There is one thing David Ellison is gunning for, which is to get to be a true streaming competitor to Netflix, the Disney, Hulu, ESPN complex. Like right now, Paramount and Warner Brothers are both streaming-wise irrelevant. Bont caved on basically every form of structural remedies. My biggest surprise is just Bont seemed so vocal on requiring structural remedies. He was on TV a week ago saying it had to be structural.
Look at structural remedies as our top priority.
If you were gonna fold, I don't know why you started.
Today, I'm joined for a special edition of Lunch with Jamie to discuss the topic on everyone's mind. Well, at least everyone in our bubbles, or maybe everybody, which is the settlement that is allowing Warner Mount to go through. I, you know, I was somebody who got out in front and immediately was against this merger from the beginning. I don't like consolidation. I don't like losing buyers. This is my core business selling film TVs TV shows. So, you know, but I've also done a lot of soul-searching, a lot of conversations with a lot of people in the business since this was announced, and I've kind of become conflicted. And I really needed to bring somebody on and basically have like a therapy session. So who better than Rich Greenfield. Rich, who's a partner and media and technology analyst at LightShed Partners, general partner at LightShed Ventures, and the co-host of the LightShed podcast. Rich, thank you for joining me.
Thanks for having me, Jamie. You know, the lead-up to your whole discussion or thought process. In some ways, I think we should almost go back to the future. I'm actually intellectually curious before we get into Warner Mount. How did you feel when Disney bought Fox? Like what was your reaction then, and were you surprised that there was almost no industry pushback whatsoever?
Yeah, you know, it's interesting. I wish I could go back to that moment and kind of remember what I thought for whatever reason. And I guess we just live in a different time and space and era where that, to your point, I don't think that registered that much with me. And I, you know, you probably can answer that question way better. Maybe social media wasn't as forceful. Maybe it just goes to everything else in our lives where everything's heightened and everything's, you know, once it gets, you know, a social media influencer to make it sort of the most important thing, it just catches like fire. What do you think?
So, you know, it's really interesting because, you know, Disney from the very beginning, you know, I think everyone sort of assumed that when you were merging two studios that, you know, you would have a significant contraction of the two. And, you know, while Disney certainly talked about, you know, franchises like Avatar and X-Men, you know, when you look at sort of what's left of Fox, Disney plus Fox essentially, you know, yes, there's still a number of Fox titles that still exist. You know, look, Devil Wears Prada was obviously a big movie this year without a doubt. So there's definitely IP that Disney has leveraged, but when you look at the combined output of the Walt Disney Company, it, you know, it did what every merger has done, which is it consolidated the best titles or the best franchises and, you know, took a tremendous amount of cost out as it consolidated. And it, you know, it didn't actually buy the second studio lot, but, you know, most of those operations have now been consolidated onto the Disney lot. And so I, you know, it's just interesting to me in hindsight there was such a sort of visceral, aggressive reaction industry-wide, especially in Hollywood, to this transaction.
And part of me thinks that part of the reason why you reacted and others reacted the way you did was that it was almost like, hey, we didn't stop the last one and we can't let the same thing happen. We've already gone six to five, you know, in terms of like legacy companies. And sure, we can talk about Netflix and Amazon and Apple and others, but the reality is we've already lost one. I don't want to lose, you know, I don't want this to happen again. And so my guess is that overall this was sort of learned experience of what happened before.
Yeah. Yeah, I mean, listen, I think people feel like we were asleep at the wheel when the last one happened and so we're going to bring out the pitchforks and we're not going to let this happen. And I think that was my instant reaction. And part of that probably was for, you know, how quiet we were during that merger. And listen, undeniably, consolidation is, I don't say never a good thing, but I mean there, you know, there can be pros for it obviously. There are reasons consolidation happens all the time in all industries and losing a buyer is devastating. And no matter what anybody says, you know, just being, if you're a smart business person, you know, no matter what is settled on, what's said is going to happen, they're going to buy less than if they were two individual companies and they're going to hire less people. But I guess the bigger question becomes the strength of the companies on their own. And I think that's the thing that people, now we are where we are. And I think where my evolution has gone...
When my original pitchfork came out with really sharp spokes, I was like, this over my dead body. This can't happen. But I think when you look at the businesses on their own and they're trying to fight Amazon and they're trying to fight Apple and they're trying to fight Netflix, it's become really hard to do that on their own. And, you know, sure, you can point to Sony and, you know, listen, Sony, and you know better than I do, Sony's had some really positive signs in their business, but people always point to that, well, the Netflix deal is one of the big things with Sony and that's why it's, you know, been able to really succeed. But I guess, and this is the conversation that sparked us getting on this podcast together, is the deal, the settlements out there. What, and I want to go through the settlement kind of almost point by point, but I guess in your mind as someone who studies media more than anybody, what was that deal that was out there that was realistic that would have been significantly better for the industry? Like what, like what's the scenario?
