in the political weeds here, but one of the things we found certainly in the last five years is there are tens of millions of Americans where if you give them straight news, just facts, but it means their team lost or they don't like the implications to their team, they will just say you're biased. They will say you're ideologically extreme on some faction even if you're giving straight news. So I don't have the complete answer for that and we can't work on.

That, nor I would say just very briefly that there is, we should always keep in mind the distinction between news and opinion. And I've learned from some of the conservative leaning organizations that they recognize that there is news and there's opinion. And I think the phenomenon you're referring to is Americans have been increasingly tuned into opinion and opinion programming and they like that. So if you want to hear that, you know, if my opinion is that I think the immigration system is screwed up, then I'm going to listen to those opinions that suggest that. So that's an interesting conversation and I would love to see your research and learn more about the perspective on that.

Great. Well, we'll take that up even next time with more fun. Adonis Hoffman, thank you so much for being our guest today. If you want to find out more about Adonis, you can go to his website, adonishoffman.com he's also the editor and publisher of American Capital Media. And just briefly, what are we likely to see in the next year or so coming out of American Capital Media?

Oh, well, thank you. So our platform has several proprietary channels, if you will, and we focus almost exclusively on business and regulation and policy that affects the world of business, whether it's in the mergers brothers in the banking sector, the energy sector, the health care sector, the media and technology sector. So we produce content that speaks to the interests of the stakeholders in those various industries. And sometimes it's very, it's always all independent commentary and it's a wonderful platform that allows us to get those perspectives out there and if companies and, and entities are aligned with our views. And we certainly welcome their, their advertising and sponsorship support. So thank you for, for mentioning that.

All right, Adonis Hoppen, thank you for being our guest today.

So pleasure I love your show.