I mean, look, I guess if you were to map out and say what would be the ideal, you know, in theory, and again, I say this in theory because we'll obviously never be able to prove any of this, but in theory, you have the wealthiest family in the world or one of the wealthiest families in the world. They started Skydance. They bought Paramount. They certainly could have invested aggressively in building the combined Paramount Skydance into something vastly larger. And, you know, I hear what you say, like you can't compete, there's tech giants. I mean, just remember, let's put Amazon and Apple because they're very different businesses than Netflix. So Netflix is, you know, it is a media company that obviously started from tech roots, but I think it very much aspires, you know, it creates movies and TV shows, it licenses movies and TV shows, and it has a streaming platform. So it very much is a good comp to what the type of companies we're looking at. And just remember, you know, Netflix has made some relatively small acquisitions, you know, Jamie, over the course of the last decade, but nothing of any substance. I mean, yes, they did try to buy Warner Brothers, so not, you know, making, but putting that sort of failed attempt aside, Netflix has been built by investing a tremendous amount of capital in brick by brick, day by day, year by year, building a colossus streaming service. I think there is no doubt in my mind, given the financial resources, looking at who David Ellison and team have hired, if they wanted to build and replicate Netflix, they certainly could have done it on their own. And Warner Brothers, whether as an independent company or owned by somebody else, that obviously would have been, my guess is, the ideal scenario for people like you.
Now, if you go to why this transaction happened, and look, I've spent a lot of time with David Ellison. I have tremendous respect for what he's accomplished and what he's trying to accomplish. The reason he said he wanted to do this rather than take the path of building himself, why lever up to seven times? Why buy all of these cable networks on top of a second studio? It was because he truly believed time was of the essence and the fastest way to get to scale was not to take the next five or six years. I mean, look at Eddy Cue and Apple, you know, they've created some amazing content. Like, there is no doubt when you look at sort of piece by piece, they're probably the closest to sort of replicating, maybe even in some, you know, ways, getting to sort of HBO quality now, but it's still a relatively small platform. They don't have a deep, there's no real deep library. Sure, they're building their own. I think this was sort of the recognition of the only way to get to scale quickly was to make another acquisition and that's why this transaction was happening. Obviously, it would have been best to have Paramount building and Warner either on its own or owned by, you know, a third party investing in Warner Brothers, but that didn't happen.
And I guess, you know, to listen, to some extent, I always thought I was like, listen, I think it's better for Warner Brothers to stand up with Netflix. These are two different businesses. Netflix needs the IP in the library to really help them. They're not cannibalizing each other, you know.
And I think Netflix wanted to be in the theatrical business. Like, I think they truly saw the opportunity that if they had gotten that infrastructure, would they have done 30 films a year? I doubt it. Would they have done 15 films a year theatrically? I mean, you know, scaled theatrical, I think they probably would have done that. You know, again, who knows what theatrical looks like in a decade. So I think, you know, it's hard to have that perfect sort of crystal ball, but I think there was definitely an interest in having that. But at the end of the day, you know, the challenge you ran into is, you know, I think this was something Netflix wanted to have but didn't have to have. Whereas Paramount, I think, viewed it as they had to have this.
Listen, I pray that Netflix really does want to get into the theatrical business. I believe in the theatrical business. You know, I'm the eternal optimist. So, I think, you know, theatrical after the Odyssey journey that we've seen and Sinners and some of these other movies and Obsession, that theatrical is coming back again. I don't know if it's going to double in the next 10 years, but I'm cautiously optimistic it's going to continue to go up at least.
And when you say up, I assume you're talking box office, not actual butts in seats.
I mean, listen, that's that great metric people are talking about right now is like box office versus butts in seats.
Listen, I'm again, as I say it again, I'm the eternal optimist. I think people are looking for more experiences they can do in person, communing with other people. And I believe that's something people are desiring and passionate about. You saw kids coming out for Odyssey. You saw kids talking about IMAX. And listen, the biggest problem we're having right now is we don't have enough IMAX screens and 70-millimeter screens. I mean, you know, we are making these movies on these screens and you can't see them on them. I mean, that's, I mean, by the way, I tried to get tickets to Odyssey this week in New York City at 10:00 a.m. this week. I could not get tickets to see the Odyssey at 10 a.m. this week. I mean, I don't understand. I mean, so there are people who are passionate about this business, but, you know, I don't want to get too off track. I guess my point is...
The answer that I still haven't heard is, okay, let's talk about the settlement for a bit. I mean, you know, people, you know, the nerds who are in the weeds of this have beaten this up on, you know, whether it's, you know, your podcast, The Ankler, The Town. But, you know, when I look at the settlement, sure, maybe you could have gotten this settlement and didn't have to go through this grandstanding, and that's what people are angry about, Bont and Wanda Braz's profile. I honestly don't believe that. I spoke to Rob Bont early on in the process. These guys were going through an education process on a lot on this. And I think, you know, if you go, you know, walk me through a little bit of the deal points and kind of explain to me sort of why either you think it wasn't a good deal for the states ultimately, or why it was a bad deal, or what should have been done instead, or what could have been squeezed instead.
Yes. Look, I think the bottom line is that this was as close to a slam dunk, grand slam, whatever sports analogy you want to use for David Ellison after all of that fighting. And, you know, remember the fear here was because the thing that we had talked about, and I think the challenge was it was not obvious that there was a concentric, if you think about concentric circles, the things that Paramount could give up and still make the math work on the deal. The things that Rob Bont struck when he was, you know, he was very clear he wanted structural remedies. So when you think about those structural remedies, it wasn't obvious that those two concentric circles overlapped. And so the challenge was, could you do this deal? Now look, you could always have cured it. Larry Ellison could have put in more cash. They could have raised more cash to cure sort of leverage issues, but it wasn't obvious how they could accomplish the divestitures that the government wanted versus what mathematically worked for Paramount. And so that was the fundamental risk of any form of settlement.
Going to court was obviously dangerous because if you got a negative ruling, you might not have closed it. And could you have extended the term? Maybe, but, you know, there was a lot of ifs and maybes and uncertainty. You know, and once you get into a court process, even if you think you have an incredible case, you may not have an incredible case, right? It all depends on one human, meaning the judge. And that's a real big risk. And so, you know, I think from the standpoint of there was a tremendous amount of risk and the fact that Bont, you know, caved on basically every form of structural remedies. I mean, he was crystal clear from day one, we need structural remedies, and he gave in to effectively behavioral remedies, which again is fine, but that is a clear and decisive win for Team Ellison and Paramount. They now basically are there a little bit more terms around 30 films a year? Sure, there are definitely more sort of, you know, there are specifics around it rather than just doing 30 films, but it's fairly loose. It gives them a lot of flexibility. You know, there's companies like Universal that put out 28 films a year. Now only 14 or 15 of them are what you think of as major releases. There are foreign pickups and films they distribute. I don't think that is terribly different than what Paramount just agreed to structurally. And remember, like what everyone sort of forgets is Paramount and Warner Brothers, if you look at, you know, their public statements about 2027, they were going to make 35 films in total next year. So doing 30 to 32, whatever the number ends up being, like there's nothing there, you know, I don't think it's adding to industry capacity. And my guess is as you sort of again look at the Disney Fox, as you weed out the best product and you really think about how you optimize the release schedule, you know, my guess is that this very much resembles the other majors over the course of the next three to five years. I don't think this will ultimately be a double-size studio in five years.
Well, but I guess the thing that we're not talking about, right, is like, you know, should they be releasing that many movies, right? I mean, should they be a double-size studio? That's the point. I mean...
But that was the craziness of this to begin with. Like, at the end of the day, there's 52 weeks in the year, right, Jamie? Like, that's all there are.
If you have 30 movies, that means you're literally putting out a movie more than every other week. There are, you know, movies need to run for, you know, more than two weeks. So, you're competing with yourself, let alone competing with the rest of the industry. There are not enough good dates to put out 30, you know, blockbuster films a year. And I think that's the reality. If you're trying to optimize your release schedule and maximize the value of your IP, you know, I think the reality is that number is just smaller. And so whether it's 15 or 18, look, I have no idea. I do not do your job every day of sort of analyzing how many perfect dates there are and how it stacks up against Disney and Sony and others. But my guess is, you know, 15 large releases a year and the marketing heft that goes beyond that, not to mention just the creative idea capacity of the industry, or of any one company, you know, like you're going to have to make decisions. And I think the really interesting thing that, you know, no one's talking about, and it's obviously the undercurrent over the last 48 hours, who wins and who loses internally because you've got a massive integration of two companies and it's going to be interesting to see which executives are elevated, which leave, and how this all plays out. David Ellison's got some very, very big decisions to come.
